• Massachusetts: Officials Take Action On Daily Fantasy Sports Contests
  • December 29, 2015 | Author: David M. Kall
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • In our Nov. 5 Multistate Tax Update, we described how several states-like Massachusetts, Kansas, Florida, Washington, Nevada, Michigan, and California-are struggling to confront the regulation of Daily Fantasy Sports (DFS). The crux of the issue is whether DFS constitutes gambling such that it can be regulated and taxed like other kinds of gaming activities.

    Regulating DFS

    In Massachusetts, there is little regulatory guidance, but the topic was on the agenda at the Massachusetts Gaming Commission’s Oct. 29, 2015, public meeting. Now, just one month later, Massachusetts Attorney General Maura Healey has issued a draft regulation hoping to protect consumers who play DFS from unfair and deceptive acts and practices that may arise in the gaming process, and to protect the families of those players “to the extent that they may be affected by unfair and deceptive practices that lead to unaffordable losses.”

    The draft regulation, which applies to DFS operators doing business in the state, defines DFS as “[a]ny contest in which the offer or award of a Prize is connected to the statistical performance or finishing position of one or more individual participants in an underlying amateur or professional competition, but does not include offering or awarding a Prize to the winner of or participants in the underlying competition itself.”

    Any enterprise that does not collect compensation in connection with the contest, or in which no prize is awarded, no entry fee is collected, or the maximum prize is valued at no more than the lowest possible entry fee, is not considered to be DFS.

    Additionally, under the terms of the draft regulation, DFS operators are obligated to comply with all tax laws, like those pertaining to withholdings and disclosures to tax authorities and to DFS consumers. In the on-boarding process and again at the time of award of any prize of more than $600, operators are required to disclose potential tax liabilities, along with penalties for failure to pay.

    Beyond these topics, the draft regulation covers several others, like the prohibition of minors, compliance with data security rules, restrictions on advertising, and protections for gambling addicts.

    The Office of the Attorney General has issued a Notice of Public Hearing informing the public that it will hold the hearing and accept oral and written comments on Tuesday, Jan. 12, 2016.

    Tax rules changes

    Technical Information Release 15-14, issued by the Massachusetts Department of Revenue on Nov. 20, 2015, describes changes to the personal income tax calculation, income tax withholding, and income reporting rules with respect to wagering income. The release does not address DFS specifically, but points out that the state allows a new deduction “for losses from wagering transactions that were incurred at a licensed gaming establishment, or a racing meeting licensee or simulcasting licensee, only to the extent of the gains from such transactions.”

    In addition, the release explains the increase in the threshold for personal income tax withholding on certain game winnings, and the revised requirements for determining if the winner owes unpaid taxes or child support.

    Finally, the release notes that the described changes do not affect income calculation, withholding, or reporting rules for lottery winnings.