Colorado’s 10% tax rate makes it an immensely favorable market for sports betting operators. Despite the relatively low rate, The Centennial State has managed to fund many great programs with its gambling taxes.
Could Colorado do even more if it raised its tax? And how would a tax hike affect operators already doing business in the state?
One midwestern state might provide an excellent case study for Colorado. Ohio Gov. Mike DeWine recently led the charge to double sports betting taxes in The Buckeye State. Ohio’s tax rate was 10% when the state first approved sports betting in 2021. Two years later, the state made the new rate 20% effective July 1.
Colorado’s TABOR amendment could hinder any tax increase
Colorado online sports betting has been brisk since it began in 2020, especially compared to other states its size. The state boasts 20 online sportsbooks, one of the most in the US.
Right now, Colorado’s 10% tax rate is not subject to TABOR, a 1992 state amendment that allows the state to retain and spend a certain amount based on the previous fiscal year’s revenue. In layman’s terms, TABOR prevents Colorado from increasing taxes without voter approval.
This throws a potential wrench in any possible sports betting tax hike. However, if packaged and promoted correctly, a Colorado sports betting tax increase could easily pass in the state. Chances are it would impact operators far more than individual bettors.
In a hypothetical scenario where Colorado increases its tax rate, it’s likely the revenue would rise at a commensurate rate. In the fiscal year of 2020 and 2021, Colorado sportsbooks earned $100.6 million in revenue subject to TABOR, plus $19.8 million exempt from TABOR.
Voters would almost certainly have to approve of a tax rate hike
TABOR’s existence means a change in Colorado sports betting tax rates would almost certainly need to be approved by voters. Currently, the revenue from state sports betting taxes is funneled to the following places:
- Administrative costs for the Department of Revenue’s Division of Gaming
- 6% to reimburse recipients of casino tax revenue for revenue loss from the legalization of sports betting
- $130,000 to state-specific problem gambling services
- All remaining funds to the Water Implementation Cash Fund
How a tax hike could hurt existing Colorado sportsbook operators
Naturally, a tax increase could mean … more. More money to the existing recipients of the above benefits. More organizations to benefit from the additional revenue. And more services and programs to assist players and fund community programs in Colorado.
Without a full budget proposal in place, it’s hard to say exactly where additional money would go. Should Colorado pursue a tax increase, expect a detailed plan for any added revenue.
Right now, Colorado is an operator’s dream, at least as far as the tax rate is concerned. A 10% rate is lower than the national average of legal US sports betting markets, and that makes a big difference for companies running online gambling operations.
In short, higher taxes make it harder for businesses to make money. Pair that with the fact that sports betting is a particularly low-margin business, and you’ve got a recipe for years-long struggles in profitability.
Some smaller operators already left Colorado due to various concerns, among them Sky Ute Sportsbook and Maverick. If they couldn’t make a mark in one of the industry’s lowest-taxed markets, a Colorado tax hike could spell bad news for other lesser-known operators looking to make a name in the Centennial State.
There’s also the added layer of complexity that comes with a relatively young market. Colorado has only had sports betting for a few years, and operators are fully invested in the market. A speedy legislative tax bill could sour their vision for success in the state. Instead, it might be better for the legislature to give things some time and pursue a new tax structure once licenses are set to expire and renewals start to become a factor.
Would Colorado sportsbooks leave the market?
This is pure speculation, but the answer is probably a big “NO.”
Colorado provides such a favorable market for operators that even doubling the tax rate probably wouldn’t affect most of the big-name operators enough to make them abandon the market.
Look to New York as an example. The Empire State requires a whopping 51% tax. That doesn’t faze the country’s biggest operators. Of course, New York has a population of nearly 20 million compared to Colorado’s 5.8 million. That gives operators a larger sea to fish in.
But still. Sports betting taxes in the US average out to around 15-19%. A Colorado increase would almost certainly bring it above that average, but not by much. If operators are already happily offering their sportsbooks in markets with higher tax rates, there’s no reason why a Colorado increase would suddenly spark an exodus.
What about online casinos?
Online casinos in CO are still but a twinkle in the state’s eye. However, talks about legalizing online casinos in Colorado have recently been brought up. If and when online casinos become a reality, the sports betting tax rate wouldn’t even be an issue.
Why? Online casinos bring in exponentially more revenue and tax dollars in states with legal sports betting and online casinos.
For example, Michigan’s sports betting tax rate is one of the lowest at 8.4%. The state’s online casinos bring in so much in tax revenue that there are no talks of raising the sports betting tax rate.
Will Colorado raise its tax?
Ohio set the precedent and showed that state legislators can fight for better tax rates from online gambling operators. Colorado could follow suit as a state with one of the lowest tax rates in the US.
At this point, however, time will tell.
We’ll keep an eye out for any movement on Colorado’s sports betting tax and provide updates as they happen.
