Colorado has become the first state to phase out tax deductions on promos for sports betting operators.
The state initially allowed operators to write off the cost of bonuses since CO sports betting launched in 2020. That allowance, combined with a 10% tax rate, has led to underwhelming tax revenues.
However, Colorado State House Bill 22-1402 looks to address the issue. The bill was passed by the CO legislature on May 10 and Governor Jared Polis has 30 days to sign it into law.
What’s in new CO sports betting bill?
Per the bill, tax write-offs for promo spend will be phased out gradually:
- From January 1, 2023 through June 30 2024, up to 2.5% of an operator’s monthly sports betting handle can be deducted as free bets.
- That number falls to 2.25% from July 1, 2024 through June 30, 2025.
- That falls to 2% from July 1, 2025 through June 30, 2026.
- Finally, from July 1, 2026 onward, 1.75% of an operator’s monthly handle can be deducted as free bets.
From launch through March 2022, promos accounted for around 3.2% of CO sports betting handle. They have also been 51% of gross revenue.
That said, promo spend should wane as markets mature. Pennsylvania, a more mature market, is at 2.4% and 33% respectively.
Colorado collected just $6.6 million in its first full year of legal sports betting, equivalent to a 4% net tax rate.
For comparison, New York generated more than $216 million in tax revenue from sports betting in just four months.
BetMGM said this equals a more than 100% net tax rate.
Who is behind new CO sports betting law?
The bill was introduced by outgoing House Speaker Alec Garnett and co-sponsored by Sen. Chris Hansen. It also increased funding for responsible gambling.
Garnett hinted at at the changes late last year. He told the NCLGS gaming conference in December:
“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.”
Start of a trend?
Colorado is the first state to pass this kind of legislation, though Virginia also tried.
Gaming lobbyist John Pappas told LSR in February other states might look at similar legislation if tax take was not up to scratch.
“If tax projections come in lower than expected, there’s some egg on lawmakers’ face,” Pappas said. “You may see them coming back to the table and wanting to revisit things like promo deductions. But I am not of belief those efforts will succeed, at least not this year.”
Arizona is another state where initial tax take was below expectations, in part because of promo write-offs.