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Online gambling could cause tax, legal problems

By Christian Vazquez
On March 5, 2013

The old adage, What happens in Vegas, stays in Vegas will no longer apply in the digital age after Nevada governor Brian Sandoval legalized online gambling last week.

This is an historic day for the great state of Nevada, Sandoval said. Today I sign into law the framework that will usher in the next frontier of gaming in Nevada.
There is a possibility that online gambling could come to other states such as Texas in the future according to Nevadas state measure AB114. This measure grants the state the power to license online gaming venues to enter into deals with other states to allow internet poker.

States were wary of online gambling until Dec. 23, 2011, when the Justice Departments Office of Legal Counsel said the 1961 Wire Act did not prevent states from selling lottery tickets to adults over the internet. That decision set a precedent to allow online gambling except for sports wagering.

Nevadas administration also trumped the Unlawful Internet Gambling Enforcement Act of 2006 because it prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal or state law.
Any form of online gambling is illegal according to Texas state law. Opponents have argued against the current stance by claiming that it invades their privacy because they are conducting their practices in their own home.

According to the Texas District & County Attorneys Association, when placing a bet online a defendant may argue that the bet itself is placed in the confines of his home, and thus the exceptions under privacy clause 47.02(b)(1-3) apply. However, according to Attorney General Opinion DM-344, it addresses the argument directly and states,
Just as a private residence would not be a private place for purposes of the defense if the public has access to gambling there, neither would it be consistent with the defense here if, for example, anyone who knew the proper telephone number and had a computer with a modem could join the games.
The opinion also states that physical presence is not required; most online poker sites operate similarly. Players can log in and join any table they want. Tables are open to the public as long as participants have registered and deposited money to gamble. Thus, privacy defense under clause 47 cannot apply.

Circumventers have created public rooms to avert the law. Most sites offer private rooms in which the creator can control who may participate. While this method may be sufficient for privacy clause 47, it also defeats the purpose for many poker players simply looking for a game, those trying to make money in tournaments, or those trying to improve their skills in bigger games.

Private and public rooms usually cost each entrant a percentage of each hand won or an entry fee, thus creating an economic benefit other than personal winnings and violating privacy clause 47.

While politics and laws may change over time, the biggest issue for online gambling is taxation. According to a policy analysis expert in Texas, the state of Nevada collects 6.25 percent of revenue gained from recognized gambling businesses. So it is assumed that online gambling businesses will be taxed in a similar fashion.

However, the expert questioned the future of taxation for online businesses as a whole if all states were to legalize online gambling. Because most online businesses have a sales tax, the issue of which state would receive tax revenue would arise.

For example, if a user from Texas were to log onto an online poker site stationed in Nevada, Nevada would receive the tax revenue, not Texas. But if Texas had legalized online gambling as well, the whereabouts of tax revenue would be unknown because no rules have been established for that yet.

It would be very difficult to determine who would get what if all states were to legalize it, the expert said.

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