Colorado to End Sportsbook Promo Deductions by 2026

Lawmakers in Colorado are nearing final approval of a measure that would eliminate a long-standing tax break for sports betting operators. Both the state Senate and House have now ed versions of House Bill 1311 (HB1311), a bill that would halt the practice of deducting promotional bets from taxable revenue, starting in mid-2026.

The Senate approved the bill by a decisive 28-7 margin earlier this week, amending the measure slightly from the original House version. With the House concurring with the Senate’s changes before the legislature adjourned on May 7, the bill is now on its way to Governor Jared Polis for signature.

Tax Shift Aims to Boost Public Funding

The proposed law changes Colorado’s tax treatment of free bets—those offered as promotions by sportsbooks to attract new or repeat customers. Under the existing rules, operators can deduct a capped portion of these promotional wagers from their taxable revenue. This has reduced the amount of tax they owe, significantly lowering state collections.

Currently, the deduction stands at 2.25% of total monthly handle. It was set to decrease gradually—first to 2% and then to 1.75% by mid-2026. However, HB1311 accelerates and intensifies this process. Promotional bet deductions will first drop to 2% from July 1 through December 31, 2025, then shrink to 1% for the first half of 2026. After July 1, 2026, the deductions will be eliminated altogether.

According to the bill’s fiscal analysis, removing this deduction is expected to substantially raise state revenue. The Sports Betting Fund is projected to gain an additional $3.2 million in FY2025-26, followed by increases of $12.9 million and $11.5 million in the next two fiscal years.

Water Projects, IT Systems Among Beneficiaries

The state’s share of sports betting tax revenue s a range of initiatives. A portion goes toward maintaining and upgrading the Department of Revenue’s tax istration infrastructure. Funding also helps sustain operations at the executive director’s office and the taxation business group.

In addition, revenue is allocated to the Wagering Recipients’ Hold Harmless Fund, which cushions affected parties from the impact of legalized betting. A significant portion is directed to the Water Plan Implementation Cash Fund, aiding Colorado’s long-term water conservation and management strategies.

The bill also includes a $17,135 appropriation to the Department of Revenue, earmarked for staffing and IT as the state transitions to the new taxation model.

Voter Approval Paved the Way

A major hurdle to enacting such a policy had already been cleared in November 2024, when Colorado voters opted to lift the $29 million cap on annual sports betting tax revenue. That cap was originally instituted due to a 1992 constitutional amendment requiring tax limits to align with legislative estimates.

With voters eliminating the cap, lawmakers were free to pursue new tax policies aimed at increasing revenue. The approval of HB1311 is one of the first major legislative efforts to follow that voter decision.

Sports Betting’s Fiscal Impact

Since Colorado legalized sports betting in 2020, tax contributions from sportsbooks have totaled approximately $79 million. In its first year, the industry generated $6.6 million in taxes. That figure jumped to nearly $30 million in FY2024, following the implementation of initial limits on promo deductions.

Still, promotional credits have had a noticeable impact. In March alone, operators reported $36.2 million in gross revenue, but deductions reduced taxable earnings to just $21.9 million. HB1311 aims to close that gap and ensure more of the industry’s gross income is subject to the state’s 10% tax rate.

If the measure becomes law as expected, the full removal of promotional deductions starting in July 2026 would mark a major turning point in how sports betting is taxed in Colorado, increasing the resources available for vital public programs.

Source:

Bill to remove promo credit deductions in Colorado nears finish line, sbcamericas.com, May 7, 2025.