Colorado legislators have officially signed HB 1311 into law, introducing new limits on how online sportsbooks deduct promotional bets from taxable revenue. The bill, aimed at boosting state tax revenue, marks a significant shift in how sportsbooks report earnings in Colorado.
Previously, online sportsbooks could fully deduct free bets and promotions from their taxable income. That approach significantly reduced the amount of tax they owed to the state. However, HB 1311 changes that policy, capping the allowable deductions starting in 2026.
Under the new law, online sportsbooks can only deduct 1% of monthly wagering handle for promotions beginning January 1, 2026. By July 1, 2026, all deductions will end. This change follows a gradual phase-down period during which sportsbooks will still have limited deductions but at a declining rate.
Lawmakers passed HB 1311 with the goal of increasing funding for Colorado’s water conservation projects. The state uses tax revenue from sports betting to support these initiatives. By restricting free bet deductions, Colorado expects to collect millions more in annual revenue.
House Speaker Julie McCluskie stated that the free-bet deduction is no longer necessary to attract sports bettors. This was attributed to the gambling revenue increasing above the $29 million projected when Prop DD was passed. McCluskie added:
“Allowing sports betting operators to deduct those free bets once served a very important purpose, that was to attract new customers.”
She also noted that legal online sportsbooks pulled people from the unregulated market to the regulated market.
Consensus of HB 1311
Supporters of HB 1311 argue the bill promotes fairness and transparency. They say it closes a loophole that allowed sportsbooks to avoid paying their fair share. Moreover, the added revenue will directly support critical environmental programs.
Namely, legislators pointed out that sports betting revenue plays a crucial role in funding Colorado’s water strategy. Funds generated through sports betting taxes contribute to Senate Bill 283, the legislature’s annual water funding measure.
SB 283 offers grants and low-interest loans for water projects through the Colorado Water Conservation Board (CWCB). The funding does not come from the general fund. Instead, it uses interest from CWCB loans, severance taxes, and sports betting taxes.
This year, the CWCB received $29 million from sports betting revenue, a 25% increase from last year’s $23 million allocation.
Experts believe that amount will likely rise after HB 1311 takes effect, providing more funds for vital water-related projects. The increase comes as concerns grow over drought, aging infrastructure, and long-term water security across Colorado.
Opponents, including some sportsbook operators, claim the changes could reduce promotional offers for new and existing users. They warn this may hurt customer acquisition in a competitive market. Still, lawmakers maintain the bill balances industry growth with public benefit.
Colorado’s Evolving Online Sports Betting Legislation
Colorado first legalized sports betting in 2020. Since then, online sportsbooks have dominated the market, offering aggressive promotions to attract players. HB 1311 seeks to regulate this practice without stifling business entirely.
As the new deduction limits roll out, both the industry and the state will closely monitor the results. Lawmakers believe HB 1311 ensures a more sustainable future for sports betting in Colorado.
The bill’s passage reflects a broader trend across states aiming to refine gambling laws as the market matures. Colorado now joins others in rethinking how promotional betting impacts long-term tax revenue.