Tennessee considering massive change to its sports betting tax rate
Tennessee sports betting may soon undergo a massive change to how operators are required to pay taxes in the Volunteer State.
The Tennessee House of Representatives is currently considering a Senate-approved bill to change the state’s sports betting tax rate from 20% of adjusted gross gaming revenue to 2% of total operator handle less cancelled or voided bets.
Bill SB 0475, authored by Sen. John Stevens (R-24), was unanimously approved by the Senate (30-0) earlier this week. If the bill becomes law Tennessee would be the only state in the country to tax sports betting operators on handle instead of revenue.
Increased tax revenues if approved
The Tennessee House of Representatives currently has the bill on its Thursday, April 20 agenda for discussion. If approved, the bill will be sent to Tennessee Gov. Bill Lee (R) to be potentially signed into law.
According to Stevens, and a fiscal impact summary for the bill, if the 2% tax on total handle is approved, sports betting tax revenue for the state will increase by $7.36 million by FY 23-24.
Additionally, the bill will repeal a controversial element that has plagued Tennessee sports betting operators. The bill will strike a requirement for operators to maintain a 10% hold each month or face a $25,000 fine. According to the fiscal impact summary, 9 of the state’s eleven licensed sports betting operators did not maintain the necessary 10% hold. Most industry experts consider a 10% hold to be a fairly strong hold for operators and difficult to maintain on a monthly basis due to the fluid landscape of sports betting markets.
In 2022, the state reported $3.77 billion in total wagers and total payouts of $3.44 billion, leading to adjusted gross revenues for the year at $338.7 million. The operators paid a total of $67.7 million in taxes based off the 20% tax rate on adjusted gross revenues.
Under the terms of SB 0475, operators would have been required to pay nearly $75.4 million in taxes for the year.
Finally, the bill would also extend license registration to three years instead of annually.
Who benefits from the increased taxes?
As it stands, Tennessee sports betting tax revenue is split between three parties. The current bill distributes sports betting taxes as follow:
- 80% to the Lottery for Education Account
- 15% to the local government
- 5% to the Department of Mental Health and Substance Abuse Services
If the proposed bill is approved, the following increases in revenue will be realized in FY 23-24:
- Increase of $5.88 million to the Lottery for Education Account
- Increase of $1.1 million to the local government
- Increase of $367,985 to the Department of Mental Health and Substance Abuse Services