Colorado’s Taxpayer’s Bill of Rights keeps lawmakers from raising taxes without voter approval. But it still allows for some changes to the state tax code without going to the ballot.
Democrats and some Republicans in the legislature this year significantly altered property tax rates, tax loopholes and tax credits that will affect the wallets of people across the state. Proponents of the changes say they are among the biggest adjustments of the tax code in Colorado history.
Here are five big changes awaiting Gov. Jared Polis’ signature before going into effect and what you need to know about them:
Your property tax bill will shrink
Senate Bill 293 would drive down property assessment rates in the 2022 and 2023 taxation years for certain subcategories of property.
Here’s the breakdown:
- Single-family properties would be taxed on 6.95% percent of assessed value, down from from 7.15%
- Multi-family properties would be taxed on 6.8%, down from 7.15%
- Agricultural property’s rate would drop to 26.4%, from 29%
- Property used to produce renewable energy would be taxed on of 26.4% of assessed value, down from 29%
After two years, lawmakers would have to decide whether to continue with the lower assessment rates or raise them back to their previous levels.
Starting in the 2023 tax year and continuing indefinitely, the legislation also would allow homeowners to defer an increase of more than 4% on their property tax bill, up to $10,000, on their primary residence. The balance becomes a lien on the property that’s paid back when it is sold.
To qualify, a homeowner must apply with their county treasurer by April 1 of the year in which their tax is due.
Side note: Colorado already allows seniors, active-duty military personnel and disabled veterans to defer all of their property tax payments, as long as they meet certain criteria. Learn more here.
But your property taxes may also go up
House Bill 1164 would allow school districts to raise their mill-levy rates to levels previously approved by voters. Those levels were artificially deflated under Taxpayer’s Bill of Rights guidance from the Colorado Department of Education that the state Supreme Court later found was erroneous.
The backstory to the measure is complicated, but here’s the gist: The education department’s decision to tell districts to lower taxes and ignore voter approval to keep excess revenue under TABOR created a lopsided funding system in which districts in wealthier parts of Colorado got more state education money than poorer areas.
House Bill 1164 aims to correct some of that imbalance.
The legislation would let districts slowly raise their mill-levy rates by a maximum of 1 mill per fiscal year until they reach the lesser of the following:
- The number of mills necessary to fully fund total program costs
- The number of mills voters approved, adjusted for any instances when the levy would have been reduced due to property tax revenue exceeding total program costs
- 27 mills
There are 178 school districts in Colorado, and 127 would be affected by House Bill 1164 in the next fiscal year, which begins in July. Eighteen districts will see an increase of less than one mill, while 109 districts will see an increase of 1 mill.
A mill is a $1 tax payment for every $1,000 of taxable property value.
Hanover School District 28 in El Paso County stands to see the largest increase in mill-levy rates at 17.695.
The bill, if it’s signed into law, is expected to increase property tax revenues for school districts by $91.7 million in the 2021-22 fiscal year. That number jumps to $145.5 million in the 2022-23 fiscal year.
Rolling back tax credits for the wealthy, expanding them for lower-income Coloradans
Two measures, House Bill 1311 and House Bill 1312, would roll back nearly $350 million in tax exemptions for Colorado’s wealthiest residents and businesses.
That recouped revenue would, under House Bill 1311, go toward expanding tax programs benefiting low-income people and families, such as the Earned Income Tax Credit and Child Tax Credit. House Bill 1312 would also increase the business personal property tax exemption to benefit small businesses.
Here’s a breakdown of the tax exemptions the two measures effect.
