Tennessee to Become First State to Tax Sportsbooks on Betting Handle

After effortlessly passing bills in the spring, Tennessee is set to become the first state to tax sportsbooks based on their handle instead of their revenue. That is a significant departure from their previous 20% tax on gross revenue, which taxed sportsbooks on the amount made after all winning bets were paid out. The new law will eliminate the 20% tax and 10% hold requirements to instead tax sportsbooks 1.85% on 99.75% of their monthly handle.

The change is estimated to have added another $15 million to the state since the industries launch in November 2020. While that is not a massive amount, there are a few different reasons why Tennessee wanted to make the change

Why Tennessee Changed Their Tax Law

The biggest reason for this change revolved around the 10% hold under the old system. The “hold” is the amount that sportsbooks were required to withhold from their handle each month to ensure the state met its projected tax revenue. The issue is that sportsbooks have not been meeting that hold, instead taking the fines from the state. That has led to Tennessee’s sports betting revenue being below their projections, which spurred the government into action.

While the law was changed to benefit the state, eliminating the 10% hold will make things easier for both sides. It was one of the highest rates in the country, as was their 20% tax rate. While the state will bring in a little more revenue, it will be less than it would if the sportsbooks consistently met their 10% hold.

What This Means for the Sports Betting Industry

While Tennessee has a unique set of circumstances, this could be a change seen in states nationwide. This approach will stabilize the revenue stream and eliminate many of the write-offs that sportsbooks use to lower their payments. Either other states will likely begin to introduce bills to make this change, or sportsbooks will do more to meet their hold requirements. Either way, this change is likely the start of a new era in American sports betting.