Cleveland has tweaked its tax code to prepare for a windfall when sports betting becomes legal in Ohio. Whether that wind is a gust or a gentle breeze remains to be seen.
Last week, Cleveland City Council approved a change to city law that requires sports-gaming facilities to withhold municipal income taxes on individual winnings high enough to be reportable to the Internal Revenue Service.
What’s big enough to require a report to the IRS? Typically about $600, according to the Ohio Legislative Service Commission’s analysis of the sports gambling bill.
That means that if a gambler wins $600 or more at JACK Cleveland Casino or at one of the three professional sports stadiums, the house will withhold Cleveland’s 2.5 percent cut.
Ohioans will be able to wager on sports legally beginning Jan. 1. The state legislature legalized three different types of betting. There’s type A, online betting; type B, gambling in person at casinos and sports venues; and type C, betting at kiosks run by the state lottery in bars and restaurants.
In Cuyahoga County, the Ohio Casino Control Commission has granted conditional approval for in-person sports gambling to JACK Cleveland Casino, JACK Thistledown Racino, the Browns, the Guardians and the Cavaliers.
How much money will those withholdings win for Cleveland’s General Fund?
“That is the million-dollar question,” city Income Tax Administrator Kevin Preslan told council. Because legal, taxable sports betting is brand new in Ohio, Preslan didn’t have projections to share at council’s committee of the whole meeting last week.
Although Cleveland officials can look forward to taxing winnings, they’ll miss out on the taxes levied on sports betting proprietors.
Type A and B operators will pay a 10 percent state tax on net revenues from sports gambling. The vast majority of those proceeds will fund K-12 education, with half specifically for athletics and extracurriculars. A 2 percent slice of the tax proceeds will support programs for problem gambling.
In other words, if the sports-betting house wins, Cleveland’s General Fund doesn’t.
That’s different from other casino taxes, in which casinos pay 33 percent of their gross revenues to the state. A chunk of that money goes back to county and big-city governments.
This year, Cleveland received $13.2 million in casino tax proceeds, according to the city. Of that, just shy of $2 million – or 15 percent – filled the coffers that council members use to fund programs, projects and events in their wards.
At last week’s meeting, Ward 8 Council Member Michael Polensek, after expressing his concerns about problem gambling, said council should receive a share of the sports betting income taxes, too.
“I am digging my heels in on this one because I have projects that I need to accomplish,” he said.
For now, though, sports betting withholdings – however much, or little, money that is – will go to Cleveland’s General Fund.