Senate Bill 25-138 Introduced

A Bill for an Act

• Page 1, Line 101Concerning permanent reductions to state income tax.

Bill Summary

(Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.)

Under current law, the state income tax rate imposed on the taxable income of individuals, estates, trusts, and corporations is 4.4%; except that, for the income tax year commencing on January 1, 2024, the income tax rate is 4.25% and for any income tax year commencing on or after January 1, 2025, but before January 1, 2035, the income tax rate is temporarily reduced if state revenue exceeded the limitation on state fiscal year spending imposed by section 20 (7)(a) of article X of the state constitution for the state fiscal year that ended during the income tax year. The extent to which the rate is temporarily reduced depends on the total amount of excess state revenues remaining after homestead exemption reimbursements and qualified-senior primary residence reimbursements are paid.

The bill makes the 4.25% tax rate permanent beginning with the income tax year commencing on January 1, 2025, makes any additional temporarily reduced income tax rate permanent for subsequent income tax years, and eliminates the state income tax on individuals, estates, and trusts for income tax years commencing on or after January 1, 2035.

• Page 2, Line 1Be it enacted by the General Assembly of the State of Colorado:

• Page 2, Line 2SECTION 1.  In Colorado Revised Statutes, 39-22-104, amend

• Page 2, Line 3(1.7)(c), (2), (3) introductory portion, and (4) introductory portion; and add (1.7)(d) and (6) as follows:

• Page 2, Line 439-22-104.  Income tax imposed on individuals, estates, and

• Page 2, Line 5trusts - single rate - report - tax preference performance statement

• Page 2, Line 6- legislative declaration - definitions - repeal. (1.7) (c) (I)  Except as

• Page 2, Line 7otherwise provided in section 39-22-627, subject to subsection (2) of this

• Page 2, Line 8section, with respect to taxable years commencing on or after January 1,

• Page 2, Line 92022, but before January 1, 2025, a tax of four and forty

• Page 2, Line 10one-hundredths percent is imposed on the federal taxable income, as

• Page 2, Line 11determined pursuant to section 63 of the internal revenue code, of every individual, estate, and trust.

• Page 2, Line 12(II)  Except as otherwise provided in section 39-22-627,

• Page 2, Line 13subject to subsection (2) of this section, with respect to taxable

• Page 2, Line 14years commencing on or after January 1, 2025, but before

• Page 2, Line 15January 1, 2035, a tax of four and twenty-five one-hundredths

• Page 2, Line 16percent is imposed on the federal taxable income, as determined

• Page 2, Line 17pursuant to section 63 of the internal revenue code, of every

• Page 2, Line 18individual, estate, and trust; except that, if the tax rate has

• Page 3, Line 1been reduced for an income tax year pursuant to section

• Page 3, Line 239-22-627, the tax rate for each income tax year thereafter is the reduced rate.

• Page 3, Line 3(d)  For taxable years commencing on or after January 1,

• Page 3, Line 42035, the federal taxable income, as determined pursuant to

• Page 3, Line 5section 63 of the internal revenue code, of every individual,

• Page 3, Line 6estate, and trust is not subject to tax by the state. On or after

• Page 3, Line 7January 1, 2035, for purposes of section 20 (8)(a) of article X of

• Page 3, Line 8the state constitution, "taxable net income" does not include federal taxable income of individuals, estates, and trusts.

• Page 3, Line 9(2)  Before January 1, 2030, prior to the application of the rate

• Page 3, Line 10of tax prescribed in subsection (1), (1.5), or (1.7) of this section, the

• Page 3, Line 11federal taxable income shall be modified as provided in subsections (3) and (4) of this section.

• Page 3, Line 12(3)  Before January 1, 2035, there shall be added to the federal taxable income:

• Page 3, Line 13(4)  Before January 1, 2035, there shall be subtracted from federal taxable income:

• Page 3, Line 14(6)  Notwithstanding any other law, for taxable years

• Page 3, Line 15commencing on or after January 1, 2035, no individual, estate, or

• Page 3, Line 16trust is entitled to claim any income tax credits. Any unclaimed

• Page 3, Line 17income tax credits of an individual, estate, or trust that are subject to a carry-forward period expire on December 31, 2034.

