Tennessee generated $1 million less in tax revenue from mobile sports betting in September 2023 than during the same period a year prior. The decrease comes despite Tennesseans wagering $83 million more in September 2023 than in September 2022.
Tennessee also saw a $400,000 decrease in tax revenue in August 2023 compared to August 2022, despite $37 million more being wagered in August 2023 than in August 2022.
The revenue dips come shortly after the state’s mobile sports betting tax structure changed on July 1, shifting from a 20% tax on adjusted gross income to a 1.85% handle tax. The taxation structure was changed because operators were missing the state’s controversial 10% hold mandate, willingly accepting a $25,000 financial penalty instead of meeting the hold requirement.
As a result, the Tennessee legislature looked into ways to better maximize the state’s tax revenue from mobile sports wagering. Instead of stronger enforcement of the 10% hold mandate or a minor alteration to the revenue tax, the legislature landed on a first-of-its-kind handle tax.
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While September’s year-over-year tax revenue decreased, Tennessee Sports Wagering Council Executive Director Mary Beth Thomas says the state has seen a roughly 40% increase in sports betting tax revenue generation in the first nine months of 2023 compared to the same time period in 2022.
Only July, August, and September featured the new handle taxation system, though. The first six months of the year used last year’s 20% tax structure.
“We are still looking to see how our taxes are shaping up for this year,” Thomas said at last week’s SWC meeting.
The SWC will be among the entities to meet with the State Funding Board in early November to discuss tax revenue sources, and Thomas anticipates a challenge in forecasting Tennessee’s future tax revenue from mobile sports betting.
“It’s going to be, as far as the forecasting situation, a little bit difficult to give a true estimate of where the growth might go,” Thomas said. “As far as gambling states go, it’s difficult to compare states … but it’ll be great to be able to tell the board about what we do and what we’ve done so far and where we’re going.”
It may take a few more months before the SWC better understands the impact of the new tax structure.
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It’s not immediately clear if Tennessee’s new tax structure will lead to increased tax revenue. Sports Handle calculated that the 1.85% handle tax would have led to a $3.18 million tax revenue increase in 2022 compared to the 20% revenue tax used. The new system doesn’t guarantee increased tax revenue, though.
If operators post high monthly holds — a growing trend across the country given the popularity of same-game parlays — there’s a possibility the 1.85% handle tax could lead to less tax revenue for Tennessee than the 20% revenue tax.
Tennessee’s new taxation system means the SWC’s monthly financial reports no longer include gross revenue data. Without that information, it becomes impossible to compare whether the old taxation system would have generated more revenue than the new system.
