Lawmakers in the Centennial State have introduced a bill that could significantly alter the state's tax framework for its top Colorado sportsbooks. House Bill 1311 (HB1311), introduced on March 28, attempts to eliminate a current tax exemption being offered to sportsbooks on free bets, commonly referred to as "free bets."
Key Insights
- Colorado's HB 1311, which proposes taxing free bets to increase sportsbook revenues, is advancing
- The bill could generate $12 million yearly, funding urgent water infrastructure needs
- The bill aligns Colorado with other states tightening gambling tax policies for stability
The House Finance Committee approved the bill on April 21 and referred it to the Committee on Appropriations for further consideration.
Currently, in Colorado law, free bets and promotional credits are excluded from taxable income, and operators can deduct their value from taxable revenue. This has limited operators' tax burden as the sports betting sector continues to grow. HB1311 would close this loophole by making all promotional bets taxable towards gross revenue, thereby widening the taxable base.
Bipartisan leaders, Speaker of the House Julie McCluskie, Sen. Dylan Roberts, and Rep. Matt Soper have sponsored the bill. The sponsors note that the legislation will generate an estimated $12 million in new tax revenue in its first year.
The money will fund the state's water programs, which receive approximately $30 million annually from current sports betting coffers.
The bill supporters mention the pressing need for more water infrastructure investment now, especially given Colorado's drought, long-term climate risks, and explosive population growth.
Sen. Roberts said the additional funds could be vital in assisting in paying for water conservation projects, updating irrigation systems, buying up water rights, and establishing long-term resource plans.
Taking cues from other states
The concept of taxing free bets is not new. Other states with legalized sports betting have already begun to rethink or redistribute their tax approaches to create more stable income flows.
Illinois has recently raised the top possible rate for sports betting to 40%. Massachusetts and Ohio have already raised taxes in response to altered market forces and mounting calls for firmer public revenues.
On the other hand, Colorado imposes a 10% rate on net revenue from sports betting. While the rate has not changed, the state has been looking into alternative ways of generating more revenue, including the voter-approved repeal of a $29 million cap on sports betting tax collections in 2023.
That policy change increased the state's flexibility to collect and use tax money, paving the way for later regulatory reforms such as those in HB1311.
Critics of the measure have raised the question of whether taxing promotion wagers might discourage operators from offering them in the first place, thus discouraging customer recruitment and aggregate gaming activity. Proponents of the measure counter that the market has matured and will be able to weather the change without significant disruption.
If enacted, HB1311 would align Colorado with a growing number of states that are becoming more proactive in collecting gambling revenue. Legislators see the bill not only as a means of bringing in additional revenue for essential infrastructure but also as a step towards ensuring that sports betting remains a viable source of revenue for the state's economy.
Finally, the Committee of Appropriations will determine the bill's budgetary sustainability and whether the proposed increase in funding for water programs justifies the shift in taxation policy.
