Colorado is set to receive a tax revenue boost this year as it begins phasing out tax deductions on promos for sports betting operators; it is the first state to do so.
As of Jan. 1, Colorado allows for only 2.5% of an operator’s monthly sports betting revenue to be deducted as bonus to combat low tax revenues, thanks to a new bill. When sports betting in Colorado became legal in 2020, operators were allowed to write off the cost of all promos.
The bill, Colorado State House Bill 22-1402, passed through the Colorado legislature on May 10 and Gov. Jared Polis signed it into law on Jun. 7. The bill also promises to increase responsible gambling funding.
Alec Garnett, Speaker of the House for the Colorado House of Representatives introduced the bill. And Sen. Chris Hansen sponsored it. Garnett talked about the possibility of the bill back in December 2021 at the National Council of Legislators from Gaming States gaming conference:
“It might make more sense after a certain amount of time to start taxing those boosts and incentives that are offered to players. When you’re allowing all those boosts to not be taxed, you’re leaving some money on the table.”
How the bill for tax deductions on Colorado sports betting promos works
The scaling down of tax deductions will start with the 2.5% deduction of bonus on Jan. 1 and will run through Jun. 30, 2024. From Jul. 1, 2024, through Jun. 30, 2025, the number falls to 2.25%.
From Jul. 1, 2025, through Jun. 30, 2026, the deduction falls to 2%. Starting Jul. 1, 2026, onward, only 1.75% of all promos can be deducted for Colorado sports betting operators.
Scaling down tax deductions is great for Colorado tax revenue
The previous bonus tax deductions, combined with Colorado’s relatively low 10% tax rate have led to the state taking in far less tax revenue when compared to other states.
To date, Colorado has taken in over $511.5 million in gross sports betting revenue. Of the over $511.5 million, Colorado collected only $22,565,375 in taxes for the state.
Essentially turning Colorado’s 10% tax rate into a rate of around 4.4% due to tax deductions on promos.
Colorado collected just $6.6 million in taxes in its first year of legal sports betting, while New York brought in over $216 million in taxes in four months.
With Colorado sports betting revenue continuing to rise, the move to phase out tax deductions on promos for operators will likely lead to a major tax revenue boom for Colorado.
Tax rates for states where sports betting is legal
To give you an idea of where Colorado’s tax revenue sits among other states, here’s a breakdown of sports betting tax rates nationally.
- New Hampshire: 51%
- Rhode Island: 51%
- Delaware: 50%
- Pennsylvania: 36%
- Tennessee: 20%
- Illinois: 15%
- Maryland: 15%
- Virginia: 15%
- Louisianna: 15% online; 10% retail
- Connecticut: 13.75%
- Arkansas: 13% of first $150 million receipts; then 20%
- New Jersey: 13% online; 8.5% retail
- New York: 12% online; 8.5% retail
- Mississippi: 12%
- Colorado: 10%
- Ohio: 10%
- Washington D.C.: 10%
- West Virginia: 10%
- Wyoming: 10%
- Arizona: 10% online; 8% retail
- Indiana: 9.5%
- Michigan: 8.4%
- Kansas: 8% online; 5% retail
- Nevada: 6.75%
- Iowa: 6.5%
- Oregon: 2.3%