Is Tennessee Losing Money With New Sports Betting Tax Format

On July 1, 2023, the new Tennessee sports betting tax law went into effect. However, early indications from government data suggest that it may not have been the right decision to alter the tax rules.

It’s important to understand there are several variables to consider between the former Tennessee sports betting tax format and the current one. Furthermore, only three months of financial figures isn’t enough to draw any definite conclusions.

Nevertheless, if the current trend continues under the new Tennessee sports betting tax, Tennessee lawmakers might be feeling a kind of buyer’s remorse soon.

Tennessee Sports Betting Tax Rate Changes

Let’s quickly compare the former Tennessee sports betting tax structure and current format’s differences. Under the new Tennessee tax structure, the state has a one-of-a-kind format that no other state adheres to at the moment.

Former Tennessee Sports Betting Tax Rules

In 2019, Tennessee became one of the first states in the country to legalize sports betting. Two years later, on November 1, 2021, mobile sports betting officially launched throughout the state¹.

Initially, the Tennessee sports betting tax law stipulated that sportsbook operators were taxed at 20 percent of their adjusted gross gaming revenue. In short, sports betting operators had to transfer 20 percent of what they profited to the State of Tennessee.

As an example, in March 2023, Tennessee online gambling sites accepted $392.7 in total bets. This equated to $43.7 million in sports betting revenue. Therefore, the online operators were taxed at a rate of 20 percent for $43.7 million, for tax revenue of roughly $8.8 million².

Additionally, under the old Tennessee sports betting tax laws, operators had to hold 10 percent of their annual handle, or total bets made by customers in a calendar year³.

New Tennessee Sports Betting Tax Rules

In January 2023, the Tennessee Legislature introduced SB 475 as an amendment to the Tennessee sports betting laws. Easily passed in the House and Senate, the tax rules officially launched in July.

As part of the amendment to the Tennessee tax law, the 10 percent hold on the annual betting handle was removed. The 10 percent hold was unpopular among Tennessee sports betting online sites. It was a welcome change that operators applauded.

The second notable change was transitioning from taxing on gross revenue to total bets, or betting handle. Using our example above from March 2023, under the new tax guidelines, $392.7 million would be taxed and not the revenue of $43.7 million.

However, instead of being taxed 20 percent, the tax rate falls to 1.85 percent on the total handle wagered⁴. Consequently, instead of the $8.8 million Tennessee earned from sports betting taxes under the old tax rule, the state would have collected roughly just over $7.2 million this past March, before deductions from the online operators.

Tennessee is the only state that has implemented this tax law for sports betting. If the experiment works, expect other states to follow suit.

New Tennessee Sports Betting Tax Rate Sees Mostly Negative Results

Let’s take a quick look at the numbers and assess how well the next Tennessee sports betting tax has fared since the transition in July. According to the financial reports made available to us, it hasn’t been a great start.

July 2023 Tennessee Sports Betting Tax Results

According to the Tennessee Sports Wagering Council (SWAC), the state witnessed an uptick in tax revenue from sports betting, year-over-year. The first month of the new Tennessee sports betting tax structure was a win for the state.

With a gross handle of roughly $214.1 million in wagers, there was $3.95 million in privilege tax assessed⁵. This was a win for Tennessee. They collected 7.7 percent more in tax revenue than in July 2022.

August 2023 Tennessee Sports Betting Tax Results

In August 2023, the handle rose fairly significantly from July. The SWAC reported a taxable gross handle of $241.8 million, for a 12.8 percent increase from the previous month. Also, there was a $37.6 million increase in wagers from August 2022.

The state reported a $4.46 million tax bill for online sports betting operators in August 2023⁶. However, per The Center Square, this did not translate into more taxes for the state than last year. The tax revenue for Tennessee fell by about $400,000.

September 2023 Tennessee Sports Betting Tax Results

The biggest concern for Tennessee and the SWAC has to be the results from September. Coinciding with the start of football season, the month of September is one of the most lucrative times of the year.

While Tennessee’s sportsbook operators accepted a substantial number of bets, it didn’t translate into a windfall for the state. In September 2023, there were $420 million in gross wagers accepted from bettors. This is up from $337 million wagered in September 2022.

With the 10 percent hold removed and more business, online sports betting companies were thrilled for football season. However, Tennessee witnessed a $1 million drop in sports betting tax revenue from 2022 to 2023⁷.

Note that the SWAC doesn’t release statements on how much sports betting operators profited anymore. Without this information, it’s difficult to pinpoint which tax structure is more financially beneficial for the State of Tennessee.

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