Where Does Tennessee Sports Betting Tax Go?

Posted on October 31, 2020 - Last Updated on October 30, 2020

Volunteer State bettors can benefit by understanding how the state utilizes sports betting tax revenue.

Tennessee law requires operators to pay a 20% privilege tax on annual revenue.

So, where does this sports betting tax go?

Tennessee’s 20% sports betting privilege tax

Four sportsbooks are currently approved to operate in Tennessee – DraftKings, FanDuel, BetMGM and Action 24/7.

Winning bettors will see the majority of each sportsbook’s revenue return.

After that, these operators must pay out expenses and taxes.

Tennessee deducts a so-called privilege tax of 20% from each sportsbook’s adjusted gross income.

This tax rate is on the high side, although rates vary drastically throughout legalized regions. Nevada has a rate of 6.75%, while comparatively, Rhode Island sits at 51%.

Sports betting is estimated to bring in $41 million for the state and $7.6 million for local governments in Tennessee’s first year.

Sports betting tax recipients

Funds accumulated from operators with this tax will be dispersed across several projects.

The Tennessee Education Lottery (TEL) is responsible for regulating the state’s online sports betting and fund distribution.

The TEL’s own Lottery for Education account inherits 80% of the accumulated sports betting tax funds. Then, local governments collect 15% for use on road and infrastructure projects. State-funded gambling addiction programs receive the remaining 5%.

Other states use sports betting tax revenue for a variety of projects. Illinois’ allotment goes to reducing the state’s budget deficit, while Kentucky is working to diminish their hefty pension.

Alternatively, Washington D.C. is allocating monies to arts and humanities and early childhood education initiatives.

Statewide scholarships and grants

Until now, gambling has been almost entirely illegal in the state apart from the Tennessee Lottery. Horse race betting also exists, though it lives in a legal gray area.

Since the lottery’s launch in January 2004, a whopping $5.62 billion has been raised for its Lottery for Education Account. This account funds state scholarships and grants.

Close to $422 million was generated for these Tennessee education programs during the 2018 fiscal year.

Fifteen scholarship programs, such as the HOPE Scholarship and Tennessee Promise, distribute the proceeds to students.

During the 2019-20 school year, close to 150,000 students received assistance from these academic grants.

With the additional surplus channeled into the Lottery for Education Account through sports betting, the program could receive an extra $39 million annually.

Problem gambling initiatives

State-managed problem gambling resources are more important than ever now that sports betting is a reality for Tennesseans.

In 2016, bettors wagered roughly $1.6 billion on legal gambling in the state. A study from that same year found that approximately 2.2% of Tennessee adults, or 113,000 residents, had a gambling problem.

The TEL currently allocates $200,000 of its annual annuities to problem gambling services. 80% of this goes to the University of Memphis Gambling Clinic. The Tennessee Association of Alcohol, Drug and other Addiction Services (TAADAS) recovers the remainder.

With the onset of legal sports betting, efforts to provide treatment services and strengthen community awareness have increased.

Five percent of all revenue accrued from state sportsbook operators will go to the Tennessee Department of Mental Health and Substance Abuse, as per a provision of the Tennessee Sports Gaming Act of 2019.

Sports betting could generate an additional $2.5 million in annual funding for Tennessee responsible gambling programs.

Tennessee sports bettors can take comfort in knowing the Volunteer State is investing in their best interest.

Photo by Associated Press
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Alec Cunningham

As a college athlete, Alec Cunningham played Division II golf at Tusculum University. She graduated in 2015 with a bachelor’s degree in Journalism and Professional Writing. Alec has spent the last five years working in the music industry as a concert promoter, tour manager and artist developer. As a journalist, she has covered a variety of topics and currently specializes in the Tennessee online sports betting industry.

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