Tennessee has introduced a distinctive approach to taxing sports betting operators, shifting from the traditional revenue-based model to a handle-based tax system. Governor Bill Lee recently signed Senate Bill 475 into law, effective from July 1, making the state the sole jurisdiction in the United States to adopt such a taxation regime. This move aims to boost educational funding, simplify licensing fees, and align regulations with industry dynamics.
Transforming the Tax Structure:
Under the new law, online sportsbooks will be subject to a 1.85 percent tax on their handle, marking a significant departure from the previous system where Tennessee collected 20 percent of the industry’s net operator revenue in taxes. The new approach redistributes tax revenue, with 80 percent directed towards education, 15 percent allocated to the state for distribution to local governments, and 5 percent designated for mental health programs.
Enhanced Licensing System and Regulatory Changes:
Furthermore, Senate Bill 475 introduces a tiered licensing fee system, eliminating the flat $750,000 license renewal fee for operators. Licensing fees will now range from $375,000 to $750,000, depending on operator revenues. Additionally, the law eliminates the mandatory 10 percent hold requirement for sportsbooks. This change was proposed by state regulators after finding that nine out of 11 sportsbook operators in Tennessee did not meet the 10 percent hold requirement in 2022.
Streamlining Regulations:
Senate Bill 475 not only revamps the tax structure but also rebrands the regulatory agency, changing its name from the Sports Wagering Advisory Council to the Sports Wagering Council. The bill faced minimal resistance during its legislative journey, securing overwhelming support in the state House with a 75-7 vote in April and unanimous approval in the state Senate.
April Betting Figures:
In April, Tennessee’s sports betting handle amounted to $318 million, reflecting an 18.9 percent decrease from March. However, it marked an 8.7 percent improvement compared to April 2022. Gross payouts declined by 18.1 percent to $284.1 million from March, but this represented a 7 percent increase year-on-year. The state’s adjusted gross income for the month totaled over $32.1 million, a 26.4 percent decrease from March but a substantial 38.4 percent increase from April 2022. The monthly privilege tax exceeded $6.4 million, down 26.4 percent from March but up 38.4 percent year-on-year.
Tennessee’s innovative handle-based tax system for sports betting demonstrates the state’s commitment to adapting to industry dynamics while enhancing educational funding. With the new taxation regime set to come into effect on July 1, Tennessee has distinguished itself as a pioneer in sports betting taxation in the United States.