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Colorado Pushes Forward with Legislation Limiting Tax Deductions for Sports Wagers

Colorado's HB 1311 intends to eliminate tax breaks on free bets by mid-2026, with the redirected funds being used to modernize the state's revenue system for improved tax collection.

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Colorado's legislative bill HB 1311 intends to eliminate tax deductions for free bets by mid-2026,...
Colorado's legislative bill HB 1311 intends to eliminate tax deductions for free bets by mid-2026, and instead, the accumulated funds will be utilized to modernize revenue systems for improved tax collection.

Colorado Pushes Forward with Legislation Limiting Tax Deductions for Sports Wagers

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Colorado's sports betting landscape might undergo a significant shift with the progress of House Bill 1311, proposing new regulations on deductions for sportsbooks. The bill, now through its third reading without any modifications, aims to gradually reduce certain tax write-offs, ultimately impacting how operating profits are taxed.

As it stands, the Colorado gambling industry has benefited from a system that allows operators to subtract expenses such as federal excise taxes and free bet promotions from their gross revenue, determining the final taxable amount. However, with HB 1311, these perks may soon be a thing of the past.

From July 1, 2025, free bet deductions will gradually disappear. Operators will initially be allowed to deduct only 2% of free bet amounts until the end of December, followed by a drop to 1% from January 1, 2026, to June 30, 2026. By July 2026, no more free bet deductions will be permitted.

The core intention of the bill is to boost tax collections from sports betting revenue. The phased-out deductions could result in increased revenue to prioritize public services.

In addition, the bill includes an appropriation of around $17,135 to the Colorado Department of Revenue for the 2025-2026 fiscal year, to cover necessary personal services and IT system updates needed to implement the new regulations.

This move echoes a broader trend in the United States as states review and tighten sportsbooks' deduction privileges, particularly concerning promotions such as free bets. States such as Virginia and Michigan have already implemented similar changes to enhance tax revenue from the betting sector.

As of now, HB 1311 is still progressing through the legislative process. With no amendments made during its third reading, the bill's finalization seems closer than ever. So, keep your eyes peeled for updates on this transformative bill and its potential impact on the Colorado gambling industry.

  1. The progress of House Bill 1311 in Colorado aims to alter the landscape of sports betting by reducing deductions for sportsbooks, especially for free bet amounts.
  2. In the fiscal year 2025-2026, the Colorado Department of Revenue will receive approximately $17,135 to fund necessary personal services and IT system updates due to the implementation of new regulations on sportsbooks' deductions.
  3. The gradual phasing out of free bet deductions, starting from July 1, 2025, could lead to an increase in tax revenue, which could be used to prioritize public services.
  4. The tightening of sportsbooks' deduction privileges, including free bets, is not unique to Colorado; states like Virginia and Michigan have already implemented similar changes in an attempt to enhance tax revenue from the betting sector.

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