Extras on Excise: Fantasy Sports Tax Means a Touchdown for Tennessee’s Department of Revenue

Despite the current oppressive humidity, University of Tennessee Vols fans will gear up soon for the football season with great anticipation. Fantasy sports operators, on the other hand, are adding new Tennessee tax payments to their playbooks.

Effective July 1, fantasy sports contest operators that have paying Tennessee customers must register with the Tenn. Secretary of State and file and pay quarterly tax returns. This is in compliance with S.B. 2109, which established the task force responsible for creating the regulations for this industry.

The tax is a 6 percent privilege tax imposed on the adjusted revenues of fantasy sports operators’ contests offered to in-state consumers and is due on the 20th day of the month after the end of each quarter. The percentage is calculated by dividing the number of in-state customers’ entry fees by the total number of players’ fees and is rounded to the nearest tenth of a percent.

This new tax is only one of the many recent legal developments for fantasy sports recently. For example, Virginia also passed legislation to regulate the industry earlier this year, and Missouri’s new law, H.B. 1941, will require operators to pay the lower of 10 percent of the previous year’s net revenue or an annual $10,000 application fee, effective Aug. 28.

So far, Tennessee is the only state to approve taxes. However, one bill awaiting the New York governor’s signature, A. 10736, would impose two taxes, one equivalent to 15 percent of in-state gross revenue; the other a 0.5 percent tax on gross revenue with a $50,000 annual cap.

Moreover, in some states, fantasy sports contests with cash prizes are illegal because they are considered gambling. As Bloomberg BNA’s Andrew M. Ballard originally reported in the Weekly State Tax Report on April 28, Tenn. Attorney General Herbert Slatery (R) ruled prior S.B. 2109’s passage that that these contests were illegal.

In a report on fantasy sports released in May, the Pennsylvania Gaming Control Board chronicles states’ responses to the industry; 11 states over the past year, including Tennessee, and New York, have determined that fantasy sports constitute illegal online gambling. Virginia was not one of those states, and its bill, S.B. 646, specifies that gaming activity complying with the new law is not considered illegal gaming.

The report also indicates that some states are open to changing course; like Tennessee, New York’s attorney general acted to stop fantasy sports contests last year, yet the industry has a chance of becoming legal soon via A. 10736.

Some sports fans will win and many will lose on DraftKings, FanDuel and other fantasy team sites, but for Tennessee, the cheer is rah-rah-REVENUE all season long.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should fantasy sports be considered online gambling, and if so, should it be taxed?

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