New taxation policy on sports betting will be implemented in Tennessee

With the signing of Senate Bill 475 by Governor Bill Lee, Tennessee will implement a unique taxation system for sports betting operators. Instead of taxing gaming revenue, the law will tax the operators’ sports betting handle. This distinctive tax regime will go into effect on July 1, making Tennessee the sole state in the United States with such a tax structure.

Governor Bill Lee has signed Senate Bill 475, introducing significant changes to the taxation and licensing system for online sportsbooks in Tennessee. Under the new legislation, legal online sportsbooks will be taxed at a rate of 1.85 percent of their handle, replacing the previous tax structure that collected 20 percent of the industry’s net operator revenue.

The tax revenue collected from sports gambling will be allocated as follows: 80 percent will go towards education, 15% will be distributed to local governments by the state, and 5% will be directed towards mental health programs.

In addition to the taxation adjustments, the law also modifies the licensing fees for operators. The previous flat $750,000 license renewal fee is replaced with a tiered system based on operator revenues, ranging from $375,000 to $750,000. Furthermore, the requirement for sportsbooks to maintain a 10 percent hold has been eliminated, as state regulators found that the majority of sportsbook operators did not meet this requirement in 2022.

The law includes other changes as well, such as renaming the regulatory agency from the Sports Wagering Advisory Council to the Sports Wagering Council. The legislation encountered minimal opposition during its passage through the legislature, receiving a 75-7 vote in favor in the state House in April and unanimous approval in the state Senate.

In April, the total amount of money wagered on sports betting in Tennessee soared to a staggering $318 million.

According to the Tennessee Sports Wagering Advisory Council (SWAC), sports bettors in Tennessee placed wagers totaling $318 million in April. This represents a decrease of 18.9 percent compared to the previous month’s $392.6 million, but an improvement of 8.7 percent compared to April 2022’s $292.8 million.

Gross payouts also experienced a decline, dropping by 18.1 percent to $284.1 million from March’s $347.1 million. However, there was a year-on-year increase of 7 percent compared to April 2022’s $265.6 million. The adjusted gross income for the month amounted to over $32.1 million, showing a 26.4 percent decrease from March’s $43.7 million but a significant increase of 38.4 percent from April 2022’s $23.2 million.

The monthly privilege tax collected by the state exceeded $6.4 million, reflecting a 26.4 percent decline from March’s $8.7 million but a year-on-year increase of 38.4 percent.

Under the new taxation system, which imposes a 1.85 percent tax on gross wagers, the state would have collected approximately $5.9 million in taxes for the month of April.