Tennessee sports betting operators will soon be taxed on the money bettors wager as opposed to the revenue they generate because of a bill signed into law Wednesday by Gov. Bill Lee.
Beginning in July, TN sports betting‘s 20% tax on gross gaming revenue – the pool of income taxed traditionally taxed by legal betting states – is replaced by a 1.85% tax on handle. It is one of several sports betting changes overwhelmingly adopted by the legislature this year under SB 475.
Tennessee will become the only state in the nation to base taxation on handle. It also was the only state to attempt a minimum hold requirement, and that failure led to this change.
No more minimum hold mandate
Tennessee sportsbooks will no longer be required to hold at least 10% of handle each month, which has resulted in thousands of dollars in fines and less tax revenue than the state projected.
Nine of Tennessee’s 11 sportsbooks paid the state $25,000 for falling short of the minimum hold, according to a fiscal note attached to the bill. Nationally, sportsbooks have held a 7.9% hold since the month following the repeal of PASPA, according to LSR’s state revenue tracker.
Napkin math indicates that handle tax would have translated to roughly $15 million more for the state since it launched sports betting in November 2020. That figure is still about $11 million less than if operators met the minimum hold under the original tax mechanism.
Will handle tax spread to other states?
Handle tax proposals have popped up in legislatures across West Virginia, Kentucky and Minnesota over the years. Each declined to enact it.
The only active handle tax in the country is the federal 0.25% excise tax, which existed even before states outside of Nevada began legalizing sports betting in 2018.
“It’s a very simple and direct tax, relatively easy to administer, and doesn’t rely on a lot of factors that could change how much the state actually receives,” said Adam Hoffer, Director of Excise Tax Policy at the Tax Foundation, a right-leaning think tank in Washington D.C. said. “If we see this work well in Tennessee, it’s the kind of model that other states could adopt.”
Tennessee sports betting market drops data mandate
In addition to the new tax, Tennessee is dropping its official league data mandate.
That change comes after Betly and SuperBook told the Sports Wagering Advisory Council (SWAC) earlier this year that Genius Sports‘ official league data for NFL betting is not available on commercially reasonable terms.
New operators will still pay a $750,000 initial license fee, though depending on how many bets they take, their annual renewal fee could be less. Operators with less than $100 million in handle would pay $250,000. Those with less than $500 million would pay $500,000.
The SWAC is also dropping Advisory from its name.