Tennessee Lawmakers Look To Make Changes With Sports Betting Taxation

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Written By Giovanni Shorter | Last Updated
Tennessee Sports Betting Bill

The Tennessee Senate approved SB 0475 and the bill has made its way to the Tennessee House of Representatives. This measure would see a change in Tennessee’s sports betting tax rate. Instead of continuing to see a 20% tax on adjusted gross revenue (AGR), lawmakers are looking to tax sports betting handle at 2%. This is a major shift as no sports betting market taxes handle.

Big Changes To Sports Betting Taxes In Tennessee

The measure advanced out of the Senate to a 30-0 vote in favor. Lawmakers are optimistic that a similar fate awaits the measure in the House. If the bill advances out of the House, then the measure will head to Gov. Bill Lee’s desk to be signed into law or vetoed.

A fiscal impact summary for the bill projects that annual Tennessee sports betting tax revenue would increase by $7,359,701 by the fiscal year 2023-2024.

The measure would also remove the 10% hold requirement currently set in Tennessee law. The current law fines sportsbooks $25,000 each month if they fail to maintain a 10% hold rate on wagers.

Reason For The Tax Rate Change

The motivations behind shifting taxation from AGR to sports betting handle is due to the potential increase in state revenue. A total of $3.77 billion was bet on sports in Tennessee in 2022. The AGR for the year was $338.7 million which gave $67.7 million in taxes to the state with the 20% current tax rate.

If Tennessee was taxing handle at 2% instead of AGR, then the Volunteer State would have collected $75.4 million for the year. A closer look at the fiscal impact summary shows how Tennessee lawmakers see the benefit of this tax change.

Pursuant to Tenn. Code Ann. § 4-49-104(e), distributions of the privilege tax are as

  • 80% to the Lottery for Education Account (LEA);
  • 15% to the local government
  • 5% to the Department of Mental Health and Substance Abuse Services (DMHSAS).

Therefore, the proposed legislation will result in the following recurring increases in
revenue, beginning in FY23-24:

  • $5,887,761 ($7,359,701 x 80%) to the LEA;
  • $1,103,955 ($7,359,701 x 15%) to the local government; and
  • $367,985 ($7,359,701 x 5%) to the DMHSAS.

If the legislation advances, Tennessee sportsbooks will be entering new territory with taxation. There is also the potential for other markets to follow suit if this deems fruitful for Tennessee. There are major implications involved with this measure beyond just the taxation, however.

How This Measure Can Affect Odds

If operators are required to pay the state through a sports betting handle instead of AGR, then they will become motivated to increase their hold rate as much as possible. This could incentivize operators to promote parlays over straight bets to decrease potential payouts.

This could also see the potential payouts on all wagers decrease as well. Sportsbooks could add juice on all the odds in Tennessee, making them less desirable compared to other markets. Should this measure pass, it would affect the entire industry in Tennessee. Sports betting fans should pay close attention to this measure going forward.