Public Chapter No. 507, "The Sports Gaming Act" was passed by the Tennessee General Assembly in April 2019. Governor Bill Lee allowed the legislation to become law without his signature, stating he was philosophically opposed to gambling. While the General Assembly passed online sports betting in 2019, it has taken a lot of time and effort to establish administrative oversight and implement operational rules and procedures to finally implement the act. The act became effective November 1, 2020, making online sports betting a reality in Tennessee.
There is a 20% privilege tax levied on companies operating "online sports wagering" platforms in Tennessee. The tax is paid on the "adjusted gross income" meaning the total of all money paid to a company as bets minus the total amount paid out to winning betters over a specific period of time, which includes the cash equivalent of any merchandise or things of value awarded as prizes. Licensed gaming companies are required to pay the tax on a monthly basis to the Tennessee Education Lottery Corporation, which oversees sports wagering in Tennessee. The lottery corporation pays the tax to the State Treasurer for distribution to local governments on a quarterly basis. The lottery corporation retains the first 80% for its education scholarship program.
Pursuant to T.C.A. § 4-51-304(e)(2), fifteen percent (15%) of the privilege tax collected under this section must be distributed by the corporation (Lottery) quarterly to the state treasurer for deposit into the general fund, to be remitted quarterly to each local government in this state on a per capita basis, as determined by population based on the last federal census. For purposes of calculating the allocation, the population of counties excludes the population of each municipality within the boundaries of the county. Funds remitted to a local government under this subdivision must be allocated to the county or city general fund, as applicable, to be used for local infrastructure projects, including, without limitation, transportation and road projects and public buildings.
When this legislation was passed, it was projected that it would generate about $3.8M for local governments for half of a fiscal year and then $7.6M in the first full year. It will be a while before online wagering revenues start trickling down to local governments. The funds must be used for infrastructure projects, including transportation and road projects and public buildings. The county legislative body will determine the county's infrastructure priorities.
It should be noted that these funds are not considered local revenue and therefore should not impact a county’s maintenance of effort for either the highway department or board of education should the funding be allocated to either of those entities. It will be important for counties to implement measures to restrict the usage of the funds for the purposes set out in statute; for example, segregating these funds in a separate capital projects fund. More guidance will be forthcoming regarding the appropriate accounting and budget entries for this new revenue. Please contact your county government consultant if you have questions.