The tax would be equal to 0.25 percent in states where contests are legal, and would be levied upon the operators of the games rather than individuals who partake. The rate increases to 2 percent in states where the wagers accepted are not legal.
The basis of the IRS ruling is that any daily fantasy sports entry fee is a taxable wager as stipulated by law. In order to participate in the chance to win prize money, individuals pay an entry fee to partake in the contests.
There may also be a $50 occupational tax ($500 in states where it is not legal) owed for individuals receiving the entry fee “wagers."
Season-long fantasy sport leagues would not be impacted by the levy.
During the company’s second quarter earnings call, CEO Jason Robins said the non-binding memo is “deeply flawed in its analysis.”
“Our position continues to be, which we believe has been reaffirmed to state legislators and courts throughout the country that DFS is not wagering,” Robins said.
A spokesperson for DraftKings declined to comment further.
A spokesperson for FanDuel said the company is aware of the issue and looks forward to working with the IRS.
DraftKings’ stock was trading more than 6 percent lower near the end of the session on Friday. However, earlier in the day the company had reported a larger than expected quarterly loss.