Michigan joins the list of states that may see an increase in taxes on sports betting and other forms of gambling this year. What may be even worse for gamblers and gambling enterprises is that Michigan Governor Gretchen Whitmer (D) seeks to replicate a system that is used in the nearby state of Illinois.

Illinois passed a new tax in 2025 that levies 25 cents per wager on the first 20 million bets an operator books. After that initial 20 million, the rate doubles to 50 cents per bet. That is the plan Whitmer aims to implement in Michigan in an effort to generate $38.8 million for the Medicaid Benefits Trust Fund. The state's budget statement actually makes specific reference to Illinois.

"The same tax was enacted in Illinois last year,” according to a briefing on the Whitmer budget. “Michigan’s sports betting tax rate currently ranks 28th out of the 30 states that have legalized the activity. Michigan’s tax rate remains the lowest among neighboring states.”

The Tax Foundation reports that Michigan's present 8.40% sports betting tax rate is the nation's second-lowest, behind only Iowa and Nevada, both of which are at 6.75%.

Whitmer Seeks to Eliminate Promo Deduction as well

Michigan is also among the states that are considering or have already banned tax deductions for promotional expenses for sportsbook operators.

Sportsbook-provided free bets are usually used to entice and keep clients. Many states permit the deduction of those promotional and wager costs from net sports betting earnings. States lose revenue as a result of such deductions.

Michigan would collect an additional $21.1 million by eliminating certain tax breaks, according to Whitmer's budget plan. The probable result if this happens would be lower promotional expenditures from operators.

"Free play provides an incentive for gamblers, enabling them to start making sports bets without incurring any initial expense," the proposal states. Under the budget plan, sports betting companies would be unable to subtract these bets.

Also targeted by iGaming.

One of only seven states where iGaming is legal and operational is Michigan, which also has a booming online casino market. Whitmer is aware of that, and as governor, she plans to raise the tax rate on operators with more than $185 million in adjusted gross receipts from 28% to 36%.

“Last year, only three of Michigan’s internet casinos met the threshold for the higher tax rate to apply,” as noted in the budget briefing. “It is forecast to generate $135.5 million in new tax revenue in FY27, with the majority going directly to the Medicaid Benefits Trust Fund in support of health and wellness programs.”