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Colorado lawmakers have passed a bill that will fully eliminate a tax deduction for free bets offered by sports-betting companies.
House Bill 1311, sponsored by House Speaker Julie McCluskie, a Democrat, alongside several co-sponsors, received approval from the state Senate without debate on Tuesday (May 6) in a 28-7 vote.
The House of Representatives approved the bill on April 28 in a 52-13 vote.
The measure was revised on May 2 to change specific dates when the percentage of allowable promotional deductions is reduced, but it was unclear late Tuesday if the bill will head back to the House for concurrence of the changes or instead move on to the desk of Democratic Governor Jared Polis for his signature or veto.
Under current law, Colorado's licensed sports-betting operators are allowed to deduct all federal excise taxes paid and a certain percentage of bonuses and other promotions offered to players from their state-taxable revenue.
Those allowable promotional deductions are no more than 2 percent of total amounts bet each month between July 1, 2025, and June 30, 2026, and on July 1, with a lower cap of 1.75 percent of total bets due to take effect as of July 1 next year.
Under HB 1311, operators will be able to deduct no more than 2 percent of total monthly wagers between July 1, 2025, and December 31, 2025, and no more than 1 percent of handle from January 1 to June 30, 2026.
Beginning on July 1, 2026, the bill will remove any tax deductions for any free bets.
Colorado taxes sports betting at a headline rate of 10 percent of monthly net revenue.
In total, the state’s effective tax rate went from about 5.4 percent in 2022, when deductions were uncapped, to just under 7 percent after the deduction limits were introduced.
If signed into law, HB 1311 would generate $12.9m in state tax revenue in fiscal year 2026-2027, and $11.5m in fiscal year 2027-2028, with comparable amounts in future years, according to a fiscal note from the Legislative Council Staff.
The new revenue is expected to be used to support water initiatives, including conservation programs, and water rights acquisitions.
That is in addition to the $30m that sports betting is on track to generate for water programs this fiscal year. Since Colorado voters legalized sports betting in 2019 by passing Proposition DD, the state has collected more than $100m in tax revenue.
One of the bill's sponsors, Senator Dylan Roberts believes Colorado needs all the tax revenue it can find to help make its water supplies go further as the state deals with climate change and demands from a growing population.
“The thought with this bill is that it’s time to make this change,” Roberts told The Colorado Sun last month. “It’s a great way to generate more funding.”
In November, Colorado voters approved Proposition JJ, a ballot measure that eliminated the $29m cap on annual sports-betting tax revenue the state allocated to water conservation and projects. The measure instead allowed the state to retain and allocate all sports-betting tax revenue.
Previously, Colorado was required to refund sports-betting tax revenue that exceeded $29m back to sports-betting operators and casinos.
Colorado will not be the first state to eliminate tax deductions for promotional bets, with Virginia taking a similar step in 2022 and regulators in Maryland last year proposing to do the same.
Other states are also actively seeking to generate more revenue from sports betting by increasing their topline tax rates.
Maryland's annual budget law, signed last month, will increase the state's tax rate from 15 to 20 percent as of July 1, while tax increases for sports betting are also being considered as part of state budget processes in New Jersey, North Carolina and Ohio.
Meanwhile, the Louisiana House of Representatives could vote as soon as Wednesday to pass a bill to more than double the state's tax rate on sports wagering from 15 to 32.5 percent of revenue. If passed by the House, House Bill 639 would also need to be approved by the Louisiana Senate.
Additional reporting by James Kilsby.
