A new bill proposed by Colorado lawmakers seeks to eliminate tax deductions for free sports bets, aiming to direct additional revenue to the state’s Water Plan Implementation Cash Fund.
House Bill 1311 (HB25-1311), introduced by State Senator Dylan Roberts (D), would tax free bets offered by sportsbooks, which are commonly used to attract and retain customers. Currently, many states, including Colorado, allow sportsbooks to deduct free bets and promotional spending from their net sports betting proceeds. Under existing law, operators can deduct payments to players, federal excise taxes, and a percentage of free bets when calculating net proceeds.
If passed, the legislation would halt these deductions starting September 1, 2025, potentially generating an additional $12 million annually for the water fund, which already receives $30 million per year from sports betting revenue.
Background and Precedent
Colorado voters approved mobile sports betting nearly five years ago, with the promise of funding the state’s water initiatives. Since then, Colorado has emerged as one of the fastest-growing sports betting markets in the U.S., providing significant tax benefits for water conservation efforts. However, with the state’s rapidly growing population and the impacts of climate change, lawmakers are exploring new ways to bolster water revenue.
There is precedent for such measures in Colorado. In 2023, the state limited the number of free wagers sportsbooks could offer, though it stopped short of taxing them outright. HB25-1311 builds on this foundation, reflecting a broader trend of states increasing taxes on sports betting to address pressing fiscal needs.
Why the Bill Could Succeed
HB25-1311 arrives amid growing momentum at the state level to raise sports wagering taxes, with similar efforts gaining traction in politically diverse states. Observers note that successful tax hikes on sports betting often have gubernatorial support, suggesting that if Governor Jared Polis (D) backs the bill, it could gain significant traction.
Water conservation and rights are critical issues in Colorado, creating potential bipartisan support for the legislation. While the bill would increase tax liabilities for sportsbook operators, Colorado’s 10% tax rate on net gaming proceeds—which would remain unchanged—is among the most favorable in the country.
If enacted, the bill would play a key role in funding water conservation projects, acquiring water rights, and modernizing irrigation systems, aligning with the state’s long-term sustainability goals.
