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For the first time, TABOR triggers an income tax rate cut. Here’s how much you can save on 2019 taxes.

Colorado will temporarily lower the income tax rate to 4.5% -- a move Gov. Jared Polis is celebrating despite concerns from his party

The Colorado Capitol in downtown Denver on June 14, 2019. (Jesse Paul, The Colorado Sun)
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Colorado is poised to return $428.3 million to taxpayers this year, but don’t look for a refund check in the mail.

The Taxpayer’s Bill of Rights mandates the rebate because the state exceeded the revenue limits in the 2018-19 fiscal year. The TABOR excess is so great it will force the state for the first time to temporarily reduce the income tax rate.

The automated rate cut is being celebrated by Gov. Jared Polis — even though he supported an unsuccessful ballot measure to end TABOR refunds in the future.

The new temporary rate for calculating 2019 state taxes is 4.5%, a decrease from the standard 4.63% flat income tax rate. And how much people will save varies widely depending on their income level. 

For those who make up to $40,000 to $85,000 in adjusted gross income, the average tax break ranges from $58 for single filers to $31 for joint filers, according to a legislative analysis. And for those who make $226,000 or more, it will top $600.

“That’s a lot of money out the door,” said state Sen. Bob Rankin, R-Carbondale.

The income tax break — which accounts for $273.5 million of the total refund — is automatic when people file their 2019 state income tax returns, meaning most people won’t notice how much money they will save. 

Colorado lawmakers determine how TABOR refunds are issued. And state Sen. Dominick Moreno, a top budget writer, said the system needs reform.

“The challenge is, obviously, with the income tax being lowered people aren’t going to actually see it’s a TABOR refund,” the Democrat from Commerce City said in an interview. “They may see they have an overall lower tax obligation to the state, but they are not going to directly attribute it to TABOR. I think it highlights one more reason that the mechanisms in TABOR are not well thought out.”

MORE: Three budget numbers that will set the tone for the 2020 legislative session in Colorado

Breaking with party and his record, Polis cheers TABOR tax cut

The Polis’ administration will oversee the TABOR refunds. The Department of Revenue posted an online notice of the 2019 tax change, but a spokesman for the taxation division did not return a message seeking additional information.

The governor, however, is cheering the income tax cut, despite concerns from within his party — and conflicts with his prior stances on TABOR. 

In an opinion piece published Tuesday in The Colorado Sun, Polis touts the savings people will receive from the temporary income tax rate cut but he never mentions that it’s caused by TABOR and prescribed by a long-standing law.

“As governor, I hope to deliver an economy next year and the years beyond that produces tax cut refunds more regularly,” Polis wrote.

The omission is glaring given the Democrat’s support for Proposition CC, a failed November ballot measure that would have eliminated TABOR refunds after the 2019 tax year.

In a statement, a spokeswoman for the governor said he “is grateful” for the 2005 law that put in place the temporary income tax cut, but did not directly address the conflict regarding his stance on TABOR.

This is the second time that Polis appeared to take credit for an automatic tax cut. Earlier this year, Polis said his administration and the Democratic legislature lowered the residential property tax rate in Colorado —  even though it was the result of the Gallagher Amendment, a constitutional provision. Moreover, Polis even pushed a plan to eliminate the property tax break, as The Sun reported in April, before relenting.

Moving forward, Polis wrote in the opinion piece, a permanent reduction in the state’s income taxes remains a priority, even though a related proposal he put forward in the 2019 session did not win the support of his own party.

“Gov. Polis is committed to saving Coloradans money and producing a cut to the income tax  rate permanently,” said Maria De Cambra, a spokeswoman. 

Temporary tax rate cut will only spur debate on spending

The one-year rate reduction for 2019 filings is the lowest income tax assessed since Colorado moved to a flat tax in 1987 and represents the largest refund to taxpayers since the TABOR cap was adjusted with Referendum C in 2005. Prior to the revenue limits being reduced, Colorado returned $927 million to taxpayers in 2001, according to legislative analysts

In addition to the income tax rate cut, the state will use $153.2 million from the TABOR surplus to reimburse local governments for a property tax break for seniors and disabled veterans.

Colorado state budget writers set aside the money for the refunds in a prior year. Democratic leaders said the money should have gone toward new and existing programs for education, health care and more. But Republican leaders applauded the mechanism as a cap on state spending and suggested Democrats need to do a better job prioritizing the state budget.

The debate is only expected to continue in the legislative session that starts Jan. 8 because more TABOR revenue surpluses are expected. 

The state is projected to return to taxpayers $1.1 billion combined in the next three fiscal years, according to legislative economists. Like this year, much of future refunds will cover the cost of property tax breaks for seniors and disabled veterans, and the remainder will get issued as sales tax rebates on 2020, 2021 and 2022 tax filings.

The estimates assume that the tax system remains static — and that’s not a given. A coalition of liberal advocacy organizations are exploring more than a dozen possible changes to TABOR for the 2020 election and have filed an additional 35 proposed ballot questions to overhaul the state’s tax system.

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