RICHMOND, Va. (WRIC)- Virginia recently changed how sports betting is taxed and new data suggests it’s starting to pay off.

But bettors may notice fewer play-for-free promotions this football season because of it.

Virginia legalized sports betting in 2020 with the goal of turning back-room gambling into a big source of tax revenue. The Joint Legislative Audit and Review Commission previously projected sports betting would generate up to $55 million annually for the Commonwealth.

Delegate Mark Sickles (D-Fairfax) said tax revenue was falling short of those expectations, largely because of a loophole in the original legislation. Sickles said operators were previously able to offer generous incentives to attract new bettors without paying taxes on spending related to those promotions.

Sickles said lawmakers underestimated how much the marketing tool would be used and the impact it would have on tax revenue.

“In the original legislation, we made a mistake by saying they could deduct,” Sickles said. “I believe it’s a totally inappropriate role of government to be encouraging people to gamble.” 

Sickles said that loophole was closed July 1 as part of the state budget agreement.

Now, newly released date from the Virginia Lottery suggests that step is working, according to Sickles.

From July 1 and July 31, 2022, Virginia collected $3.1 million in tax payments. That’s up from $1.8 million collected in June 2022, before the change took effect. The state saw an increase in revenue in July, even though Virginians wagered roughly $29 million more in June.

“This is before the college football season starts. Before the NFL season starts, it should have a major effect this fall,” Sickles said.

State data also shows betting platforms deducted significantly less in bonuses and promotions. That dropped from nearly $8 million in June to just under $400,000 in July.

The Virginia Sports Betting Alliance declined an interview request on Tuesday but the group previously argued the change would result in less promos for players and less growth for the industry long-term.

“There is no argument for their position other than we want to make more money and nobody likes paying taxes,” Sickles responded.

State law places a 15% tax on sports betting activity based on each permit holder’s adjusted gross revenue (AGR), which is defined as total wagers minus total winnings and other authorized deductions. The vast majority of the tax revenue goes into the state’s General Fund but a portion is allocated to the Problem Gambling Treatment and Support Fund.