$2B Deficit Puts Indiana Sports Betting Tax in Spotlight

• Indiana faces a projected $2 billion revenue shortfall over the next two years, forcing lawmakers to consider new revenue sources and potential budget cuts.
• With the state’s sports betting industry now taking in roughly $5 billion annually, raising Indiana’s low 9.5% tax rate is back on the table.

INDIANAPOLIS — With Indiana now staring down a projected $2 billion revenue deficit over the next two years, state lawmakers are scrambling to find new sources of income. After years of strong financial footing, Wednesday’s updated fiscal forecast revealed a sharp turn for Indiana’s economy, with state revenues expected to fall well short of earlier projections.

The current fiscal year is already $400 million in the red, and budget architects say “everything is on the table”, including cuts and potential tax increases.

One area receiving renewed attention: the Indiana sports betting tax rate.

Since legalizing sports wagering in 2019, Indiana has taxed sportsbook revenue at 9.5%, a rate lower than most states with legal sports betting. With the industry now mature and generating hundreds of millions in taxable revenue annually, some lawmakers and budget analysts see a tax rate increase as an opportunity to offset looming cuts to essential services like K-12 education and Medicaid.

According to the LegalSportsBetting revenue tracker, Indiana collected more than $177 million in sports betting taxes between September 2019 and February 2025. That revenue came from a total of over $5.6 billion in the amount of money bet on sports during the same period.

If lawmakers raised the tax rate from 9.5% to 15%, a level still low compared to states like Illinois (20-40%) and Ohio (20%), Indiana would have brought in nearly $94 million more in revenue since sports betting began.

With the sports betting handle in Indiana increasing over 20% year-over-year from 2023 to 2024, sports betting revenue has soared as well.

Broader Tax Discussions Include Gaming and Cigarettes

State Sen. Ryan Mishler (R-Mishawaka), a key budget architect, said cuts to education are a “last resort,” but acknowledged the tough road ahead. His colleague, Rep. Jeff Thompson (R-Lizton), didn’t rule out increasing so-called sin taxes on cigarettes, alcohol, or gaming.

“All of those things have to be discussed,” Thompson said following Wednesday’s sobering revenue forecast. The Indiana Chamber of Commerce has already thrown its weight behind a $2 cigarette tax hike, but momentum may be building for expanding the conversation to include gaming.

Democrats in the Senate have also floated sin tax increases as a way to stabilize the state budget while minimizing harm to low-income Hoosiers. Sen. Fady Qaddoura (D-Indianapolis) estimated a $2 hike in the cigarette tax could raise $800 million.

At a time when Indiana cannot rely on federal stimulus dollars like it did after the 2008 recession, sports betting revenue represents a rare opportunity: a growing sector with untapped fiscal potential.

Still, industry stakeholders are likely to push back, as seen in debates over the potential North Carolina sportsbook tax increase. The main argument is that higher taxes could dampen the number of legal sports betting apps and hurt Indiana’s edge in the Midwest market.

Whether lawmakers take action before the session adjourns next week remains to be seen, but the conversation around modernizing Indiana’s sports betting tax structure is now undeniably part of the budget debate.

News tags: Fady Qaddoura | Illinois | Indiana | Indiana Chamber of Commerce | Jeff Thompson | North Carolina | Ohio | Ryan Mishler