Effort to roll back business tax breaks collapses at Colorado Capitol 

Colorado Democrats in the final days of the legislative session largely abandoned their plan to reverse a suite of tax breaks for businesses and redirect that money to a new tax credit for lower-income families. 

After passing the House earlier this month, two bills that were the core of Democrats’ tax package failed on Monday, May 11, in the Senate Finance Committee. The legislative session ends on May 13. 

Proponents said the bills were aimed at providing tax relief to working families after congressional Republicans passed a sweeping law — the One Big Beautiful Bill Act — last summer that cut taxes for businesses and reduced funding for social safety-net programs.

“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 Sen. Judy Amabile, D-Boulder, during Monday’s Senate Finance Committee hearing. 

“I think that’s a worthy goal, and it is something we actually should be trying to do because we cannot continue to have this gap grow,” she added. 

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Amabile’s measure, House Bill 1221, would have lowered tax deductions that businesses claim on executive salaries from $1 million to $250,000 and capped deductible net operating losses at no more than 70% of taxable income, down from 80% currently.

The measure was expected to generate $62.9 million in the 2026-27 fiscal year and $124.1 million in the following fiscal year, money that would have gone toward a new tax credit for families making under $95,000. 

That benefit was meant to replace the state’s family affordability tax credit, which is only available in years where the Legislature has a revenue surplus above the limit set by the Taxpayer’s Bill of Rights, or TABOR. After the passage of the One Big Beautiful Bill, Colorado’s revenue fell below the TABOR cap, driven in part by a reduction in corporate taxable income. 

Democrats point to the family affordability tax credit as a major success for reducing poverty. The credit, which provided up to $3,200 per child under the age of 6, and $2,400 for children under 16, helped drive a 37% decrease in child poverty in 2025, according to a study by researchers at Washington University and Appalachian State University in North Carolina. 

Amabile said she didn’t believe there was enough support in the Senate, which is more politically moderate than the House, for the bill to pass. 

“While the bill isn’t going to make it this year because I know a lot of you don’t support it, I do think it’s something we have to address,” she said. 

Amabile asked that the bill be postponed indefinitely, effectively killing it for the current legislative session. Lawmakers voted 7-1 to do so. Sen. Cathy Kipp, D-Fort Collins, was the lone Democrat to vote against postponing the bill. 

She said she has heard from constituents who’ve called for “taxing wealthy people and helping our vulnerable people,” adding, “I feel challenged that in this building, in this particular state, that we are not able to move this particular policy forward.” 

Kipp was also a sponsor of the second tax measure, House Bill 1222, which would have rolled back state-level tax breaks for businesses that were triggered under the One Big Beautiful Bill.

Because Colorado mirrors the federal tax code, businesses are eligible for state-level versions of federal tax benefits. Kipp’s bill would have eliminated provisions that allow businesses to claim up to 100% of their deductions within the same tax year for manufacturing-related buildings and equipment, research and development and interest paid on debt. 

Reversing those tax benefits was expected to generate $189.9 million for the state for the 2026-27 fiscal year and $329.2 million the following fiscal year, which would have gone to the new family tax credit.

Kipp said her bill did not revoke state tax breaks that existed before the One Big Beautiful Bill, nor did it prevent businesses from claiming those benefits on their federal taxes. She asked that the measure be postponed indefinitely after it became “clear that this bill will be vetoed unless we agree to reducing the state income tax.” 

Gov. Jared Polis, at the beginning of the legislative session, had pushed lawmakers to cut income taxes as a condition of any tax reform package, something that Kipped called “irresponsible.” The bill was postponed on a 7-1 vote, with Kipp opposed. 

Two other measures that made up the Democrats’ tax package are still moving forward. 

House Bill 1223 would repeal a state sales tax exemption for most downloadable software, which is expected to generate $43.6 million for the new family tax credit, and about $800,000 in tax breaks for restaurants. 

House Bill 1289, the only of the four bills that would not fund the new family tax credit, would instead narrow and eliminate certain tax benefits while creating and expanding others. 

Provisions that would be eliminated include vendor fees for cigarette and tobacco products, which allow sellers to retain a percentage of the sales tax they collect and send to the state, as well as a sales tax exemption for property used for space flight.