Tennessee has stood out among other states by allowing only online wagering for sports betting. Now, the Volunteer State is exploring a unique approach to taxation by considering bills that would switch the state’s 20% tax on revenue to a handle tax. This means the state would get a cut of each bet placed, regardless of the outcome.
Senate Bill 475, proposed by state Sen. John Stevens, R-Huntingdon, suggests a 2% tax, whereas the House bill proposes a 1.85% tax. Both versions would permit operators to deduct the .25% federal excise tax but not any promotional credits. If the bills are passed, Tennessee will be the first state to enact a sports betting tax by handle.
House Bill 1362, sponsored by Rep. Andrew Farmer, R-Sevierville, also modifies the annual license renewal fee structure. Instead of all operators paying a standard fee of $750,000 a year, those sportsbooks that report a handle of $500 million or more in a calendar year will pay that rate. Those accepting more than $100 million in wagers but less than $500 million would pay $500,000, and operators who post handles of less than $100 million would be charged $250,000. All new licensees, however, will still have to pay the $750,000 fee for their initial application.
These bills also eliminate the mandatory 10% hold stipulated when creating the state’s sports betting regulations in 2022. Farmer reassured colleagues in a House committee meeting that the proposed changes will not be too severe, and that the state is not attempting to “poach” sportsbooks. Rather, the intention is to be as “business friendly” as possible and to increase the tax revenues.
Both bills are currently in the process of being reviewed by their respective chambers. Reports from the Tennessee Sports Wagering Advisory Committee (SWAC) suggest that if either chamber’s handle tax was in place for 2022, the state would have made more money for the year. Last year, Tennessee sports bettors wagered $3.85 billion with sportsbooks paying $9.6 million to the federal government, generating almost $68.1 million in tax revenue.
The discussion of a handle tax comes at an interesting time, considering that sportsbook revenues are reaching record-high levels. Nonetheless, it is a gamble that Tennessee lawmakers appear willing to take. Nevertheless, it is possible that handles may take a hit in the future, as more states are exploring legalizing online wagering.
