Tennessee has abandoned one unique model for taxing sports betting in favor of another unique model.
Last week, Republican Governor Bill Lee signed a bill into law that will replace the state’s existing 20% tax on adjusted gross gaming revenue with another tax — a levy of 1.85% on handle. Starting July 1, the Volunteer State will be the only jurisdiction in the US with such a tax scheme.
SB 475, the bill signed by Lee, also effectively scuttles the state’s previous requirement that Tennessee sportsbooks hold at least 10% of handle each month or pay a $25,000 fine.
According to a fiscal memorandum attached to the bill, nine of the 11 sportsbooks that were active in Tennessee in 2022 did not generate enough revenue to cover the minimum 10% hold.
The state assumed all nine operators would likely choose to pay the fine instead of their “'true-up’ payment,” which is what all of the operators that didn’t generate enough revenue in 2021 ultimately decided to do.
Tennessee was the only state to require such a hold.
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Other Gaming Law Changes
The new tax on handle is just one component of SB 475 and a companion bill that cleared the state House of Representatives, HB 1362.
Tennessee will prohibit operators from deducting payouts, promotional wagers, or payouts from gross wagers. But the state will allow operators to deduct monthly federal excise taxes from the gross handle.
Just 16 months into its tenure as the state’s regulator for sports betting, the Sports Wagering Advisory Council (SWAC) has been renamed the Sports Wagering Council (SWC). SWAC took the reins from the Tennessee Education Lottery (TEL) on January 1, 2022.
Under SB 475, vendors will be required to register every three years instead of annually. A three-year vendor fee of $150,000 has been established, with $50,000 due at the time of registration, another $50,000 due on the one-year anniversary of registration, and the remaining $50,000 due on the second anniversary.
Operators will face some bigger costs.
A non-refundable application fee of $50,000 and an annual licensing fee of $750,000 is being replaced with a new system where the aforementioned costs will remain the same for the first year of operation but with the following changes — assuming the operator was licensed before June 30, 2025:
- For operators that received $100,000 or more in gross wagers for the 12-month period that immediately preceded the second (or subsequent) year of licensure, an annual licensing fee of $750,000 will be levied.
- Operators that saw less than $100,000 in wagers during the same 12-month period would pay a fee of $375,000.
SWC has also been tasked with promulgating rules to take effect on July 1, 2025, and setting licensing fees that would be enough to cover its operating and administrative costs.
SB 475 also removes all references to live betting. Tennessee’s gaming law will be amended so that a Tier 1 sports wager is defined as a wager placed on a sporting event with a final score or outcome before the event has started. Meanwhile, a Tier 2 wager would cover all other types of sports bets.
Tennessee will also no longer require operators to use official league data under certain conditions — either that the entity that governs the sport in question cannot provide such a feed or if an operator can show that they are not provided with such a feed under commercially reasonable terms.
