A bill in the North Carolina General Assembly aims to bring the state’s tax code in line with federal law by allowing taxpayers to deduct gambling losses — capped at the amount of their winnings — on their state tax returns. House Bill 14, described by its sponsors as a matter of tax fairness rather than a gambling bill, seeks to correct what some lawmakers see as unjust taxation of gross gambling winnings rather than net earnings.
“Unlike federal law and unlike the majority of other states that have legal sports betting, North Carolina does not allow gambling losses to be deducted capped at winnings on the state tax return,” explained bill sponsor Rep. Erin Pare, R-Wake, in committee Tuesday.
“This is not a gambling bill. This is a fair tax bill,” she continued. “This bill does not take a position on whether gambling is right or wrong. In fact, the supporters of this bill that you’ll see as our primary sponsors, some of them are not big fans of gambling or sports betting.”
Under current North Carolina law, individuals who engage in legal sports betting or other forms of gambling are taxed on their gross winnings without the ability to deduct losses. This differs from federal tax policy, which permits deductions for gambling losses up to the amount of winnings. The discrepancy has led to situations where taxpayers must pay income tax on money they never actually profited from.
The bill was up for discussion, not votes, during Tuesday’s House Commerce Committee meeting. Pare gave colleagues the scenario of a hypothetical bettor who deposits $10,000 into a sports betting platform, wins $10,000, and subsequently loses $10,000, effectively breaking even. While the federal government would recognize no taxable net income in this scenario, North Carolina law currently requires the bettor to pay state income tax on the full $10,000 in gross winnings, despite not having made any actual gain. At the 2024 tax rate of 4.5%, this would result in a $450 tax bill.
“The moment we realized implications of this we stopped gambling because it’s tough enough to beat the house, much less also pay additional taxes when you win,” bettor James Joyce told the committee during the public comment period. “We are proud North Carolinians who want to pay our fair share of taxes. Taxing winnings without allowing for the loss of deductions is just completely unjust. The federal government allows deductions for gambling losses. Why is North Carolina ignoring this fair and reasonable precedent?”
Opponents say the bill would provide additional revenue to those who are already struggling with a gambling disorder.
“It also potentially erodes the state’s tax base as deductions lower overall tax revenue,” the Rev. Mark Creech of the Christian Action League told lawmakers.”While the intent behind this bill might be to provide financial relief, it inadvertently promotes riskier gambling behavior, subsidizes an activity with high social costs, and could lead to further expansion of the gambling industry at the expense of our state’s welfare.”
Rep. Keith Kidwell, R-Beaufort, has historically opposed gambling expansion but is a sponsor of HB 14. He argued that the state tax code on gambling winnings contradicts the North Carolina Constitution, which states that only net income should be subject to taxation.
“If we look into the Bible, the Bible will tell us that you render unto Caesar what is Caesar’s and you render unto the Lord what is the Lord’s. It does not say you pay additional,” said Kidwell. “All this bill seeks to do is render unto Caesar and no excess than what Caesar deserves because — as you and I both know, Reverend — Caesar doesn’t always do what he should do with the money.”
The bill is expected to be debated further in committee, potentially facing a vote next week.