Colorado Passes Bill To Eliminate Tax Deductions On Promotional Wagers
Colorado will be taxing its sportsbooks on promotional revenue starting in 2026 after the Senate passed House Bill 1311, 28-7.
The Colorado sports betting bill, which has bipartisan sponsorship from House Speaker Julie McCluskie and Rep. Matt Soper, allows the state to tax sportsbook operators for any revenue related to free bets and promotional wagers.
The House passed HB 1311 in April, and the Senate approved it with amendments earlier this week. The bill returned to the House for concurrence, and the House approved the changes before the legislative session adjourned on May 7.
With its passage, HB 1311 heads to Gov. Jared Polis to sign into law. It will take effect on July 1.
Contents
A Newfound Channel for Water Funding
Colorado allowed promotional bets to go untaxed when it legalized sports betting in 2019. Its sports betting tax proceeds contribute to the Colorado Water Plan.
Last year, voters supported the state removing its $29 million annual cap on sports betting tax contributions after Fiscal Year 2024 exceeded that cap, hitting $29.9 million. Now, lawmakers are revisiting the potential money the state is missing out on from free bets.
The bill estimates that the change could bring the state another 30% in annual tax revenue. The projected fiscal impact projects the state to receive an additional $12.9 million in Fiscal Year 2027 and $11.5 million in Fiscal Year 2028.
If these figures prove accurate, the state’s water programs would receive more than $40 million annually from sports betting.
Closing a Loophole
Sportsbooks in Colorado and across the US have utilized promotional wagers to attract new customers. In Colorado, they can deduct up to 2.25% of their monthly handle in promotional bets awarded, though that percentage will drop as follows, according to the new plan:
- 2% starting on July 1, 2025
- 1% starting on Jan. 1, 2026
- No deductions starting on July 1, 2026
By facing a full tax burden on the revenue from promotional wagers, books become less incentivized to offer them.
However, the state feels that promotional wagers represent a legal loophole that allows sportsbooks to pay a smaller percentage of taxes relative to the revenue from their total handle.
Through the first three months of 2025, Colorado sportsbook apps have reported more than $143 million in gross gaming revenue. After deducting promos and taxes, the adjusted revenue totaled $101.4 million, or 70.9% of the GGR.
Even if handle drops as a result of reduced promotional spending, the state’s cut of the new revenue should still increase significantly.
Multiple Attempts To Increase Taxes
Even with operators facing new taxes, Colorado remains one of the most tax-friendly states for online sportsbooks nationwide, with a 10% tax rate. Six other states have a 10% online sports betting tax (Arizona, Kansas, Maine, West Virginia and Wyoming), and only four have a lower rate (Nevada, 6.75%; Iowa, 6.75%; Michigan, 8.4%; Indiana, 9.5%).
The remaining 20 states have higher tax rates, most between 15% and 20%. Pennsylvania taxes its online sportsbooks at 36%, and New York, New Hampshire and Rhode Island have 51% tax rates.
In 2025, seven states have discussed raising sports betting taxes: Indiana, Louisiana, Maryland, Michigan, New Jersey, North Carolina and Ohio. None were successful, though at least some of those talks appear likely to resume next year.
