Colorado voters wanted a voice in how their state revenues were being utilized, especially when it came to potential tax increases. In 1992, those voices were heard when The Taxpayer’s Bill of Rights (TABOR) Amendment was approved by Colorado voters.
This amendment to the Constitution of the State of Colorado generally limits the number of revenue governments in the state can retain and spend. Absent voter approval, it requires excess revenue to be refunded to taxpayers.
“It imposes a limit on the amount of revenue the state and its political subdivisions can retain,” said Josh Pens, Director of Tax Policy for the Colorado Department of Revenue. “It is based on prior year spending, inflation, and population growth. Anything over the revenue limit would have to be refunded.”
TABOR Requires Voter Approval for Some Tax Increases
The state TABOR revenue limit is generally equal to the prior fiscal year’s limit plus the rate of inflation and population growth in Colorado, subject to a voter-approved floor.
“Until or unless the state constitution is amended, we either have to refund excess revenue or we have to ask voters to allow us to retain them (excess revenue),” Pens said.
When state revenue is above the TABOR limit, the surplus is refunded to taxpayers in the following ways prescribed by state statute.
“There are currently three TABOR refund mechanisms: reimbursement to counties for the senior homestead exemption, a temporary income tax rate reduction, and a sales tax refund,” Pens said. “For 2021, we sent refund checks to taxpayers based on the estimated excess from 2021-2022.”
2021 TABOR Surplus Meets Mechanism Threshold
The 2021 TABOR surplus was large enough to fund all three refund mechanisms, including the following two which are administered by the Department of Revenue:
- All taxpayers who file a 2021 income tax return will automatically receive the income tax rate reduction, from 4.55 percent to 4.50 percent.
- Eligible individual taxpayers may also receive a sales tax refund if they file a 2021 income tax return by Oct. 17, 2022. Eligible full-year residents who do not have a Colorado income tax liability, and are not claiming a refund of wage withholding, must have filed a return by April 18, 2022.
- Certain full-year residents may claim the state sales tax refund through the Property Tax/Rent/Heat Rebate Application in lieu of filing an income tax return.
Eligible individuals who were full-year residents for 2021 and filed a 2021 Colorado Individual Income Tax Return (DR 0104) by Oct. 17, will receive a direct prepayment refund through Colorado Cash Back (also known as the Temporary TABOR Refund Mechanism For FY 2021-22 Only).
A TABOR income tax rate reduction results in either a larger refund, if the taxpayer over-withheld, or a smaller bill, if the taxpayer did not withhold enough or make enough estimated tax payments that year. The refund amount is different for each taxpayer, based on their unique income tax situation, said Pens.
Governor Signs Rebate Bill
On May 23, Gov. Jared Polis signed a new law (Senate Bill 22-233) to give Coloradans a tax rebate of $750 for individual filers and $1,500 for joint filers this summer, instead of spring 2023.
The act established a temporary fourth TABOR refund mechanism for excess state revenues from all sources for the state fiscal year 2021-22.
Under this mechanism, if the amount of excess state revenues exceed the projected total amount of TABOR refunds issued as reimbursement to counties for the senior homestead exemption and, if applicable, through the temporary income tax rate reduction, then on or before Sept. 30, 2022, the Department of Revenue is required to issue refund checks to every qualified individual in an identical amount. An exception to the mechanism includes, for qualified individuals who were granted an extension to file a state income tax return and timely file the state income tax return, the refund checks must be issued on or before Jan. 31, 2023.
Polis said in a press release that every Coloradan who filed taxes by June 30 or by their approved extension date should get an estimated $500. Those who file jointly should get an estimated $1,000.
“People are paying more for everyday items like gas, groceries, and rent through no fault of their own. Instead of the government sitting on money that Coloradans earned, we want to give everyone cashback as quick,” Polis said in a press release. We are providing immediate relief for hardworking Coloradans by sending rebate checks back quickly.”
TABOR Provides Both Pro and Con Results
Jeffery Zax, Professor and Associate Chair of Undergraduate Studies at the University of Colorado-Boulder, said TABOR has both pros and cons, depending on which side of the matter you support.
“The pros are that it limits the tax revenue that the state can take in,” Zax said. “That limits the expenditures that the state can make. If you don’t like the state, then that is a good thing.”
Zax says TABOR hampers the state’s income revenue stream.
“I think a lot of that (pros) is a con,” he said. “As incomes in the state go up, as people get wealthier, it is clear some of the things they want are better education for their kids and a better environment, and those things are expensive. The restrictions that TABOR puts on the state government prevents the state government from responding adequately to changes in demand for government services.”
The TABOR proposition put forth before voters were complex, Zax said.
“I don’t think they (voters) understood what they were voting on,” he said. “It was a complicated bill. I think it was pretty seriously misrepresented. I don’t think they truly understood what TABOR was going to do and they went for it. As a consequence, the state government is very limited in what it can do.”
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