The proposal for modifying Tennessee's sports betting tax regulations has been temporarily shelved until the state's budget is adopted.
If Tennessee legislators proceed with modifying the state's sports betting tax, they plan to do so near the end of this year's session.
On a recent Wednesday, the state House Finance, Ways, and Means Subcommittee advanced House Bill 1362 beyond the state's budget. This move implies that the bill, sponsored by State Rep. Andrew Farmer (R-Sevierville), possesses a fiscal impact that will not be incorporated into this year's budget. Consequently, the Tennessee General Assembly will defer considering it until it passes the budget.
In previous years, the budget was passed on April 21, 22, and 29, respectively. If this pattern persists this year, the legislature will have a few days to debate the sports betting tax prior to adjournment on May 4.
It should be noted that the Senate also has a bill to amend the sports betting tax, with a hearing scheduled for its Finance, Ways, and Means Committee the following Wednesday.
Shifting from a 20% Revenue Tax
Both bills remove the 20% tax on adjusted gross revenues that has been in place since sports betting legalization in 2019. The first online operators launched in November 2020.
Alternatively, lawmakers are proposing taxing the handle, which refers to the total amount wagered every month. The Senate supports a 2% tax, while the House favors a 1.85% tax. Both proposals would enable operators to deduct the .25% federal excise tax they pay from their regular gross revenues before the state imposes its tax.
The House bill also revises the annual renewal fees operators charge. Instead of a $750K fee for all operators, the fee would be determined by individual handles, followed by potential changes to the thresholds and fees.
The bill indicates that operators who take in more than $500 million in wagers would continue paying the $750K fee. Sportsbooks managing less than $100 million would incur only a $250K fee, while everyone else would pay $500K in renewal fees.
A fiscal note filed on Wednesday revises the threshold to $100 million in wagers over the previous 12-month period. Operators exceeding that amount would still have to pay $750K, while those below it would see their fees slashed to $375K. Moreover, the Sports Wagering Council, which will be renamed from the current Sports Wagering Advisory Council, is expected to establish fee rules by July 1, 2025. These fees would cover the council's expenses for regulating sports betting in the state.
Eliminating Mandatory Hold Requirement
Another reason behind the tax reform was operators' struggles to meet the 10% hold rate specified by the Tennessee Education Lottery Corporation when it designed the rules three years ago. If the operators failed to meet this benchmark, the state required them to make "true-up" payments to bridge their tax contributions. However, operators could alternatively opt to pay a $25K fine if they preferred.
If operators missed the 10% minimum during 2022, the Tennessee General Assembly's Fiscal Review Committee predicts they will collectively pay $25K fines this year.
Discussions around a handle tax coincide with record monthly revenues for sports betting operators in Tennessee. Since September, the Council reports that monthly revenues reported by operators ranged from $47 million in December to $31.8 million in February, with the six-month interval between September 2021 and February 2022 recording the six highest revenue numbers since betting legally commenced.
Prior to this run, the high watermark was $29.6 million in November 2021.
Considering the above, the first 22 months of reports yielded $395.2 million, representing a monthly average of $18 million. In contrast, the most recent six-month period has generated $238.7 million, earning an average of $39.8 million monthly. 2
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