News and Insights

Fantasy Sports Contest Fees Are Not Taxable Information Services in New Jersey

Tax Development Oct 13, 2016

The New Jersey Division of Taxation (“Division”) issued guidance regarding the application of New Jersey sales and use tax to charges by a New Jersey taxpayer’s daily fantasy sports website.1 The taxpayer in question operated an online daily fantasy sports website and allowed New Jersey customers to enter daily contests and participate in online drafts, for which customers are charged an entry fee.  

New Jersey taxes information services that are not of a personal or individual nature. The taxpayer argued that the information it provided was purchased from a third-party, and furthermore, the fee in question was for contest entry and not for access to information. The Division agreed with the taxpayer and concluded that the contest entry fee charged by the taxpayer was not an information service subject to sales tax. 

Not every state has taken the same approach regarding daily fantasy sports. In contrast, New York opted for a 15% gross receipts tax on the daily fantasy sports providers. Tennessee adopted a similar approach with a 6% privilege tax on adjusted revenues of all fantasy sports contest fees. As the fantasy sports industry continues to grow, we can anticipate more states looking to impose some kind of sales, excise, or gross receipts tax on the revenues generated.  

[1] New Jersey Letter Ruling LR:2016-2-SUT (October 5, 2016).