A bill to change Tennessee’s sports betting effective tax rate has passed through the Senate and the House, but it will need to stop back through the Senate before heading to Gov. Bill Lee’s desk for signature.
The House did amend the proposed tax rate of 2% of handle to 1.85%, which is why the Senate will need to sign off before the bill becoming law.
SB475 would aim to change the way tax is calculated in Tennessee by taxing sports betting handle rather than GGR and abolish the requirement to maintain a hold rate of 10%.
The bill unanimously passed through the Senate in a 30-0 vote with an amendment that outlined the fiscal note of changing the tax calculation. The House was a little more divided, but it was still a very one-sided vote at 75-7.
The Senate fiscal note envisage that by taxing handle over revenue, the state’s revenue will increase by $7.36m by FY2023/24, but that number will be lower if the House rate passes the Senate’s muster.
Currently, operators in Tennessee must pay 20% tax on all adjusted gross income, however, SB475 would scrap this and replace taxation with a 2% monthly tax payment on total gross wagers less canceled or voided wagers.
Crucially, this would eliminate operators’ ability to deduct payouts and promo credits from their tax duties but does allow licensees to deduct federal excise tax from the amount.
So, essentially operators would pay a 1.86% tax on 99.75% of handle, with the federal excise tax on sports betting set at 0.25%.
In 2022, the total AGI across all operators in Tennessee was $338.7m following $3.78bn in handle. Operators, obeying the current 20% tax rate, paid $67.7m to the state.
Under the proposals set out in SB475, operators would have paid $75.4m in tax, leading to the $7.36m uptick for the state. This was broken down in the amended bill to suggest that the Lottery for Education Account would be $5.8m better off, the local government would be $1.1m better off, with the Department of Mental Health and Substance Abuse Services benefiting from $368k extra funding.
The bill would also cancel the requirement for operators to achieve a hold rate of 10%, which is generally considered to be a strong rate. Currently, operators are fined each month they fail to reach this but SB475 nullifies this requirement as tax is reliant on handle rather than revenue.
Now the bill has passed the Senate, it has headed to the House, where it will be heard this week.
Should the bill make it into law, Tennessee would be a US outlier as no other state in the country taxes sports betting operators based on handle as opposed to revenue.