Oct 16, 2021; Boulder, Colorado, USA; General view of a Colorado Buffaloes helmet and football before the game against the Arizona Wildcats at Folsom Field. Mandatory Credit: Ron Chenoy-USA TODAY Sports

Colorado cutting tax breaks for sportsbook promos

Colorado is the first state to begin reducing tax deduction on promos to sportsbooks.

When sports betting launched in Colorado in 2020 the state allowed sportsbook operators to write off the cost of promos and bonuses. That has resulted in a lower than expected tax bill for the state and has led to a gradual reduction in the tax deductions.

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The new tax rules were introduced by House Speaker Alec Garnett in House Bill 22-1402. The bill was sponsored by Senator Chris Hansen. The bill passed through the Colorado legislature earlier this year and is currently on the desk of Governor Jared Polis awaiting his signature to become law.

Under the new bill the tax write-offs for promos and bonuses will be gradually reduced. Starting on January 1, 2023, and until June 30, 2024, up to 2.5 percent of an operators monthly sports betting handle can be deducted as free bets. That rates will drop to 2.25 percent from July 1, 2024 to June 30, 2025, and drops again to 2 percent from July 1, 2025 to June 30, 2026. Starting on July 1, 2026, the rate will be lowered to 1.75 percent onward.

Since the launch of sports betting in Colorado promos accounted for around 3.2 percent of the sports betting handle. They have also accounted for 51 percent of gross revenue. As the market becomes more established it is expected this promos numbers will begin to drop.

Colorado is the first state to pass a bill reducing tax deductions on promos and bonuses. Virginia attempted to pass a similar bill earlier this year, but it failed to garner support and died in Committee. Now that Colorado has broken the ice other states who have been underwhelmed by the tax proceeds from sports betting may also follow the same path.

See also Colorado sports betting news and legalization updates.