Tennessee Lawmakers Vote for Sports Betting Tax Changes
Tennessee lawmakers have voted in favor of taxing sportsbooks on their total handle rather than adjusted gross revenue. This will be the first such tax arrangement for sports books in any US state. The bill also looks to remove the 10% monthly hold on handle previously imposed on sportsbooks.
The state House passed the bill last week by a 75-7 vote. That’s after it unanimously cleared a Senate vote, 30 to 0, back in January.
The bill still needs to be signed into law by Tennessee Governor Bill Lee. However, its proponents are positive Lee will put his name on the dotted line.
If the bill is signed into law, the Volunteer State’s sportsbooks will be on new ground.
The new system will see a 2% tax on each sportsbook’s entire handle, which has never been tried in the US.
Currently, in the same way as most US legal states, sportsbooks in Tennessee pay a 20% tax rate on their adjusted gross revenues.
This often uses a process called EBITDA – or earnings Before Interest, Taxes, Depreciation, and Amortization. This is a good way for economists, investors and interested parties to get an estimate of a company’s potential cash flow and performance.
However, when businesses take this into account before tax, things get more complicated.
Tennessee’s lawmakers argue that sportsbooks can use promotions and other means to reduce their adjusted revenues to pay less tax.
In 2022, the state lost out on some $8 million, although the expected figures for 2023 are debated.
Lawmakers also say that, should the overall handle remain as high as it is each month, this tax system encourages both parties to help each other boost revenues.
The state had planned for this in their original legislation. They put in a 10% hold requirement on monthly revenues, which was supposed to stop sportsbooks from having massive handles of total wagers, but not keeping a lot of it.
However, the $25,000 fine for many operators who didn’t hit this requirement was apparently not enough of a deterrent.
Lawmakers estimate the state could lose out on some $26 million a year if the current arrangement continues.
This new bill will remove that 10% hold requirement as part of the changeover to the 2% total handle tax.
Several of the top months for handle since legalization have come very recently. In March, the state’s sportsbooks handled £392 million in total. That’s over 20% more than the previous month.
Should those rising monthly handles continue past the honeymoon period of new customer promotions, the state will stand to get a big slice of that pie from the new tax regime.
A similar proposal requiring a 1.85% tax rate on handles was proposed last month, but stalled in discussions before receiving a Senate vote.
Final State of Play
The new bill also has two other changes that will be introduced if it is signed off by the governor.
Currently, sports betting operators must use official league data for their offerings. But that might change soon. Smaller sportsbook operators in the state, such as Betly, argued successfully in the courts that the fees for the official data partners were too high for them.
The final change will see license fees lowered for operators with smaller overall handles. Operators with a handle below $100 million will get a 50% discount on the $750,000 renewal.
All licensees will now pay the full fee every three years, rather than split into yearly chunks.
Currently, Tennessee has 11 licensed sportsbooks offering online betting to its seven million residents.
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