Gaming and Sports Betting Taxes
Gaming Tax Background
The gaming tax was first levied in 1991 when casino gambling became legal in the municipalities of Black Hawk, Central City, and Cripple Creek.1 The gaming tax is levied on casinos’ adjusted gross proceeds, defined as the amount of money collected from gamblers in wagers minus the amount paid to gamblers in winnings. For each month of operation, casinos remit gaming taxes to the Division of Gaming in the Department of Revenue by the 15th day of the following month.
Most gaming tax revenue is subject to the TABOR limit on state revenue and spending. In 2009, Colorado voters approved Amendment 50, which allows additional casino games, higher bet limits, and longer hours of operation. In 2020, Colorado voters approved Amendment 77, which allowed the three local gaming cities to approve new casino bet limits and games. During the same election, the three cities approved local measures to eliminate casino bet limits and give their respective city councils the authority to approve new casino games. Expanded gaming in each community began May 1, 2021. Gaming tax revenue attributed to Amendment 50 and Amendment 77 is not subject to the TABOR limit.
Gaming Tax Rates
Tax rates are set by the Colorado Limited Gaming Control Commission, a five-member regulatory body appointed by the Governor. The commission reviews tax rates annually and may raise or lower rates so long as they do not exceed 40 percent. Beginning July 1, 2012, adjusted gross proceeds are taxed at accelerating rates following the stepwise schedule shown below. For example, a casino must pay a 0.25 percent tax on its first $2 million in adjusted gross proceeds, and a 2 percent tax on its next $3 million. Casinos’ adjusted gross proceeds reset to zero on July 1, the first day of the state fiscal year.
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Casino Adjusted Gross Proceeds
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Tax Rate
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|---|---|
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Up to $2,000,000
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0.25%
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$2,000,001 to $5,000,000
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2%
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$5,000,001 to $8,000,000
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9%
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$8,000,001 to $10,000,000
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11%
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$10,000,001 to $13,000,000
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16%
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$13,000,001 and over
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20%
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Gaming Tax Exemptions
Casinos operating on the Ute Mountain Ute and Southern Ute Indian Reservations in Archuleta, La Plata, and Montezuma counties are not subject to the gaming tax.
Distribution
The gaming tax revenue distribution is shown below. After administrative expenses are paid, gaming tax revenue subject to TABOR is deposited in the Limited Gaming Fund, and TABOR-exempt revenue attributable to Amendments 50 and 77 is credited to the Extended Limited Gaming Fund.
Limited Gaming Fund. The Colorado Constitution requires that 12 percent of limited gaming revenue be distributed to gaming counties, 10 percent to gaming cities, and 28 percent to the State Historical Fund for preservation of historical sites in gaming cities and statewide.2 The remaining half of the Limited Gaming Fund is allocated to state programs at the discretion of the General Assembly.3 House Bill 20-1399 modified the transfers made from the Limited Gaming Fund to Cash Funds during FY 2019-20 and FY 2020-21, which are reflected in the Gaming Revenue Distribution chart below.
Extended Limited Gaming Fund. In response to the steep decrease and stronger- than-anticipated increase in gaming tax revenues during and after the pandemic, which coincided with changes from Amendment 77, Senate Bill 22-216 adjusted the allocation of limited and extended gaming revenue for FY 2021-22. The bill also creates a mechanism to temporarily modify this allocation if there are significant future decreases in gaming tax revenues.
The Colorado Constitution requires that Amendment 50 and Amendment 77 revenue credited to the Extended Limited Gaming Fund be distributed as follows:
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78 percent for financial aid and classroom instruction at Colorado community, junior, and district colleges based on each school's enrollment;
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12 percent to Gilpin and Teller Counties, in proportion to the tax revenues generated within each county, to help address the impacts of gaming; and
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10 percent to Central City, Black Hawk, and Cripple Creek, in proportion to the tax revenue generated within each town, to help address the impacts of gaming.4
State Comparisons
Including Colorado, 26 states allow gaming at casinos, 29 states host casinos on Indian reservations, 24 states allow sports betting, and 41 states allow pari-mutuel wagering, which Colorado taxes separately from its casinos.
Sports Betting Tax
Sports betting was legalized in Colorado after the passage of House Bill 19-1327 and voter approval of Proposition DD during the November 2019 Election5. Sports betting became legal in May 2020, both onsite at casinos in Colorado's three gaming towns and online through licensed operators.
Sports betting is taxed at a rate of 10 percent on casinos' net sports betting proceeds, and the tax revenue is not subject to TABOR as voter-approved state revenue. Net sports betting proceeds are defined as the amount of bets less payments to players, free bets, and federal excise taxes.6 Sports betting revenue is distributed to pay for the following in the order listed below:
- all administrative costs incurred by the Department of Revenue's Division of Gaming first;
- 6 percent to a hold harmless fund to reimburse recipients of current casino gaming tax revenue for any potential loss in revenue due to the legalization of sports betting;
- $130,000 for counseling services and a gambling crisis hotline in the Office of Behavioral Health in the Department of Human Services for gambling addiction problems until December 31, 2023; and
- the remaining amount to the Water Plan Implementation Cash Fund to fund water projects under the State Water Plan.
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