Virginia Advances 10% DFS Tax as Lawmakers Move to Rein In Fantasy Sports

House Bill 145 (HB 145) aims to restructure and update the state’s Fantasy Contests Act. This would bolster regulation, introduce taxation, and improve consumer protections. Until now, the state has not required DFS operators to pay taxes on their revenue.

Under HB 145, regulatory oversight of DFS would formally sit with the Virginia Lottery, granting the agency rulemaking, investigative, and enforcement authority over the sector.

HB 145 proposes that all DFS operators must hold a state-issued permit to operate, valid for three years. The state would direct application, permit issuance, and renewal fees toward problem gambling programs and general oversight.

Breaking down the 10% tax on fantasy contest revenue, 95% would go into the Virginia general fund, with 5% going towards the Problem Gambling Treatment and Support Fund.

Regarding consumer protections, all operators must verify that users are at least 21 years old. They also need to offer self-exclusion, prevent insider trading, segregate player funds from operating funds, and maintain sufficient reserves to cover prize payouts.

Regulators would require annual independent audits to ensure compliance. HB 145 includes a 90-day transition period allowing DFS operators to continue operating while they apply for a permit. The bill also empowers regulators to issue civil penalties and pursue enforcement actions against unlicensed or noncompliant operators.

Addressing Controversial Pick ’em Contests

Virginia was widely seen as the first state to legalize DFS, enacting the Fantasy Contests Act in March 2016. However, it only introduced a $50,000 licensing fee and no revenue taxation.

This year, the Virginia legislature is also considering other DFS-related bills. Senate Bill 129 (SB 129) would close a loophole that allows operators to offer house-banked contests akin to sports betting.

HB 145 itself reinforces that fantasy contests must be peer-to-peer, drawing a clear distinction between traditional DFS and operator-banked products.

The legality of pick ’em contests versus house-banked products is an ongoing issue in several states. With traditional DFS, players compete against one another through roster-based contests. Pick ’em-style games have players compete against the house, and these products resemble parlays.

Many regulators now see them as sports betting in disguise, despite operators protesting that they’re permitted under DFS legislation in certain states or under federal law, such as the Unlawful Internet Gambling Enforcement Act (UIGEA).

SB 129 also calls for a 10% tax on DFS revenue. The bill passed its initial subcommitee after a 7-0 vote.

DFS-Related Bills in Illinois, Florida

Virginia isn’t the only state considering DFS-related bills. In Illinois, Senate Bill 1224, which carried over from last year, proposes the creation of the Fantasy Sports Consumer Protection Act.

The measure will grant the Illinois Gaming Board the ability to license, regulate, and tax the sector. It suggests a tax rate of between 10% and 15%.

The bill also sets a minimum participation age of 21 and requires segregation of player funds from operational accounts.

In Florida, lawmakers are pursuing a markedly different approach with HB 189. The bill would create a statutory definition of fantasy sports contests while explicitly excluding pick ’em-style and house-banked products.

Under the proposal, fantasy contests must be predominantly skill-based, rely on the statistical performance of multiple athletes, and prohibit outcomes tied to single-player performances, team results, or parlays. The bill also bans casino-style graphics and bars contests based on collegiate or youth sports.

Violations could carry significant penalties, including civil fines of up to $100,000 per violation, misdemeanor charges for individuals, and felony exposure for operators. Earlier this month, Florida’s House Criminal Justice Subcommittee passed HB 189, and the measure now awaits further action.

California and Arizona Taking Action Against DFS Operators

Not all states are as welcoming or looking to regulate DFS.

In July 2025, California Attorney General Rob Bonta issued a legal opinion that all DFS contests are illegal. That includes peer-to-peer DFS. While the opinion does not change the law, it has sparked a series of class-action lawsuits in the state alleging that DFS operators are running illegal wagering operations.

While most operators have switched to peer-to-peer to avoid California’s prohibition on house-banked games, Bonta has threatened enforcement action.

In Arizona, the Arizona Department of Gaming moved to revoke Underdog Sports’ DFS license in December. The regulator cited suitability concerns after Underdog launched prediction markets in collaboration with Crypto.com.

The move marked the first time a state regulator stripped a license from an operator for engaging in prediction markets.

The moves toward regulation in states like Virginia, Illinois, and Florida, as well as enforcement actions in Arizona and California, indicate that more states are starting to pay attention to DFS.

Whether Virginia’s HB 145 and SB 129 ultimately pass in their current form, they signal that the era of largely untaxed and lightly overseen DFS— particularly products that blur into sports wagering — may be coming to an end.