There are currently two models proposed for federal and state taxation of legalized and regulated Internet Gambling in the U.S. One model would use the traditional approach relied on by land-based casinos for gambling at their physical locations, which taxes Gross Gaming Revenues. The second model would adopt a different approach to online, in light of the fact that gamblers establish “accounts,” rather than purchase chips solely for immediate play. The approaches discussed below are designed to be applied regardless of whether enabling legislation is adopted under federal (interstate) legislation or state (intrastate) legislation.

I. The Models

Under the Gross Gaming Revenue Model (“GGR”), licensed operators are required to pay a percentage of their revenues to the federal government and to participating states, calculated on the basis of the amount wagered by all of the customers minus the winnings returned to the players, or net sales. In the US, state revenues from land-based casinos have been based on a GGR model, supplemented by admissions taxes, device taxes, and other fees.

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