House Bill 1311 makes a number of changes to state income taxes, including by:
- Requiring taxpayers with gross incomes of $400,000 or more to add back certain itemized deductions, including charitable giving, if they exceed $30,000 for a single filer or $60,000 for joint filers
- Repealing state income-tax deductions for all federally taxable capital gains, with an exception for certain agricultural properties that are limited to a maximum deduction of $100,000 a year
- Removing a cap so that all federally taxed Social Security income is deductible in Colorado, although caps still apply to other pension and annuity income
- Extending to 2025 a requirement that taxpayers with adjusted gross income of $500,000 or more if they are a single filer, or $1 million or more if they are a joint filer, add back federally qualified business income deductions when calculating state taxable income
- Capping the amount a taxpayer can deduct for contributions to a 529 College Savings Plan account to $20,000 for a single filer or $30,000 for a joint filer
Tax credits would also be affected, including by:
- Expanding Colorado’s Earned Income Tax Credit to 20% of the federal EITC, up from 15%, starting in 2022. From 2023 through 2025, the state credit would go up to 25% before reverting back to 20% in 2026.
- Funding Colorado’s child tax credit for the first time for single filers making less than $75,000 and joint filers making less than $85,000
- Making both the state EITC and child tax credit available to people who would qualify for the federal tax credits, but don’t have a valid Social Security number
- Creating a tax credit for businesses that convert to employee-owned models, which would cover 50% of conversion costs, or up to $25,000 for worker cooperative or employee stock ownership plans, and 50%, or up to $100,000, of costs for converting to an employee ownership trust
House Bill 1311 also aims to crack down on foreign tax havens, by making companies with business entities in certain countries, like the U.S. Virgin Islands and Cayman Islands, no longer eligible to receive tax breaks unless they can prove to the state they are operating there legitimately and not for tax avoidance.
The measure also targets tax loopholes for insurance companies, by clarifying that insurance companies that get less than half their revenue from insurance premiums are subject to the state income tax.
Changes to how businesses are taxed
House Bill 1312 also eliminates tax breaks for a few industries in order to expand the business personal property tax, including:
- Increasing the standard for insurance companies to prove they have a significant workforce and presence in Colorado to qualify for a lower 1% insurance premium tax. To qualify, companies would have to “substantially perform” certain insurance company functions or have significant direct operations in the state. It also requires companies to maintain 2% of their domestic workforce in Colorado in 2022, with that requirement increasing to 2.5% by 2024.
- Limiting severance tax deductions that oil and gas companies can claim for transportation, manufacturing or processing costs. The measure also would phase out severance tax exemptions and tax credits for the coal industry between 2022 and 2026, with the increased revenue resulting from those changes going to the Just Transitions Cash Fund, an account to assist communities affected by the move away from a fossil-fuel economy.
- Adding digital goods like video, music, e-books available on CDs or to download, and streaming services, like Netflix, to the definition of items subject to sales and use taxes
Businesses would see a big increase in the dollar threshold of personal property and equipment that is exempt from taxes. House Bill 1312 raises that threshold to $50,000. Currently, businesses don’t have to pay personal property tax if the personal property is worth less than $7,900.
The state would be required to reimburse local governments for lost revenue as a result of the exemption.
Changes to ballot language for tax measures
House Bill 1321 would change what language must accompany tax measures on the ballot.
For measures increasing tax revenue, the bill would require language about the level of public services funded by the measure and what those public services would be.
For measures decreasing tax revenue, the following would be required:
- Language about the three largest areas of program expenditures impacted by a reduction in revenue and how much money they would lose
- Language about the types of local districts affected by the revenue decrease and an estimate of the statewide decrease in property tax revenue
For measures increasing and decreasing tax revenue, the blue book, the state’s guide to ballot measures and what they do, would be required to include how the measure would affect certain income levels and how many people are at those levels.
Bonus: Here come the transportation fees
Senate Bill 260 will hit Coloradans’ wallets, but not through taxes. Instead, the transportation-funding measure deals with fees.
Here are some of the increased costs you can expect once the bill is signed into law:
- A 2 cents per gallon on gasoline and diesel fuel starting in July 2022 that increases 1 cent every year up to 8 cents
- A 27 cents on deliveries, including those from Amazon, FedEx and Grubhub
- A 30 cents per trip on Uber and Lyft rides starting in 2022 that would increase based on the federal Consumer Price Index. The fee would be cut in half for people carpooling in a rideshare, or riding in an electric vehicle.