Earlier this month, the New Jersey Division of Taxation issued a ruling that entry fees paid to enter into daily fantasy sports contests are not subject to the State’s sales tax. This is good news for players, as the tax would have been borne by the players.
Of course, rulings from state tax agencies are not binding on all taxpayers. For this letter ruling, the decision is binding only on the Division of Taxation and the operator that actually requested the ruling. The New Jersey Tax Court court could rule differently if the issue was litigated.
One cannot assume other state tax courts or agencies would arrive at the same conclusion. Each state’s sales tax laws (if a state imposes sales tax) are different.
At some point, states (and the IRS) will have to address a related question: whether daily fantasy sports is considered gambling for income tax purposes. I’ve discussed before why the answer to that question is significant.