The notion of imposing a tax on the betting handle rather than the gambling revenue is not novel. In the past, various states in the US, including Minnesota and Kentucky, have drafted similar measures that haven’t been particularly successful. However, against all probabilities, a proposal advocating this type of taxation has gained momentum in Tennessee. In April, Senate Bill 475 (SB 475) effectively navigated through the House, thereby garnering support and approval from the state Senate. This took the proposal to the cusp of becoming law.
Recently, Tennessee’s Gov. Bill Lee, formalized SB 475 into law, clearing the last legislative obstacle for this proposal. Thus, Tennessee is projected to be the pioneer among US states to tax sports betting organizations based on their bet volume rather than the revenues earned.
Besides modifying the tax structure, SB 475, slated to be in force from July, brings changes to the licensing costs for betting companies. The bill includes renaming of the regulatory authority from Sports Wagering Advisory Council (SWAC) to Sports Wagering Council (SWC). The ultimate aim of this new law is to increase tax revenues, thereby fueling various state initiatives.
The Legislation Abolishes Hold, Modifies Renewal License Fees
As per the existing taxation system for betting in Tennessee, operators have to pay 20% tax on their gross gaming revenue (GGR). On top of this, they are mandated to retain 10% of their handle every month. But, the new law essentially dissolves this requirement, perceived as unproductive by the lawmakers, as many operators were unable to meet the target resulting in penalties. Importantly, the GGR-based 20% tax is set to be substituted with a tax on the betting handle. Once SB 475 comes into effect, Tennessee’s betting operators will have to pay a tax of 1.85% on their monthly betting volume.
Other alterations to the rules involve the fees that operators pay to the state. The initial license fee of $750,000, that betting operators have to pay, will be maintained, however, the regulatory overhaul introduces changes to the renewal fees.
At present, a license renewal fee of $750,000 is charged, a condition that will undergo transformation once SB 475 comes into effect. After the legislation is enacted, the renewal fee will be replaced with a tier-based system that is tied to operators’ betting volume. For instance, operators with a betting handle of less than $100 million would have a renewal license fee of $250,000. As the handle rises, the renewal fees would also go up, under the new arrangement.
