Colorado’s Sports Betting Tax Bill Stalls

A Bill in Limbo

Colorado’s push to tighten sports betting taxes hit a snag in 2025, as House Bill 1311 (HB1311), which bans operators from deducting promotional free bets from taxable revenue, stalled after the legislative session adjourned on May 7.

The Senate passed the bill 28-7 on May 6, but its amendments, including a delayed start date to July 1, 2026, sent it back to the House for concurrence.

With no time to act before adjournment, HB1311 remains pending, leaving operators and water projects in suspense. The bill, backed by Speaker Julie McCluskie and Sen. Dylan Roberts, aims to close a loophole, boosting state revenue by $12.9 million annually for water conservation by 2026-27.

Colorado’s 10% sports betting tax, set in 2019, currently yields an effective 5.9% rate due to promo deductions, per fiscal notes.

The Bill’s Core and Amendments

HB1311 targets promotional free bets, a key customer acquisition tool for sportsbooks. Under 2019’s Proposition DD, operators deduct player payouts, federal excise taxes, and a percentage of free bets from taxable revenue, slashing the effective tax rate.

HB1311 phases out free bet deductions: 2% of monthly handle from July 1 to December 31, 2025, 1% from January 1 to June 30, 2026, and zero thereafter.

Originally slated for September 2025, the Senate’s amendment pushed the full ban to July 1, 2026, giving operators an extra year. “It’s been wildly successful,” said Sen. Roberts of Colorado’s betting market, noting the bill aligns with voter-approved water funding goals.

The House passed HB1311 on April 28, 52-13, after Finance Committee approval (9-3), but Senate tweaks

Financial Stakes and Water Focus

The financial upside is big. HB1311 could lift Sports Betting Fund revenue to $52 million in fiscal year 2026-27, up from $39.1 million under current rules, adding $12.9 million annually, per fiscal estimates.

By 2027-28, it’s projected to add $11.5 million. For 2025-26, despite the delayed ban, revenue should rise by $3.2 million. “This bill brings sports betting companies closer to the voter-approved 10 percent tax rate,” said Speaker McCluskie, emphasizing water project funding.

Of new revenue, 6% goes to the Wagering Recipients’ Hold Harmless Fund, protecting casino towns, while 94% feeds the Water Plan Implementation Cash Fund for drought planning, irrigation upgrades, and water rights. Colorado’s betting market, one of the nation’s fastest-growing since 2020, generated $30 million for water in 2024, but population growth and climate change demand more.

The bill sparked mixed vibes. Operators, while appreciating the delayed timeline, worry taxing free bets could curb promos, a competitive edge in Colorado’s crowded market.