This bill phases out a tax deduction currently allowed for sports betting operators in Colorado who offer “free bets” or promotional bets to players. By September 1, 2025, operators will no longer be allowed to deduct these free bets from their taxable revenue.
Key Definitions
Free bets: Promotional credits or wagers offered to players at no personal cost, used to attract or retain customers.
Net sports betting proceeds: The amount a sports betting operator earns after subtracting allowed deductions (including promotional bets) from gross wagers.
Sports betting operators can deduct up to 2.25% of total monthly bets placed by players as free bets.
July 1 to August 31, 2025 (as revised by this bill):
Deduction limit drops to 2.0% of total monthly bets.
Repeal of Future Deduction Phase (former July 1, 2026 plan):
A scheduled further reduction to 1.75% has been repealed.
New Rule (effective September 1, 2025):
Operators can no longer deduct free bets at all.
This means 100% of gross bets are taxable, regardless of promotional incentives used.
SECTION 2: Effective Date & Petition Clause
The bill takes effect 90 days after the legislative session ends, unless a referendum petition is filed.
If challenged and approved by voters in the November 2026 general election, it takes effect upon the Governor’s official vote declaration.
Implications
For the state:
Increases taxable revenue from sports betting by removing free bet write-offs.
Could result in more funding for public purposes, including water conservation, which is where sports betting tax revenue is directed in Colorado.
For operators:
Reduces a major promotional tax benefit used to grow or retain user bases.
May lead to fewer or smaller free bet promotions starting in late 2025.
For players:
Could see fewer “risk-free” promotions or reduced sign-up bonuses as operators adjust to the new tax structure.
Summary This bill ends the practice of letting sports betting companies deduct “free bets” from their taxable income starting September 1, 2025. It accelerates the phase-out schedule and eliminates a future deduction tier that was planned. The goal is to boost state revenue from sports betting, while limiting promotional tax loopholes for operators.
Summary
As approved by voters in 2019, a tax of 10% is imposed on net
sports betting proceeds. Under current law, for the purpose of calculating its net sports betting proceeds, a sports betting operator or internet sports betting operator is allowed to deduct all payments to players, all federal excise taxes paid, and a certain percentage of free bets placed by players. Beginning on September 1, 2025, the bill removes the deduction for all free bets placed.
