Free bet offers have traditionally not been taxed, however, a bill put forward in Colorado looks to change that.
Current regulations mean sportsbooks in the state can deduct a certain percentage of free bets issued to players. If passed, from September this year, operators will not be allowed to make any deductions due to the promotional wagers.
House Bill 1311 was introduced in March and then amended in the House Finance Committee. The amendment changed plans to stagger a reduction in the amount of tax betting companies could deduct and now goes for a blanket ban on deductions.
It reads, “On and after September 1, 2025, a sports betting operator or internet sports betting operator shall not deduct any free bets placed by players with the sports betting operator or internet sports betting operator.”
The state is looking to raise funds for water programs and believes that more revenue from the gambling industry could be a good source.
Sen. Dylan Roberts, one of the bill’s sponsors, commented, “The thought with this bill is that it’s time to make this change. It’s a great way to generate more funding.”
Colorado Tax Revenue
Colorado was one of the first states to legalize sports betting, and in the words of Roberts, “It’s been wildly successful.”
The state currently taxes at a fairly low rate of 10%. Only Indiana, Iowa, and Nevada have lower rates, and there is a big gap to New York, which leads the way with a rate of 51%. New York also does not allow companies to deduct free bet offers from taxes.
The Big Apple has been cashing in and collected $876 million in tax revenue in 2023, compared to Colorado’s $26.2 million. A bill that proposes capping bets for New Yorkers might reduce the huge gains the state has been enjoying.
Even with its low rate, Colorado also had a revenue cap in place. Up until last year, the maximum it could collect was $29 million. Over 70% of voters chose to scrap the cap, which brought in an extra $2 million for 2024.
The state’s betting handle increased last year 11.3% last year, up to over $6 billion. From that, betting companies generated $325 million, which was a 24% increase from 2023.
Taxing free bet offers is one way to bring further revenue without raising the tax rate. Lawmakers estimate that the change could bring in an additional $12 million next year. The money has already been earmarked for water planning, conservation efforts, and system repairs.
Free bet offers a big draw
Betting companies use free bet offers and other promos to entice players and keep them betting. Online sportsbooks use about 20-30% of their marketing budget on giving out free bets and bonuses.
This bill might reduce the operators utilizing the offers in Colorado, which could open the door for alternative platforms that offer unchecked promotions.
It is a balancing act for states to protect revenues while also keeping customers betting on regulated platforms.
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