Showing a commitment to Michigan’s gambling industry and the tax revenue it generates, Gov. Gretchen Whitmer has signed a bill that allows losses from gambling recorded on Federal Income tax to be listed as deductions in Michigan.
While the new law will slightly lower tax revenue in the state, it squares an inconsistency that unfairly prohibited gamblers from deducting losses.
Loophole Allowed Only For Claims on Gaming Winnings, Not Losses
The measure addresses a loophole in the Michigan tax code, which levied taxes on gambling earnings by individuals but did not allow citizens to deduct losses from the same activity. Senate Bill 764 is retroactive, meaning any losses (up to the amount of their winnings) incurred from legal betting in Michigan at any point in 2021 are deductible. Many other states have similar laws in place to ease the financial tax burden of bettors for their losing wagers.
“[The loophole is] wrong,” State Senator Curtis Hertel said. “No one should have to pay taxes on money that they never earned or had. And there are many, many Michiganders who will be caught up in this situation, which is really unintentional.”
Michigan SB 764, which was sponsored by Hertel, applies relief only for filers who itemize their federal returns and on losses that do not exceed their winnings. For example, if a bettor wins $5,000 in a single tax year but loses $7,000, they can only claim $5,000 of the losses. The deduction is eligible for loss claims on Federal Income Tax returns. The bill, which essentially places Michigan in line with existing federal law, had bipartisan support in Lansing.
The pertinent section of SB 764 reads:
For tax years that begin on and after January 1, 2021, and subject to the limitation under this subdivision, deduct, to the extent not deducted in determining adjusted gross income, wagering losses deducted under section 165(d) of the internal revenue code on the taxpayer’s federal income tax return for the same tax year. For a nonresident, only wagering losses that are attributable to wagering transactions placed at or through a casino or licensed race meeting located in this state may be deducted and must not exceed the gains on wagering transactions allocated to this state under section 110(2)(d). As used in this subdivision, “casino” and “licensed race meeting” mean those terms as defined in section 110.
The caveat that Michigan citizens cannot claim the excess they lose in comparison to their winnings helps assure that gamblers are responsible in limiting their losses.
Mobile Sports Betting and Casinos Have Led to Boom in Gaming Revenue in Michigan
Since online sports betting went live in January 2021, the state has seen steady growth and significant revenue paid to the state and the City of Detroit. In November, the most recent month where data was released, Michigan took in $473.8 million in sports betting handle, a monthly record for the state. Detroit-area casinos added $26.7 million in retail wagering to that total, pushing Michigan over the $500 million mark for the month.
Through November, online casinos and poker rooms in Michigan have recorded $992.2 million in gross gaming revenue. Once December numbers are added, that figure will top $1 billion. That’s in online gaming and sports betting revenue alone. The 14 state casinos are projected to handle $1.2 billion in 2021, including retail sportsbook action.