Chicago sports betting tax takes effect as operators sue, lawmakers weigh response

A new local tax on sports betting took effect in Chicago on January 1, adding to Illinois’ already heavy levy on the industry and prompting legal action from major sportsbook operators, while state lawmakers consider steps to block similar municipal measures.

The 10.25% local sports betting tax was included in the city budget approved by the Chicago City Council. Mayor Brandon Johnson neither signed nor vetoed the budget before it took effect, allowing it to become law. The budget also includes a social media amusement tax, a liquor tax, and a checkout bag tax.

“I want to announce I will not veto the budget approved by the Chicago City Council. I will not add my signature affirming the budget as presented,” Johnson said in a statement. “In this moment, I will not add the risk and speculation of a government shutdown to the profound worries Chicagoans face.”

The Chicago levy comes on top of Illinois’ existing sports betting taxes, which include a graduated rate of 20% to 40% on adjusted gross revenue and a per-wager fee added to the state budget last year. Sportsbooks have taken steps to mitigate the impact of the wager fees.

Before the city tax took effect, sportsbook operators filed suit in Cook County court challenging Chicago’s authority to impose the levy. The complaint was brought by the Sports Betting Alliance, which represents Bet365, BetMGM, DraftKings, Fanatics, and FanDuel.

The lawsuit argues that the tax structure exceeds Chicago’s “constitutional authority,” contending that the Illinois Constitution does not permit a “home rule unit such as Chicago” to impose taxes or require licenses for revenue “unless the General Assembly has expressly granted that power.”

The operators initially sought an injunction to block enforcement of the tax, but later withdrew that request after the city issued last-minute licences. Members of the alliance had previously threatened to pull out of the Chicago market if the tax was implemented.

At the state level, lawmakers have proposed legislation aimed at preventing municipalities from creating their own sports betting taxes. The Illinois General Assembly is set to reconvene in Springfield on Jan. 14.

State Representative Dan Didech filed a bill, HB 4171, in October that would bar local governments from imposing separate sports betting taxes. Senator Patrick Joyce filed a separate proposal that would reduce Chicago’s state income tax distributions relative to the amount the city collects through its sports betting tax.

“When the legislature legalised sports betting in 2019, it was never our intent to allow local governments to create their own rules for this industry,” Didech said at the time. “Chicago’s proposal will hurt consumers, drive vulnerable people to predatory illegal markets, and reduce state tax revenue.”

Illinois lawmakers have sharply increased the state’s tax burden on sportsbooks over the past two legislative sessions. In 2024, the state shifted from a 15% flat tax to the current 20%–40% graduated system, and last year added the per-wager fee.

At a recent industry conference, lawmakers warned that rising tax burdens could strain operators and undermine revenue expectations.

“[Lawmakers] need to understand: what you think you’re going to get from raising taxes, you’re not going to get,” one lawmaker said. “We want this industry to continue to strike the right balance.”