Tennessee Becomes the First State to Tax Sports Betting Operators Based on Their Handle

Tennessee Becomes the First State to Tax Sports Betting Operators Based on Their HandleTennessee became the first state to tax sports betting operators on the total gross wagers instead of revenue after Governor Bill Lee signed Senate Bill 475 into law on May 17. The new law imposes a 2% gross wager tax, replacing the previous tax of 20% on adjusted gross income. Under the new law, sports betting operators are no longer required to partner with Genius Sports for NFL official league data and hold 10% of their handle on an annual basis.

What are the New Requirements for Licensed Sports Betting Operators?

Licensed betting sites began accepting sports wagers in Tennessee in 2020. Similar to all other states that legalized online sports betting, the state taxed operators based on their adjusted gross gaming revenue. Before Governor Lee signed Senate Bill 475 into law, operators were required to use official league data to settle in-play wagers. Besides, licensees had to pay a 10% tax on all wagers.

But that is already in the past because Tennessee Governor Lee approved Senate Bill 475, which was introduced in January this year. In April, the legislation was passed by the Senate on a 30-0 vote. Shortly after that, the bill passed the state’s House of Representatives with a 75-7 vote.

The new law came after several sportsbooks failed to hit the 10% hold. The betting operators who found themselves unable to comply with the state’s 10% hold rule decided to pay a $25k fine instead of the difference between what they paid in taxes and the amount they would pay if they met the requirement. The Tennessee Sports Wagering Advisory Council (SWAC) believed this led to significant losses for the state, amounting to $10 to $12 million in revenues.

Sports Wagering Advisory Council reported that the total sports handle in Tennessee saw a dramatic year-on-year growth of 9%, reaching $318.4 million this April. Adjusted gross income for the month was $32.2 million, while the state collected $6.4 million in taxes. Licensed betting sites paid out a total of $284.1 million in wins.

The Reason Behind Tennessee’s Decision to Changed Its Sports Betting Tax System

Tennessee adopted the new rules in a bid to maximize revenue for the state government. The new law is projected to boost Tennessee’s revenue by $7.36 million annually by fiscal year 2024. It is unclear whether the new law will produce the desired effects. According to industry experts, the new tax regime is a double-edged sword as the state may experience a revenue decline if the handle dips.

Senate Bill 475 was not the only legislation that sought to change the state’s sports betting tax system. House Bill 1362, which was also introduced in January, proposed a 1.85% tax on operators’ handles. But the measure has never appeared on lawmakers’ agenda for further consideration.

Currently, the state offers only online sports betting. The state has granted permits to 11 sportsbooks, with FanDuel, DraftKings, and BetMGM being among the licensed operators. In 2022, all licensed betting sites recorded a handle of over $2.5 billion.