Tennessee becomes first state to tax sports betting handle

Tennessee Governor Bill Lee has signed a groundbreaking sports betting bill into law, making Tennessee the first state in the nation to tax sports betting handle instead of gaming revenue. The new tax structure, set to take effect in July 2023, will impose a 1.85% tax on the total handle of legal online sportsbooks. Previously, Tennessee taxed sports betting at 20% of gross gaming revenue.

Under the bill, new sports betting operators will be subject to an initial licensing fee of $750,000. The annual renewal fee will be $250,000 for operators with less than $100 million in handle and $500,000 for those with less than $500 million in handle.

Furthermore, the minimum hold mandate has now been eliminated under the new legislation, providing sportsbooks with more flexibility. They are no longer obligated to maintain a 10% hold or face fines. A fiscal note accompanying the bill reveals that nine out of 11 sportsbooks paid fines of $25,000 for failing to meet the minimum hold requirement.

The change in tax laws stems from a controversy surrounding the state’s requirement for sportsbooks to maintain a 10% hold on their handle. While lawmakers argued that this hold would benefit tax revenue and promote competition, sportsbooks claimed it limited their operations within the state. Tennessee’s sports betting legislation introduced unique provisions, including legalizing only online sports betting and imposing the 10% hold requirement.

The implementation of a handle tax in Tennessee could have potentially generated approximately $15 million more in state revenue compared to the 20% gross gaming revenue tax, as sportsbooks struggled to meet the minimum hold. However, if the hold requirement had been successful, the state could have collected around $11 million more than the handle tax.

While Tennessee becomes a pioneer in taxing sports betting handle, other states have shown reluctance to follow suit. Proposals for handle taxes in West Virginia, Kentucky, and Minnesota have been rejected thus far. However, the success or failure of Tennessee’s new law may influence the adoption of handle taxes in other states.

In addition to the tax changes, the new sports betting bill in Tennessee eliminates the mandate for sportsbooks to license official league data for live betting. Sportsbooks have opposed this requirement due to the high cost associated with licensing such data. Specifically, Tennessee sportsbooks Betly and SuperBook cited the unaffordable pricing of Genius Sports’ official league data for NFL betting.

Tennessee’s innovative approach to sports betting taxation and the removal of the official league data mandate signal a shift in the regulatory landscape. As the first state to tax handle instead of gaming revenue, Tennessee sets a precedent that may inspire other states to explore similar models. The impact and reception of Tennessee’s new law will undoubtedly shape the future of sports betting taxation across the nation.
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