Tennessee Makes Play on Fantasy Sports Taxation, Regulation

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Andrew M. Ballard

April 28 — Fantasy sports are now legal and will be regulated and taxed in Tennessee under a bill signed into law by Gov. Bill Haslam (R).

Signed April 27, S.B. 2109—the bulk of which takes effect July 1—requires fantasy sports operators to register, meet certain consumer protection requirements and pay a 6 percent tax on their earnings. Fantasy sports operators are allowed to continue to operate in Tennessee while they go through the new licensing process.

According to sponsors of the bill, about 1 million Tennesseeans and 55 million people nationwide participate in some kind of fantasy sports league. The legislation is supported by online fantasy sports companies including FanDuel Inc. and DraftKings Inc., which sought a regulatory framework for such activities in Tennessee.

Consumer Protections

S.B. 2109 legalizes online fantasy sports and requires operators of such sites to be licensed by the secretary of state, be subject to independent audits and pay the 6 percent privilege tax on their adjusted revenue. While lawmakers were considering the measure, the Tennessee attorney general issued a legal opinion stating that, absent a change in the law, fantasy sports activities were considered illegal gambling (2016 Weekly State Tax Report 16, 4/22/16).

The new law requires operators to provide certain consumer protections, including a ban on players younger than 18, employees of operators and certain athletes, league officials and others that could have an unfair advantage. Protections for novice players against highly sophisticated ones, and financial safeguards including secure account deposits and a monthly limit on individual participant deposits of $2,500, also are included.

Other states, including Virginia, Indiana and Massachusetts, have adopted certain regulatory or legal frameworks for online fantasy sports that also include consumer protection provisions (2016 Weekly State Tax Report 31, 4/1/16).

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C., at aballard@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

For More Information

Text and details of S.B. 2109 are at http://src.bna.com/edc.

The AG's opinion is at http://src.bna.com/ecu.