Tennessee senate approves measure to tax sportsbooks by handle

Tennessee state legislators passed a bill to change how the state’s sports betting operators are taxed on Friday.

The Senate voted 30-0 to approve Senate Bill 475, which will replace Tennessee’s 20% mobile sports betting tax system with a 2% tax on an operator’s handle.

The measure will remove the 10% hold in the state’s sports betting law which has been a significant issue for operators. This previously allowed the state to retain a $1 net return for every $10 bet by a gambler. If signed into law by Governor Bill Lee, the bill will be the first of its kind in the entire country.

Most operators have found it challenging to adhere to this rule due to factors like the unpredictability of sporting event outcomes, staying competitive on price, the impact of promotional wagers, and several others.

As a result, they have opted to skirt the obligation by paying the $25,000 annual fine. The Sports Wagering Advisory Council stated that this had cost the state a loss of approximately $22.5 million in taxes in the past two years.

Under the bill, licensees will be prohibited from deducting payouts to gamblers, nor will they be allowed to deduct promotional payouts from total gross bets.

The bill will also see Tennessee’s official league data mandate being taken down. The mandate was removed following Betly and SuperBook Sports’ complaints to the Sports Wagering Advisory Council. They claim that payments to Genius Sports for official NFL data were an unreasonable expense.

The removal of the official league data mandate will bring a significant change to the state’s sports betting regulations. In order to cut down on costs, smaller gaming operators will likely use unofficial data sources.

SB 475 will also change Tennessee’s licensing rules allowing vendors to apply for a license renewal every three years rather than every year. Payment for the license will be around $150,000 and will be issued annually.

Operators that generate a handle lower than $100 million will be required to pay $375,000 to renew their license, while those making over $100 million annually will pay around $750,000.

A less serious aspect of SB 475 is the removal of “Advisory” from the SWAC brand. The council will now be referred to as the Sports Wagering Council.

The Senate lawmakers included an amendment to SB 475 on Friday that would permit gaming operators to remove the 0.25% federal tax on the handle from the figure they were expected to pay the state. They were not allowed to carry out the deductions in promotional dollars.

While the modification to the tax determination was created to increase the state’s tax revenue, with the new system, Tennessee could receive a lower revenue compared to previous years.

Tennessee recorded a tax revenue of $22.4 million from mobile sportsbooks for the first three months of 2023. If the handle tax had been in place then, the state would have only received $20.9 million.

The state received $65 million in sports betting tax revenue in the 2023 fiscal year, which started in July 1, 2022. The figure would have dropped around $7 million lower to $58.1 million if the handle tax was effective.

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