By the middle of next year, sportsbooks in Colorado will no longer be able to deduct free bets from taxable sports betting revenue.
Gov. Jared Polis signed the legislative change into law on May 15 after the proposal had passed first the House and then the Senate earlier this year.
Currently, Colorado’s sportsbooks are taxed at 10% of their sports betting revenue, but they can deduct 2.25% of the value of promotional non-cash wagers placed by bettors. That was already scheduled to fall to 2% this July and 1.75% in 2026.
With the new legislation, the deduction proportion will now drop to 1% on Jan. 1, 2026, and it will be abolished completely as of July 1, 2026.
The change is the result of House Bill 1311, which was passed 52-13 in its original chamber in late April and by a 28-7 vote in the Senate on May 6. A previous version of the bill set the abolition date as Sept. 1 of this year, but that was pushed back to next summer.
In the legislation’s fiscal note, the bill’s sponsors estimated that the change will raise around $13 million in additional revenue for the Water Plan Implementation Cash Fund in FY 2026-27.
Voters removed betting tax revenue cap last year
The change is the latest move to boost how much money the state of Colorado makes from sports betting.
Last year, voters elected to remove an existing tax revenue cap of $29 million that was in place due to a provision of the constitution that limited tax revenue collection to amounts included in legislative projections.
Colorado’s tax revenue reached $29.9 million last year, and lawmakers decided to put the issue of removing the cap on the ballot. Legislative projections estimated the surplus would have been $2.5 million in 2025-26.
Across the first three months of 2025, Colorado’s online sportsbooks have reported more than $143 million in gross gaming revenue. Adjusted revenue after promos and taxes was $101.4 million. In March, only $21.9 million of Colorado sportsbooks’ $36.2 million in gross gaming revenue was taxable.
