Colorado is set to issue $306 million in taxpayer refunds this year — money that it may not actually owe under the Taxpayer’s Bill of Rights.
It would amount to a TABOR refund error of unprecedented size — yet another ripple effect of last year’s federal tax cuts, which blew a hole in the state’s budget.
But state officials are divided over whether they can do anything about it.
In his annual budget request, Gov. Jared Polis asked the legislature to recover the money by reducing future TABOR refunds. That could free up funding for the Joint Budget Committee to avoid deeper cuts to public services as it seeks to close Colorado’s $1 billion budget gap.
Small corrections to TABOR refunds are common, but legislative budget analysts and the General Assembly’s attorneys aren’t convinced this particular error can be fixed — at least not without risking a lawsuit the state might lose.
“The logic of the request makes some sense to me,” JBC Staff Director Craig Harper told lawmakers at a meeting in February. “I think both legally and in terms of practice, we have bigger challenges.”
How it happened
President Donald Trump signed H.R. 1 into law July 4 — four days into the current 2025-26 fiscal year. The measure, also known as the One Big Beautiful Bill Act, cut federal income taxes by trillions of dollars. It also cut Colorado’s state income taxes, because our tax collections are tied to the federal tax code.
But H.R. 1 didn’t just affect this year’s budget, or those ahead. Budget analysts say it also reduced tax revenue collected last fiscal year, which ended June 30, 2025. That’s because the changes apply to the entire 2025 income tax year, which runs from Jan. 1 to Dec. 31.
Here’s the problem: H.R. 1 wasn’t the law when the 2024-25 budget year ended, so under standard accounting practices, the tax cuts don’t show up on paper until the current fiscal year, Harper said.
In theory, the timing shouldn’t matter. But because of TABOR, those four days in the current fiscal year might make the difference between owing $300 million in taxpayer refunds and owing no refunds at all.
“It’s frustratingly close that it was only four days,” Harper said. “Everyone that I’ve talked to agrees that it has to inherently reduce the revenue that could reasonably be attributed to fiscal year 24-25.”
The state’s loss is taxpayers’ gain. Most of the money will go to local governments to cover the $183 million cost of the state’s homestead property tax exemption for seniors and disabled veterans. The rest will go out as sales tax refunds when Coloradans file their tax returns this year. Taxpayers who earn the median income of around $95,000 will receive about $25 each, or $50 if they file jointly.
Living with “the falsity”
The state auditor’s office certified a $296 million TABOR refund for 2024-25 based on state and federal law as of June 30. The state’s annual comprehensive financial report bumped that up to a $306 million refund.
But budget analysts for the legislature and the governor’s office agree that no longer reflects reality. Because of the federal tax cuts, the state didn’t exceed the TABOR cap last budget year at all.
In the case of an excessive refund, state law allows Colorado to reduce TABOR refunds in the following budget year by the same amount. Polis proposes doing just that, but with a new wrinkle; he wants to recoup the refunds over the next two fiscal years.
In each of the next two budgets, he proposes spending $153 million to cover most of the cost of the senior property tax break — money that might otherwise have to come out of the general fund, eating into state agency budgets.
“H.R. 1 clearly and indisputably retroactively impacted revenue in FY 24-25, and that can be reflected in the TABOR surplus calculations if the legislature chooses to,” Eric Maruyama, a spokesperson for the governor, said in a statement.
If the legislature doesn’t, it would throw the governor’s budget proposal out of balance, potentially forcing lawmakers to cut that much more from public services like education and health care.
“The governor looks forward to working with JBC to find other thoughtful avenues to balance the budget if they decide not to move forward with this particular proposal,” Maruyama said.
Legislative analysts and attorneys say the timing issue doesn’t meet the legal criteria for an excessive refund, which relies on the auditor’s certification of the state’s financial reports.
And, retroactively changing last year’s books to reflect a law that wasn’t in effect at the time could violate accounting principles. In a memo to the JBC, Harper wrote that a retroactive change could threaten the auditor’s opinion that the state’s financials are clean, and put the state at risk of having to repay the disputed refunds with interest.
Moreover, there’s no guarantee the maneuver will generate any budget relief. It all depends on how much TABOR surplus the state generates this year and in the future.
“We won’t even know if this is a thing that would do anything until we have a TABOR certification for this year,” Harper told lawmakers.
The JBC in February declined to introduce legislation to recover the funding. But state Rep. Emily Sirota, a Denver Democrat who chairs the JBC chair, likened it to living with a lie.
“Because of the accounting rules, you’re saying you can’t accrue it back — not because of the reality of the facts that everyone can plainly see?” Sirota asked Harper at the meeting. “So it means that because of our accounting rules, what is being presented is false, and we just have to live with the falsity of it because of the rules?”
“Madam chair, I think that’s a more blunt, but potentially accurate, encapsulation of what I’m saying,” Harper replied.