Free Bet Deductions to Be Phased Out in Colorado

free bets. A new law signed by Governor Jared Polis will gradually reduce—and eventually eliminate—these deductions, reshaping the way sportsbooks calculate their taxable proceeds.

Tax Change Targets Sportsbook Promo Deductions

Sports betting operators in Colorado will soon face a major tax policy shift. A new law signed by Governor Jared Polis on May 15 will eliminate the longstanding practice of allowing sportsbooks to deduct the value of free bets from their taxable revenue. This move, outlined in House Bill 1311, is designed to significantly increase the tax revenue collected by the state from online and retail sports wagering.

Under current rules, Colorado sportsbooks are subject to a 10% tax on their net sports betting proceeds. Operators have been permitted to reduce their taxable base by deducting a percentage of promotional non-cash wagers — a practice originally approved by voters in 2019. That percentage was scheduled to gradually shrink over time, moving from 2.25% to 2% in July 2025 and to 1.75% in mid-2026.

However, House Bill 1311 has adjusted this schedule. As of January 1, 2026, operators will only be allowed to deduct up to 1% of their total promotional bets each month. By July 1, 2026, this deduction will be eliminated altogether. An earlier draft of the bill proposed ending the deductions in September 2025, but that timeline was extended during the legislative process.

Legislation Gains Strong Bipartisan

The bill moved swiftly through the legislature, ing the House with a 52-13 vote in late April and clearing the Senate by a margin of 28-7 on May 6. It was officially signed into law just over a week later by Governor Polis.

The legislation’s fiscal note projects that ending free bet deductions could generate approximately $13 million in additional funds for the Water Plan Implementation Cash Fund during the 2026-2027 fiscal year. These resources are earmarked for long-term investments in Colorado’s water infrastructure and conservation efforts.

The bill also includes a $17,135 appropriation from the state’s sports betting fund to the Department of Revenue. These funds will staffing and upgrades to the tax istration IT system required to implement the new policy.

Cap Removal Paved Way for Revenue Expansion

Colorado’s approach to sports betting taxation has already undergone significant reform. In 2023, voters approved the removal of a $29 million cap on sports betting tax revenue, which had previously restricted collections based on original legislative estimates. This change allowed the state to retain surplus revenue beyond forecasted amounts.

That decision proved timely. Colorado’s sports betting tax revenue hit $29.9 million last year, narrowly exceeding the prior cap. Lawmakers estimated the state could generate an extra $2.5 million in 2025-2026 thanks to the lifted restriction.

The early months of 2025 further highlighted the sector’s performance. From January to March, Colorado’s online sportsbooks recorded over $143 million in gross gaming revenue. After ing for deductions and taxes, the adjusted total stood at $101.4 million. Notably, of the $36.2 million in gross revenue recorded in March alone, only $21.9 million was taxable due to promotional deductions — a gap that the new legislation is intended to narrow.

Source:

Colorado governor signs betting promo deductions bill into law, sbcamericas.com, May 16, 2025