• Page 3, Line 18SECTION 2.  In Colorado Revised Statutes, 39-22-301, amend (1)(d)(I)(K); and add (1)(d)(I)(L) as follows:

• Page 3, Line 1939-22-301.  Corporate tax imposed - repeal. (1) (d) (I)  A tax is

• Page 3, Line 20imposed upon each domestic C corporation, foreign C corporation, and

• Page 4, Line 1combined group, as defined in section 39-22-303 (12)(a.3), doing

• Page 4, Line 2business in Colorado annually in an amount of the net income of such C

• Page 4, Line 3corporation during the year derived from sources within Colorado as set forth in the following schedule of rates:

• Page 4, Line 4(K)  Except as otherwise provided in section 39-22-627, for

• Page 4, Line 5income tax years commencing on or after January 1, 2022, but before

• Page 4, Line 6January 1, 2025, four and forty one-hundredths percent of the Colorado

• Page 4, Line 7net income. This subsection (1)(d)(I)(K) is repealed, effective December 31, 2030.

• Page 4, Line 8(L)  Except as otherwise provided in section 39-22-627, for

• Page 4, Line 9income tax years commencing on or after January 1, 2025, four

• Page 4, Line 10and twenty-five one-hundredths percent of the Colorado net

• Page 4, Line 11income; except that, if the tax rate has been reduced for an

• Page 4, Line 12income tax year pursuant to section 39-22-627, the tax rate for each income tax year thereafter is the reduced rate.

• Page 4, Line 13SECTION 3.  In Colorado Revised Statutes, 39-22-601, amend (1)(a)(I), (3) introductory portion, and (4); and add (11) as follows:

• Page 4, Line 1439-22-601.  Returns - repeal. (1) (a) (I)  Before January 1,

• Page 4, Line 152035, whenever a resident individual or a nonresident individual with

• Page 4, Line 16income from Colorado sources is required to file a federal income tax

• Page 4, Line 17return under the provisions of section 6012 of the internal revenue code

• Page 4, Line 18or whenever a resident individual or a nonresident individual has incurred

• Page 4, Line 19any tax liability under any provision of this article this article 22, the

• Page 4, Line 20individual shall make a return that contains a written declaration that it

• Page 4, Line 21is made under the penalty of perjury in the second degree. The return shall

• Page 4, Line 22set forth, in such detail as the executive director shall prescribe by rule,

• Page 4, Line 23the said individual's federal taxable income, the deductions,

• Page 5, Line 1modifications, exemptions, and credits required or allowed under this

• Page 5, Line 2article article 22, and any other information necessary to carry out the

• Page 5, Line 3purposes of this article article 22. For the purpose of this section, the

• Page 5, Line 4residence of the individual taxpayer is the address supplied by the taxpayer to the department of revenue on the return.

• Page 5, Line 5(3)  Before January 1, 2035, every fiduciary, except a receiver

• Page 5, Line 6appointed by authority of law in possession of part only of the property

• Page 5, Line 7of an individual, shall make a return for any individuals, estates, or trusts

• Page 5, Line 8for which he the individual acts, which return must contain a

• Page 5, Line 9declaration that it is made under the penalties of perjury in the second

• Page 5, Line 10degree. Such return shall set forth, in such detail as the executive director

• Page 5, Line 11shall prescribe by regulation, the federal taxable income and the

• Page 5, Line 12deductions, modifications, exemptions, and credits required or allowed

• Page 5, Line 13under this article article 22 and any other information necessary to carry

• Page 5, Line 14out the purposes of this article article 22. The individuals, estates, or trusts for which a fiduciary acts are as follows:

• Page 5, Line 15(4)  Before January 1, 2035, every fiduciary of an estate or trust

• Page 5, Line 16with a nonresident beneficiary which receives net income from real or

• Page 5, Line 17tangible personal property within Colorado shall withhold and pay over

• Page 5, Line 18to the executive director, out of the income to be distributed to such

• Page 5, Line 19nonresident beneficiary, a tax upon the beneficiary's share of said income

• Page 5, Line 20computed at the rate provided in section 39-22-104 unless the nonresident

• Page 5, Line 21beneficiary files a timely return of his their total income from sources

• Page 5, Line 22within Colorado, in which case the fiduciary shall withhold and pay over

• Page 5, Line 23only the amount of tax disclosed by the beneficiary's return. The

• Page 5, Line 24nonresident beneficiary, at his their option within the time limited by this

• Page 5, Line 25article article 22, may file a return of his their income and may claim

• Page 6, Line 1a refund for the amount of tax withheld in excess of the amount of tax due as shown by said return.

