TABOR Refunds and Your Colorado Business: What You Need to Know

If you live and work in Colorado, you have probably heard of TABOR — the Taxpayer's Bill of Rights. It is one of the most unique tax provisions in the country, and it directly affects both individuals and businesses. Here is what you need to know.

What Is TABOR?

Passed in 1992 as a constitutional amendment, TABOR limits how much revenue the state government can collect and spend. When state revenue exceeds the TABOR cap (calculated based on population growth plus inflation), the excess must be refunded to taxpayers.

How Refunds Work

When TABOR refunds are triggered, they show up in different ways depending on the year and legislative decisions:

• Income-tier-based refunds distributed via your personal Colorado income tax return
• Temporary income tax rate reductions applied to your state return (e.g., the 2022 reduction from 4.55% to 4.50%)
• Direct refund checks or credits in years when the legislature elects that mechanism

It is worth noting that TABOR refunds are not paid as a separate business refund. Business owners typically see TABOR benefits in two places: as a temporary rate reduction on the entity's Colorado return, and as an individual refund on the owners' personal returns once profits flow through. The mechanism changes from year to year based on legislative action, so it is important to stay current on how the refund is being distributed.

Impact on Business Planning

TABOR creates some unique planning considerations for Colorado businesses:

Revenue Estimation

Because TABOR can reduce the effective state income tax rate in surplus years, your tax projections may need adjustment. A year where you planned for a 4.4% state rate might effectively be lower after TABOR refund mechanisms are applied.

Timing of Income

In years where TABOR refunds are expected, there may be strategic advantages to timing income recognition. However, this should always be weighed against federal tax implications and overall business needs.

Multi-State Considerations

If your business operates in multiple states, TABOR refunds only apply to Colorado-sourced income. Proper apportionment is essential to calculating the correct refund amount.

Common Misconceptions

"TABOR means Colorado has low taxes." Not necessarily. TABOR limits growth in revenue collection, but Colorado still levies income tax, sales tax, and various fees. The actual tax burden depends on your specific situation.

"I will always get a TABOR refund." Refunds only happen when revenue exceeds the cap. In years with lower economic activity, or when voters are asked to approve retention of revenue — measures like Proposition CC (rejected by voters in 2019) or Referendum C (approved in 2005, which paused TABOR refunds for five years) — refunds may be reduced or eliminated.

"TABOR refunds are automatic." You typically need to file a Colorado income tax return to receive your refund. Businesses that do not file on time may miss the refund window.

What Business Owners Should Do

1. File on time — this is the simplest way to ensure you receive any refund you are owed
2. Work with a Colorado CPA who tracks TABOR developments and factors them into your tax projections
3. Do not plan around the refund — treat it as a bonus, not a guaranteed reduction in your tax burden
4. Keep good records of Colorado-sourced income if you operate in multiple states

TABOR is one of many Colorado-specific tax provisions that make working with a local CPA valuable. National tax preparers often miss these nuances — or worse, apply them incorrectly.