The first state to start moving away from offering tax deductions on promotions for sportsbook operators has emerged. Colorado will be phasing out these tax deductions that have been available since 2020, when legal sports betting launched in the state. Sports betting operators have been able to write off the cost of their sports betting bonuses since then.
However, partly because of this tax write off, tax revenue in the state from legal sports betting has been below expectations. Another factor for this underperformance is the state’s 10% rate of taxation on sports betting.
That is why a state House bill in Colorado, 22-1402, has been passed by the Colorado legislature in order to fix this issue. Back on May 10, this bill was passed by the state legislature and has headed to the desk of Colorado Governor Jared Polis. The governor has thirty days from that date to sign the bill into law.
Colorado bill 22-1402 was introduced by Alec Garnett, the outgoing House Speaker. It was co-sponsored by state Senator Chris Hansen. The bill will also offer a funding increase for responsible gambling. At this time, Colorado is the first state that has been able to pass a legislation of this kind, after the state of Virginia tried and failed.
This Colorado sports betting bill includes a gradual phase out for these tax deductions for sportsbook operators. However, this phase out will be happening in increments to make it easier to transition beginning in 2023.
At the start of 2023, from January 1, to the middle of 2024, June 30, 2024, a sportsbook operator can deduct as free bets up to 2.5% of its monthly sports betting handle. The next year, from July 1, 2024 through June 30, 2025, that percentage will drop to 2.25%. It will fall more still for the period between July 1, 2025 to June 30, 2026.
After July 1, 2026, that number will drop again to 1.75%, where it will stay moving forward.
After the launch of legal Colorado sports betting through the month of March in this year, 3.2% of sports betting handle as well as 51% of gross revenue in the state has been promos. But, it is also common for promo spend to lessen as a market grows and goes on.
However, the numbers for Colorado sports betting have been disappointing. For its first full year with legal Colorado sports betting, the state only brought in $6.6 million in tax revenue. That is equal to if the state had a net tax rate of 4%. Meanwhile, in just its first four months with legal sports betting, the state of New York has been able to rake in over $216 million in sports betting tax revenue.
If this bill helps bump up sports betting tax revenue for the state of Colorado, other states with disappointing sports betting tax revenue intakes may follow suit. This could include states like Arizona, where promo tax deductions also influenced a disappointing tax revenue intake.
Written by Allie Nelson, our US Sports Betting Industry Expert.
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