Colorado Targets Free Bets in Sports Betting Tax Overhaul

Colorado have introduced a new measure, House Bill 1311, aimed at ending a longstanding tax break for sportsbooks that has allowed them to exclude free bets from their taxable revenue. If ed, this legislation could bring in an estimated $12 million in additional funds each year to Colorado’s critical water infrastructure.

A Legislative Shift Toward Greater Revenue

Introduced on March 28, 2025, and approved by the House Finance Committee on April 21, House Bill 1311 (HB 1311) proposes a significant change to how sports betting revenue is calculated for tax purposes in Colorado. The bill would eliminate the ability for sportsbooks to deduct the value of promotional bets—commonly referred to as “free bets”—from their taxable income. The legislation has now been referred to the Committee on Appropriations for further review.

Under the current law, sportsbooks can subtract free bets and other promotional incentives from their gross receipts, thereby reducing the amount of tax they owe. This deduction has been seen as a way to promote growth in the industry, which has contributed approximately $30 million annually to the state’s water projects.

However, HB 1311 would fully remove the free bet deduction beginning September 1, 2025. The bill amends the state’s gaming statutes to prevent any promotional wagers from being excluded from net sports betting proceeds, effectively broadening the tax base without raising the existing 10% tax rate.

Closing Loopholes to Fund Essential Water Projects

Backers of the bill—including House Speaker Julie McCluskie, Senator Dylan Roberts, and Representative Matt Soper—argue that the existing loophole curtails the potential of sports betting to contribute fully to public funding needs. By closing this gap, they estimate the state could generate an additional $12 million annually for water-related projects.

Senator Roberts emphasized the urgency of the issue, citing persistent drought, the effects of climate change, and rapid population growth as key challenges. “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,” he said.

The new revenue would augment the existing funding pool, which is already used to address various water infrastructure and sustainability concerns across Colorado.

Trends Across the Nation

Colorado is not alone in rethinking its sports betting tax policy. Several other states have already taken steps to adjust how promotional wagers are taxed in an effort to stabilize revenue streams. Massachusetts and Ohio have also raised rates amid changing market conditions.

While Colorado continues to levy a relatively modest 10% tax on net sports betting revenue, the state has chosen a more incremental path. In 2023, voters approved the removal of a $29 million cap on annual sports betting tax collections, a move that laid the groundwork for subsequent reforms like those proposed in HB 1311.

ers of the bill view the inclusion of promotional bets in taxable revenue as a logical step in maturing a growing industry. They contend that the market has stabilized and can accommodate the change without negatively impacting operator performance or consumer activity.

Industry Reactions and Next Steps

Although the legislation has gained bipartisan , not everyone is on board. Some critics argue that taxing free bets might reduce the number of promotions offered, potentially making sportsbooks less attractive to new customers and dampening overall market activity.

Despite these concerns, proponents remain confident that the shift is both necessary and manageable. They highlight the importance of securing stable, long-term revenue for public services without raising tax rates.

The fate of HB 1311 now rests with the Committee on Appropriations, which will determine whether the financial benefits of the proposed change justify its implementation. If ed, the bill would take effect on September 1, 2025—unless a voter referendum challenges it, in which case it would go to a public vote in November 2026.

Source:

HOUSE BILL 25-1311, leg.colorado.gov.