Colorado moves to tax promotional bets, aiming to generate additional revenue without raising 10% tax rate

Colorado lawmakers are advancing legislation that would eliminate a key tax deduction currently used by sports betting and online casino operators, as the state seeks to increase revenue from its growing wagering market without raising the headline tax rate.

House Bill 1311, introduced by House Speaker Julie McCluskie and Rep. Matt Soper and backed by Sen. Dylan Roberts, received approval from the House Finance Committee on Monday in a 9–3 vote. The proposal now heads to the Committee on Appropriations for further consideration.

If passed, the measure would amend Colorado’s sports betting tax code by prohibiting operators from deducting the value of “free bets," promotional wagers offered to players, from their taxable revenue. Since the launch of legal sports betting in 2019, operators have been able to deduct player payouts, federal excise taxes, and a portion of promotional free bets from their net proceeds, which are taxed at a 10% rate.

HB 1311 would end that practice, requiring operators to pay taxes on all revenue, including that generated through free bets. The change would apply to retail and online operators, including free bets offered by both sports betting and online casino brands.

The legislation comes on the heels of a 2023 move in which Colorado voters approved lifting the $29 million cap on annual sports betting tax revenue retained by the state. That development cleared the way for lawmakers to pursue structural changes aimed at maximizing revenue without adjusting the tax rate itself.

According to estimates, the bill could generate an additional $11.8 million in the 2025–26 fiscal year. Under the proposed allocation formula, the first 6% of new revenue would go to the Wagering Recipients’ Hold Harmless Fund, with the remainder directed to the Water Plan Implementation Cash Fund, which supports statewide water conservation and management efforts. If enacted, HB 1311 would take effect on September 1.

The move contrasts with more aggressive tax reforms in other states. Ohio doubled its sports betting tax rate from 10% to 20%, and Governor Mike DeWine has floated a potential increase to 40%.

Illinois adopted a sliding scale system in which operators earning more than $200 million in adjusted gross revenue are taxed at 40%, while smaller operators pay 20%. New Jersey is also weighing a possible increase in its tax rates on sports betting and iGaming to 25%, up from the current rates of 13% and 15%, respectively.