Colorado lawmakers want to tax “free” sports bets to raise more money for water projects

Colorado lawmakers on the hunt for more cash for water programs are proposing that sports gaming companies pay new taxes on free bets, a move that could boost the amount of money the gambling activity now generates for water projects by roughly 30%.

Companies often offer free bets to entice more players to their site. Revenue produced from those free bets has not traditionally been taxed.

If approved, House Bill 1311 would generate nearly $12 million in cash next year for water planning, conservation efforts and such things as irrigation system repair and the purchase of water rights. That is in addition to the $30 million the program is already on track to produce, according to Sen. Dylan Roberts, a Democrat from Frisco who is one of the sponsors of House Bill 1311.  Speaker Julie McCluskie, a Democrat from Dillon, and Rep. Matt Soper, a Republican from Delta, are the House sponsors. 

This Fresh Water News story is a collaboration between The Colorado Sun and Water Education Colorado. It also appears at wateredco.org/fresh-water-news.

Roberts said the state needs all the cash it can find to help make its water supplies go further in the face of chronic drought, climate warming that is reducing stream flows and demands from a growing population.

“The thought with this bill is that it’s time to make this change. It’s a great way to generate more funding,” Roberts said.

Under current law, sports betting companies don’t have to count the revenue they generate from free bets when calculating their tax bills, but under House Bill 1311, revenue earned from those bets would have to be included.

Colorado voters legalized sports betting in 2019 after a U.S. Supreme Court decision approved the activity. Now, 38 states offer the gambling option, according to a new report by the National Conference of State Legislators.

Colorado was one of the first states to legalize sports betting and the tax revenue generated on the games has exceeded most expectations. 

“It’s been wildly successful,” Roberts said.

But as more states open their doors to the lucrative sports wagering industry, demand is expected to level off, according to the NCLS report. Colorado’s once-lucrative marijuana tax revenues are also dropping, in part due to other states’ legalization of weed.

In response to the trend in sports betting, states are looking at new ways to capture more tax revenue, with some states, such as Ohio, Illinois and Massachusetts, approving major increases in the tax rate. Illinois, for example, has adopted a maximum tax rate of 40%, up from 15%, according to the NCLS report.

Colorado, which imposes a 10% tax on sports betting, has taken a different approach. Last year, it asked voters to allow it to collect more of the revenue sports betting generates by removing a $29 million revenue cap that was written into the original legislation.

This year, in addition to House Bill 1311, lawmakers are considering whether to convene a special panel to find other sources of revenue for water projects. The state relies heavily on highly volatile severance taxes and sports betting revenues, to fund water programs.

How much opposition the new bill is likely to generate isn’t clear yet. Peggi O’Keefe, a representative for the Colorado Gaming Association, said her group is monitoring the bill but hadn’t taken a position.

The measure was introduced in the House on March 28 and is scheduled to be heard April 21 in the House Finance Committee.