It’s not every day a wonky article on state gambling taxes gets the attention of that state’s governor, but that’s exactly what happened in North Carolina.

Nathan Goldman and Christina Lewellen, both associate professors of accounting at the Poole College of Management at North Carolina State University, recently wrote what amounts to an eye-opening article, detailing how sports bettors in the Tar Heel State will be on the hook to pay taxes on their sports betting winnings — even if they are sports betting losers.

This article clearly got to Gov. Roy Cooper’s desk, as he, less than a week later, called on the North Carolina legislature to immediately fix the problem.

And the problem is relatively simple, as far as these tax things go: Gamblers in North Carolina are not allowed to write off gambling losses.

“North Carolina doesn’t have itemized deductions for gambling,” Goldman told Sports Handle. “There is a flat tax of 4.5% on gambling winnings. As an example, if you bet $22 and won $20, that $20 you just won is being taxed at 4.5%. But if you bet $22 again and lose, you don’t get to write off the $22, which means you’re down $2 in total, but still have to pay the 4.5% — about 90 cents — in taxes on the first bet.”

North Carolina not the only state

Furthermore, according to Goldman, other gamblers in other states will find themselves in a similar situation when doing their taxes. According to his research, Connecticut, Illinois, Indiana, Kansas, Ohio, and Rhode Island also don’t allow itemized deductions of gambling losses.

On the flip side, Michigan, Massachusetts, and West Virginia lawmakers have updated their respective states’ tax codes in recent years to fix the issue. 

At the federal level, sports bettors — and all gamblers — are allowed to deduct their losses, provided they exceed the threshold for the standard deductions ($14,600 if filing as a single taxpayer, $29,200 if filing jointly). 

Put simply: Unless you lost over $14,600 (or, if you’re married, you lost over $29,200), you’re not taking the itemized deductions — but whatever “winnings” you had over the course of the year are still going to be taxed in North Carolina and the other states, per Goldman.

“We have lots of activities that are similar but treated differently,” Goldman said. “For stocks, you net it together. Buy and sell a million stocks over the course of the year, and you can add it all together, and this is your net capital gain or net capital loss. But at the local level for gambling, there’s no net. Each bet is on its own.”

Nobody knows

All of this is — predictably — not known by the public. Even the gambling public was caught unaware, even the people at the top of the North Carolina gambling food chain.

“That’s exactly right — I did not know,” said Justin Freeman of Run The Sims, a website dedicated to fantasy sports. “I just happened to see my local TV news station’s Twitter feed post an article on it. So, I didn’t know, state media sports personalities didn’t know, nobody seemed to know except some accounting professors from NC State. I’m not sure how anyone could have known…

“Best case scenario, this is an accidental oversight linked to old legislation that can easily be erased and corrected. Worst case scenario, the interpretation sticks, and I cannot justify seriously betting sports anymore as a volume player.”

The legislation, in fact, was changed in 2015 in North Carolina to disallow itemized deductions on gambling.

“This is a pre-Suprme Court ruling,” Goldman noted. “No one thought sports betting would be a thing in North Carolina. And so right now, North Carolina doesn’t care if you won or lost — you’re going to have to pay taxes.”