Proposed Senate bill looks to define and tax 'chance' games

Congress is looking to define what constitutes a game of 'chance' and tax those contests. AP Photo/Pablo Martinez Monsivais

The new 115th Congress wasted little time introducing legislation that could shape sports gambling and daily fantasy sports. The new law -- introduced Jan. 3 by Sen. Jerry Moran (R-Kansas) -- defines "chance" and includes special tax treatment for gaming operators, a group that may include Nevada sportsbooks and daily fantasy companies.

Whether an activity is based on skill or chance has long been an important legal distinction in gambling laws. Games of chance are frequently banned or subject to heavy regulation, while skill-based activities are often permitted. States vary widely in how they view the skill-chance question.

DFS companies such as FanDuel and DraftKings have consistently positioned their games as skill-based. However, "[n]o court has directly addressed whether fantasy sports contests are games of skill," wrote lawyers in a 2014 letter to FanDuel released during litigation between the company and the New York Attorney General.

Both the U.S Justice Department and the NFL have previously stated that traditional sports betting involves skill in unrelated legal proceedings.

The new Senate bill includes special provisions for gaming "sponsors" and provides a specific definition for what constitutes "chance." According to the draft legislation, chance includes a bet or wager involving "(1) a random or unpredictable event or (2) an event over which neither the gaming sponsor nor the person purchasing the chance has control over the outcome."

The legislation would impose a 23 percent tax rate on a company offering games of chance. The proposed bill does not specify whether DFS companies or Nevada sportsbooks would be subject to the tax.

Two months ago, Rep. Frank Pallone (D-N.J.) announced a full review of the nation's federal sports gambling laws, with plans to introduce new legislation. The newly introduced Senate bill appears unrelated to Rep. Pallone's plans.

The proposed bill comes as the U.S. Supreme Court considers later this month whether to decide the long-running litigation between New Jersey Gov. Chris Christie and various sports leagues on the issue of sports wagering in the Garden State.

Beyond its gaming provisions, the proposed bill is quite broad. The overall legislation is focused on "repealing" the federal income tax and "abolishing" the Internal Revenue Service. The bill would enact "a national sales tax to be administered primarily by the States."

Moran's 132 page bill -- described with the short title "Fair Tax Act of 2017" -- is at a very preliminary stage. No hearing or vote on the proposed legislation has been scheduled. A similar version of the bill was introduced in 2015 and was not enacted.