June 2023 marked the final month in which Tennessee sports betting operators would be taxed 20% on gross gaming revenue. Instead, the state has transitioned to a ‘unique’, yet often criticized 1.85% tax based purely on betting handle.

After signing SB 475 into law in May, Tennessee becomes the first state to work off a handle based tax. It previously had a quirky tax on GGR, whereby the legislation outlined a minimum hold percentage required by the regulator.

Nine of eleven operators failed to meet the minimum hold requirement and as such had to pay the regulator $25,000 for doing so. A handle tax has previously been proposed for West Virginia sports betting, Minnesota sports betting as well as in Kentucky. It was not passed through legislature in any of the aforementioned.

In addition to the reduction in tax, Tennessee now no longer has an official league data mandate. It also has staggered renewal fees, depending on a company’s handle figures. New operators still face an initial license fee of $750,000. With regards to renewals, operators that generate less than $100 million in handle will pay $250,000 and those with less than $500 million will pay $500,000 instead of the full $750,000.

Due to the fact that tax is no longer levied on adjusted gross revenue, the Tennessee Lottery’s Sports Betting Council now posts even further abbreviated data – making the state’s numbers the most threadbare in the country.

For July 2023, the following was reported:

  • Gross Wagers: $215,489,157
  • Adjustments: $1,375,103
  • Gross Handle: $214,114,055
  • Privilege Tax Assessed: $3,951,411

Gross Handle is simply Wagers minus Adjustments. When comparing to FY22, July handle was lower (up 17.9% in 2023), recorded at $182.8 million. In that month, the state took $3.7 million in taxes from $18.3 million adjusted gross revenue. The hold for July 2022 was 10.0%.

Assuming the handle tax was live last year, $3.4 million in tax would have been collected – lower than what was actually taken. Critics of the handle tax suggest it allows operators to hide things and makes reporting less transparent than it already is in some states.

When applying the new tax rate to June 2023, handle of $230.3 million on $25.5 million of adjusted gross revenue. The Volunteer State received $4.6 million in sports betting taxes, but under the new tax laws tax would have only been $4.26 million.

Simple quick math shows that the handle tax is generally favorable for operators at the current rate. The state is set to receive less in taxation receipts than it did prior, and this has attracted criticism from non-commercial stakeholders and the anti-gambling lobby.