Regulating online poker and sites by "taxing" the rake?

[bluefall]

It would be 5% total...2.5% for Uncle Sam, 2.5% for the site. I just don't see how it could be done without charging more than $3 on a $100k PLO pot. And I don't see how Uncle Sam would allow a cap on their cut either since he doesn't give a lick about our winrate.

[Lottery Larry]

So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[bluefall]

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So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

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How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.


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I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

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But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

[NickMPK]

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I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

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But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

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So you are suggesting that internet gambling winnings be exempted from income tax? This is never going to happen, nor should it. Gambling winnings (at least net winnings) are income. To not tax them on the same scale as wages would be unfair to everyone who has a real job.

[bluefall]

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I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

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But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

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So you are suggesting that internet gambling winnings be exempted from income tax? This is never going to happen, nor should it. Gambling winnings (at least net winnings) are income. To not tax them on the same scale as wages would be unfair to everyone who has a real job.

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Everything in the tax code already is unfair to somebody. Why should the rich have to pay a higher percentage of their income? Why are session winnings reported as income but losses as deductions? That's unfair to poker players already.

How much are poker players contributing as tax now? $500 million? What about the $$ the IRS loses when people claim the maximum deduction? I have no idea what either value could possibly be. But let's assume the IRS nets more with this method than they do by the current standard. Why would Congress not agree to a system that nets more tax, regardless of how fair it "seems" to be to the regular worker?

I never thought this far ahead but I would assume the poker player would be ineligible for any normal deductions. Maybe a tax accountant can offer their insight.

[NickMPK]

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How much are poker players contributing as tax now? $500 million? What about the $$ the IRS loses when people claim the maximum deduction? I have no idea what either value could possibly be. But let's assume the IRS nets more with this method than they do by the current standard. Why would Congress not agree to a system that nets more tax, regardless of how fair it "seems" to be to the regular worker?


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Well, the system that would net the most taxes would be to tax the sites and have gambling winnings be reportable as income (or tax each pot and have gambling winnings reportable as income). Why wouldn't Congress just do this?

Congress is never going to exempt gambling winnings from the income tax. Never. Such a proposal will lose 90% of the politicians who already support online gambling. You also add additional complication to the tax code, which no one wants (since you are now distinguishing online gambling from land-based gambling).

To find a realistic potential system of taxation for poker sites, you might want to consider looking into how gambling operators are currently taxed at the state level.

[Lottery Larry]

"but I would assume the poker player would be ineligible for any normal deductions. "

If they are a professional gambler, that isn't true. The gross wins/gross deducted losses is only for casual gamblers.

"Why should the rich have to pay a higher percentage of their income? "

They can afford to do so, having more disposable income...and since they most likely didn't earn it all by themselves, I don't have a lot of sympathy.

[Lottery Larry]

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So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

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How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.

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Mainly because, once implemented, sin taxes have NEVER, in my experience, been removed or had the rates reduced. Once you open the gate, the greed factor sets in. Look at cigarette taxes, liquor and other such items.

I don't know what rake the online sites are getting now, but I can't see them taking too much of a cut. Even though they'd probably make more money overall, going uncapped... wouldn't they be more likely to just tack on the gov't tax?

If you could get the sites and the gov't to agree to 'swap out' part of the rake as income tax, then maybe the effect wouldn't be too severe. But remember, paying a smaller rate on a larger pile of money is how we build billion-dollar casinos.


Let's look at some numbers-

I) You play two limit poker sessions $5/10 5% rake capped at $6. Each play lasts 1 hour. Online, we'll give you 6 winning pots per session - the rest, you fold or lost at some stage.

Winning pots, each session: $136, $80, $250, $101, $57 and $105 ($700 gross, after the rake of $29 taken out)

Losses: Session one, you lost a total of $450 on the other pots

Session two, you lost a total of $930


<u>CURRENT SYSTEM: </u> You report a $250 session and a -$230 session, for a gross win of 1bb per hour. What is the cost, including US income tax at 25%?

Tax: Approximately $5
Total cost of playing: $63 ($58 in rake, $5 in income tax)
Net win: $15

<u>YOUR SYSTEM </u> 5% uncapped rake, no income tax added on.
Now, your rake at each session is $36, total $72 raked:

Rake to casino $36 (a $22 loss)
Rake to US gov't $36 (an extra $31 in tax)

Your first session, you won $243. Your second session, you lost $237

Total cost to player: $72 (or almost 12% MORE)
Net win: $6 (60% less)

Now, if your goal is to pay more, make less, have the cardroom make 38% less.... and give the US government a relative windfall, then you're goot.

II) Let's check a bigger winning streak for you. You win an additional $206 pot in the second session.

Current- You have a $250 win and a -$30 loss
Tax: $55
Rake: $64
Total cost: $119


Your system- You have a $250 win and a -$41 loss
Tax rake $41
Site Rake $41
Total cost $82


You had to take down an extra 20bb pot every two hours in order to reduced your cost by $37. The government makes less, the site makes less.





Without doing the numbers, the only way for the site to make more money under your system is off of the losing players. The US government will also make more than they normally would.... so the losing players are going to lose MORE with an uncapped rake than they save, unless they lose every single hand.
If the losing players are losing more... how long will they be around to prop up your extra 20bb pot? Not to mention feeding all of your other pots.

Losing players don't end up paying extra taxes under the current system unless they have HUGE amounts bet (and then they pay by having a higher tax bracket).

[Seb86]

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So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

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How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.


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I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

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But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

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Dont try to think ever again.

[LT22]

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So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

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he's sayin the rake would be the same (5%), split profits between site/gov't