• Page 6, Line 2(11)  If a resident individual, a nonresident individual, an

• Page 6, Line 3estate, a trust, or a fiduciary as set forth in subsection (3) of

• Page 6, Line 4this section is required to or has the option to file a return for

• Page 6, Line 5a purpose other than reporting federal taxable income, the

• Page 6, Line 6executive director shall develop a form for the resident

• Page 6, Line 7individual, nonresident individual, estate, trust, or fiduciary to file instead for years commencing on or after January 1, 2035.

• Page 6, Line 8SECTION 4.  In Colorado Revised Statutes, 39-22-627, amend (1)(a)(I) and (8); and repeal (1)(b)(II) and (11) as follows:

• Page 6, Line 939-22-627.  Adjustment of rate of income tax - refund of excess

• Page 6, Line 10state revenues - authority of executive director - definitions.

• Page 6, Line 11(1) (a) (I)  Subject to the provisions of this section, if, for any state fiscal

• Page 6, Line 12year commencing on or after July 1, 2024, but before July 1, 2034, the

• Page 6, Line 13amount of state revenues in excess of the limitation on state fiscal year

• Page 6, Line 14spending imposed by section 20 (7)(a) of article X of the state

• Page 6, Line 15constitution that are required to be refunded for such state fiscal year

• Page 6, Line 16exceeds the amount specified in subsection (1)(b) of this section, the

• Page 6, Line 17executive director shall temporarily reduce the state income tax rate for

• Page 6, Line 18the income tax year commencing during the calendar year in which the

• Page 6, Line 19state fiscal year ended and for each succeeding income tax year

• Page 6, Line 20from its current percentage of the federal taxable income of every

• Page 6, Line 21individual, estate, trust, and corporation, as specified in sections

• Page 6, Line 2239-22-104 (1.7) and 39-22-301 (1)(d)(I), as a method to refund excess

• Page 6, Line 23state revenues that are required to be refunded pursuant to section 20

• Page 6, Line 24(7)(d) of article X of the state constitution. Except as otherwise provided

• Page 7, Line 1in subsection (1)(b)(II) of this section, The state income tax rate for the

• Page 7, Line 2income tax year commencing during the calendar year in which the state

• Page 7, Line 3fiscal year ended is reduced, depending on the total amount of excess

• Page 7, Line 4state revenues required to be refunded for a specified state fiscal year

• Page 7, Line 5pursuant to section 20 (7)(d) of article X of the state constitution as

• Page 7, Line 6determined by the annual certification of excess state revenues required

• Page 7, Line 7by section 24-77-106.5 that exceed the amount of excess state revenues

• Page 7, Line 8less the amount of reimbursement for property tax exemptions, by an

• Page 7, Line 9applicable amount specified in subsection (1)(a)(II) of this section,

• Page 7, Line 10subject to the annual adjustments required by subsection (1)(a)(III) of this section.

• Page 7, Line 11(b) (II)  For any state fiscal year commencing on or after July 1,

• Page 7, Line 122025, if the permanent state income tax rate then in effect is four and

• Page 7, Line 13twenty-five one-hundredths percent or less of the federal taxable income

• Page 7, Line 14of every individual, estate, trust, and corporation, any otherwise

• Page 7, Line 15applicable temporary income tax rate reduction outlined in subsection

• Page 7, Line 16(1)(a) of this section does not take effect; except that, if the amount of

• Page 7, Line 17excess state revenues required to be refunded for the state fiscal year is

• Page 7, Line 18equal to or greater than two billion dollars, the executive director shall

• Page 7, Line 19temporarily reduce the state income tax rate to the extent necessary to

• Page 7, Line 20refund all excess state revenues that would not otherwise be refunded by

• Page 7, Line 21another method established by law other than the methods set forth in sections 39-22-2002 and 39-22-2003.

• Page 7, Line 22(8)  The general assembly finds and declares that a temporary state

• Page 7, Line 23income tax rate reduction is a reasonable method of refunding a portion

• Page 7, Line 24of the excess state revenues required to be refunded in accordance with

• Page 7, Line 25section 20 (7)(d) of article X of the state constitution.

• (11)  This section is repealed, effective July 1, 2035.

• Page 8, Line 1SECTION 5.  Act subject to petition - effective date. This act

• Page 8, Line 2takes effect at 12:01 a.m. on the day following the expiration of the

• Page 8, Line 3ninety-day period after final adjournment of the general assembly; except

• Page 8, Line 4that, if a referendum petition is filed pursuant to section 1 (3) of article V

• Page 8, Line 5of the state constitution against this act or an item, section, or part of this

• Page 8, Line 6act within such period, then the act, item, section, or part will not take

• Page 8, Line 7effect unless approved by the people at the general election to be held in

• Page 8, Line 8November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.