Colorado lawmakers are seeking to impose a new fee on online game purchases, in particular targeting “add-on transactions,” referring to features or enhancements that players can buy.
Sponsors said they want to earmark the new revenue toward youth mental health services.
The sponsors are pushing the new revenue source amid a budget deficit and at a time when Colorado lawmakers are increasingly relying on “fees,” rather than taxes, to fund government programs.
The debate is also occurring just as policymakers, parents, and the tech industry are grappling over issues of privacy rights, parental control and state intervention in consumer matters.
Supporters argued that the measure would hold gaming platforms accountable for design features that can contribute to anxiety, depression, and compulsive spending in kids, while opponents — including industry groups and state officials — warned the proposal could violate federal law, raise privacy concerns, and unfairly burden players who may not benefit from the services it funds.
Sponsored by Reps. Sean Camacho, D-Denver, and Yara Zokaie, D-Fort Collins, House Bill 1148 would establish three “enterprises” — state-owned businesses — to fund in-school counseling services, before and after-school programs, and an “education rights” enforcement program for students with disabilities.
The bill passed on a 38-25 vote in the House, with all Republicans and four Democrats voting in opposition. Its next stop is the Senate, where it is sponsored by Sens. Judy Amabile, D-Boulder, and Dylan Roberts, D-Frisco.
The enterprises would be funded through the fee on “add-on” transactions in online games — the bill says it applies to products or features that “reasonably likely to be accessed by youth” — like Minecraft and Roblox.
The fee starts at 5%. After October 2027, the new enterprise system can adjust the amount.
The fee would, for example, apply to “skins” or outfits — the cosmetic item that changes an avatar’s appearance; expansion packs, experience boosters and battle passes. “Skins” typically cost between $5 and $20, though rare ones could cost more.
Games like Minecraft and Roblox are intentionally designed to engage and addict kids, Zokaie told the House Finance Committee last week. She said features like rewards, in-game purchases, and algorithmic recommendations lead to longer playing times, which studies have linked to increased sleep disruption, lower academic performance, and higher rates of anxiety and depression in kids.
“As a parent, this is something that I grapple with, and it’s also something I hear from other parents who describe to me how powerless they feel against the design choices of multi-billion dollar companies,” Zokaie said. “They tell me they’re doing everything that they know how to do, but it is not enough, and ask what more can be done.”
“House Bill 1418 is one of those things,” the Democrat added.
Federal cuts to programs like the Youth Mental Health Corps and a strained state budget have left many youth mental health services underfunded despite ever-increasing demand, Zokaie said.
Creating “enterprises” to fund services like the Youth Mental Health Corps is a way the state can increase funding for such critical services, said the bill’s backers, who also suggested they may be looking at a “dedicated state revenue source” for programs.
The legality of “enterprises” under the Taxpayer’s Bill of Rights has been upheld in the courts, Camacho maintained.
The state “enterprises” are exempt from TABOR unless they receive 10% or more of their revenue in grants from state and local governments.
Under state law, enterprise fees must directly benefit the individuals paying them.
‘The burden of paying for a complex societal issue‘
Some critics argued that adults who play games marketed to children would be forced to pay fees for services they don’t qualify for and that many kids would be paying for services they don’t need or use.
“This bill places the burden of paying for a complex societal issue on a single industry and a single group of consumers,” said Aaron Segel of the Entertainment Software Association.
If the bill passes, gaming companies would need to collect players’ geolocation data to confirm they live in Colorado, creating significant privacy concerns.
“We share your goal of improving youth mental health and recognize the urgency of that challenge,” said Segel. “However, House Bill 1418 is not an effective or appropriate solution.”
In this file photo, Shemar Worthy, a 21-year-old DePaul senior majoring in information systems, plays an online game at the university’s Esports Gaming Center, Thursday, Sept. 22, 2022, in Chicago, where he says gaming was a gateway to his interest in a tech career. (AP Photo/Claire Savage)
The measure “raises significant concerns” for the state’s Behavioral Health Administration, said Ryan Templeton, the agency’s policy and external affairs director.
The state needs “legal and reliable funding mechanisms” for youth mental health services because, if they go away due to a lawsuit or lack of funding, Colorado kids may be worse off than they were before, he said.
Aside from concerns over TABOR, Templeton said the bill may violate the Internet Tax Freedom Act, a 1998 law that prohibits governments from taxing the internet or online activity. Furthermore, Templeton said, the bill could be unconstitutional under the Equal Protection and Dormant Commerce Clauses.
“We are not opposed to the programs that these funds support — it’s the mechanism,” Templeton clarified. “We’re concerned that it’s not legally a viable way to fund these programs.”
Screentime leads to ‘compulsive spending tendencies’
Supporters focused on the mental health impacts of online gaming, saying the matter is urgent and needs state investment.
Heather Tritten of the Colorado Childrens’ Campaign referenced the organization’s annual Kids Count report, which found that more than a quarter of high school students statewide reported persistent feelings of sadness and hopelessness, and 11% seriously considered suicide.
“There has been a rapid expansion of the body of research linking screen time to compulsive spending tendencies, decreased outdoor time, increased aggression, and decreased empathy,” Tritten said. “Colorado kids need and deserve a dedicated, durable funding stream for mental health supports, especially one that doesn’t put extra strain on the General Fund.”
“HB 1418 creates that funding stream. HB 1418 is the kind of solution Colorado should be proud to lean on,” Tritten said.
Andrea Stojsavljevic of Children’s Hospital Colorado said American teens spend an average of five hours a day on social media and pointed to research saying just three hours of scrolling doubles the risk of poor mental health.
Online gaming platforms also serve as a form of social media for younger kids, who can create profiles and chat with friends — and strangers — even if they aren’t old enough to have phones, she said.
While gaming can have positive impacts, such as offering social connection, stress release, and cognitive benefits, excessive use has been found to be detrimental to both mental and physical health, Stojsavljevic said.
“The rationale behind House Bill 1418 is that platforms profiting from addictive design and targeting should contribute to programs that counteract their negative impacts,” she said.
Enterprise fees surge as more of Colorado’s budget escapes TABOR limits
More than 30 years after Colorado voters approved the Taxpayer’s Bill of Rights, a growing share of state spending now falls outside the voter-approved limits intended to restrain government growth.
A new report shows that fee-funded “enterprises” — state-owned businesses exempt from TABOR’s revenue cap — have expanded dramatically.
At its core, TABOR limits the government’s ability to raise revenue. Political subdivisions must obtain voter approval for any tax increase, and it requires dollars above the TABOR limit to be refunded to residents. Numerous efforts have been made to repeal TABOR since its enactment. As recently as November 2020, voters rejected efforts to significantly overhaul or repeal it.
Indeed, that tug-and-pull among TABOR, taxes and fees has manifested in big fights at the ballot box and at the state Capitol. Broadly speaking, groups have sought to increase state revenue — such as the current efforts to raise up to $4 billion by eliminating Colorado’s flat income tax rate and raising taxes on higher-income earners — while others have pushed to bring down the income tax rate.
A 2025 report by the Common Sense Institute said fee-based enterprises generated $742 million in 1994, the year TABOR went into effect. Thirty years later, that revenue had ballooned by nearly 3,400% to $25.8 billion.
In 1996, 46% of total state spending was exempt from the TABOR spending cap. Almost 30 years later, in 2024, nearly three-quarters of the state’s spending is now TABOR-exempt, amounting to about $9,000 per Coloradan, the group said.