Yes, gaming activities are taxed under the FairTax; however, given the impracticality of taxing the purchase of lottery tickets or casino chips and the like, the tax is levied on the establishment running the gaming operations. The FairTax legislation (see excerpt below) requires a gaming establishment to register as a gaming sponsor. The tax is imposed on the gaming sponsor and must be remitted by the 15th day of each month for the gaming services sold during the prior month. The tax is computed by multiplying 23 percent times the gross receipts for gaming services received by the gaming business minus the sum of total gaming payoffs to chance purchasers and any other gaming taxes. Example: Offtrack betting is a gaming activity. The offtrack betting business pays taxes equal to 23 percent of its gross receipts for gaming activities (the total amount bet) minus the sum of the prize money paid to winners plus any state gaming taxes paid.

Under the income tax, casinos, etc. are already paying tax to the government for net profits and the employer share of payroll taxes, which go away under the FairTax. Their compliance costs would decrease under the FairTax as well. Finally, people who gamble will have more gross take-home pay under the FairTax and big winners will not have to pay tax at the time of winning. So this is a win-win for all.

Below is the section of the FairTax bill, HR 25, specifying the taxation of gaming activities.

SEC. 702. GAMING ACTIVITIES.
(a) REGISTRATION- Any person selling 1 or more chances is a gaming sponsor and shall register, in a form prescribed by the Secretary, with the sales tax administering authority as a gaming sponsor.
(b) CHANCE DEFINED- For purposes of this section, the term `chance' means a lottery ticket, a raffle ticket, chips, other tokens, a bet or bets placed, a wager or wagers placed, or any similar device where the purchase of the right gives rise to an obligation by the gaming sponsor to pay upon the occurrence of (1) a random or unpredictable event; or
(2) an event over which neither the gaming sponsor nor the person purchasing the chance has control over the outcome.
(c) CHANCES NOT TAXABLE PROPERTY OR SERVICE- Notwithstanding any other provision in this subtitle, a chance is not taxable property or services for purposes of section 101.
(d) TAX ON GAMING SERVICES IMPOSED- A 23-percent tax is hereby imposed on the taxable gaming services of a gaming sponsor. This tax shall be paid and remitted by the gaming sponsor. The tax shall be remitted by the 15th day of each month with respect to taxable gaming services during the previous calendar month.
(e) TAXABLE GAMING SERVICES DEFINED- For purposes of this section, the term `taxable gaming services' means--
(1) gross receipts of the gaming sponsor from the sale of chances, minus
(2) the sum of--
(A) total gaming payoffs to chance purchasers (or their designees); and
(B) gaming specific taxes (other than the tax imposed by this section) imposed by the Federal, State, or local government.