A group of Democratic state lawmakers said a veto threat from Gov. Jared Polis led them to abandon their effort to roll back some tax breaks for businesses and raise hundreds of millions of dollars each year to expand a tax credit for lower-income families with children.
House Bills 1221 and 1222 were killed in the Senate Finance Committee on Monday at their sponsors’ request.
“The overarching goal was to get at this problem that we have in our state, and actually across our country, of people who are at the bottom not really being able to make it and people who are at the top having a lot,” said state Sen. Judy Amabile, a Boulder Democrat and lead sponsor of House Bill 1221.
Amabile, who noted that her bill didn’t have enough support to clear the Senate Finance Committee, said the measures represented “one little thing to get at income inequality.”
State Sen. Cathy Kipp, a Fort Collins Democrat and sponsor of House Bill 1222, said the governor wanted a state income tax reduction to accompany any rollback of the business tax breaks.
The measures were part of a yearslong attempt by Democrats at the Capitol to reshape Colorado’s tax code. Many of the business tax breaks targeted under the bills were created or expanded by Republicans in Congress through their One Big Beautiful Bill Act, formally known as H.R. 1, which President Donald Trump signed into law last year.
House Bill 1221 would have reduced the amount of CEO pay that can be deducted by businesses from their tax burden and shortened how long businesses can carry a loss forward on their tax returns. Nonpartisan fiscal analysts estimated it would raise about $124 million annually.
House Bill 1222 would have ended state tax write-offs for businesses on equipment and machinery, as well as on research and development costs. The legislation would have also limited how much debt businesses could write off on their taxes. The measure was expected to generate up to $329 million annually.
Together, the bills would have allowed families earning up to $95,000 to claim a tax credit of up to roughly $1,000 per child, depending on the child’s age. It would have been fully refundable, meaning the government would have sent families the money even if they had no tax burden to deduct the amount from.
The measures passed the House before they were killed in the Senate. The House Democrats who sponsored the bills were livid at the result.
“The governor threatened to veto and senators forgot that the legislature is a separate but equal branch,” said state Rep. Lorena Garcia, an Adams County Democrat.
State Rep. Yara Zokaie, D-Fort Collins, said she was “extremely disappointed that the Senate failed to protect kids from falling back into poverty.”
In a written statement, Eric Maruyama, a spokesperson for the governor, said Polis “wants to save Coloradans money and of course supports income tax cuts as a great way of reducing the burden on everyone and boosting the economy.”
“The governor has long supported providing tax relief, including income tax relief for Colorado families,” he said. “Colorado’s Family Affordability Tax Credit helped cut child poverty rates by nearly 41% and the governor supported strengthening this credit to help families while also saving every Coloradan money on taxes by reducing the income tax.”
The sponsors of House Bills 1221 and 1222 brought the measures with hopes to make up for the temporary end of the state’s Family Affordability Tax Credit as a result of state tax revenue reductions caused by H.R. 1.
Colorado’s link to the federal tax code meant that state tax revenues dropped precipitously — by an estimated $1.2 billion in the current fiscal year — when the federal legislation was signed by Trump. That triggered a temporary shut-off of Colorado’s Family Affordability Tax Credit in 2026.
The credit, known as FATC, was created by Democrats in the legislature in 2024 and is available to families earning up to $95,000. It provides up to $3,200 per child depending on the age of the children and how much their parents earn.
But the credit is reduced or goes away entirely when state tax revenues aren’t projected to increase year over year at a fast enough clip. H.R. 1 dropped state tax revenues so much that the credit was turned off in 2026. It’s likely to be pared back or turned off altogether in 2027, too.
Democrats hoped to make up for that reality with the creation of a new family affordability credit funded by House Bills 1221 and 1222.
Part of the Democrats’ plan to make up for the paused tax credit was still successful.
Starting next year, downloadable software — with some exceptions — would no longer be exempt from state sales and use taxes under House Bill 1223, which is about to be sent to the governor. The revenue generated by the measure, estimated to be more than $92 million annually, would go primarily toward the effort — albeit at a much smaller scale.
State fiscal analysts estimate the change will let those eligible to claim the Family Affordability Tax Credit to collect a maximum of about $250 per child.
Colorado’s 2026 legislative session ends Wednesday.