Colorado is set to become the first state to get rid of tax write-offs for sports betting promos.
In a move to raise more revenue for the state, Gov. Jared Polis is expected to sign a bill (H.B. 22-1402) that gradually reduces tax write-offs for sportsbooks. Currently, sports betting companies in Colorado can write off as much as they desire from their taxable revenue, as long as it comes from free bets.
That’s anything from a free $1,000 deposit match to boosted odds on a basketball team to score at least one point, regardless if the sportsbook loses or not.
The bill, which passed the House 50-15 and Senate 25-8, also earmarks an extra $3 million a year for problem gambling treatment.
Taxes Coming Up Short
In Colorado’s two years of legal sports betting, the state has made $17 million in revenue off its 10% tax. Sportsbooks, however, have made $408 million, which means about $23 million has gone untaxed and makes the real tax rate more like 4%.
That money is earmarked for the Colorado Water Plan, which was promised about $16 million a year from sports betting when voters legalized it.
Starting Jan. 1, 2023, no more than 2.5% of an operator’s monthly betting handle may go untaxed as free play.
That number decreases by .25% every year until 2033, when free play write offs will be gone entirely.
Promoting New Sportsbooks
The tax perk was designed to make it easier for sportsbooks to induce people to bet in newly legal states.
Some states like New York don’t allow it at all while others, like Virginia and Louisiana, have tried to get rid of it, though their attempts have failed.
Those two states, like Colorado, have seen tax revenue fall short of initial projections. Virginia generated $20 million in sports betting taxes in 2021, while its less populous neighbor, Tennessee, made nearly $40 million off of a similar tax rate.
By 2023, Colorado will have had sports betting for over a dozen years. While free play will likely continue, at that point it’d be hard to argue its value to the state.