Colorado Taxpayers Will Likely See TABOR Tax Refunds Next Year

Colorado taxpayers are very likely to get a break when they file their taxes next year as the state prepares to refund some tax revenues back to taxpayers for the first time in nearly 15 years. This is due to a provision in the state’s constitution, little known outside of Colorado, called the Taxpayer Bill of Rights, or TABOR. This provision is one of the most effective limits on both Colorado state spending and on state revenue collection.

TABOR works by establishing a limit on how much tax revenue the state can collect in a given year. Generally, the cap is determined by the previous year’s revenue collection and a formula to account for growth in population plus inflation. If the state revenue collection exceeds that cap, the excess revenue collected is refunded to the taxpayers. Lower income taxpayers generally receive larger refunds than higher income taxpayers would, but all taxpayers would benefit from the TABOR refund.

As revenue projections come in and budgets are created, state lawmakers have the opportunity to ask Colorado voters to let the state keep the excess revenue for additional government spending. Currently state lawmakers are considering this option, especially as it relates to an expected $60 million of revenue above the TABOR cap derived from marijuana sales. Whether these excess tax revenues will be refunded to taxpayers or remain with the state for increased spending will be determined by Colorado voters.

However Colorado voters choose to deal with excess state revenue, it is becoming increasingly clear that a rebounding Colorado economy will likely mean that this type of TABOR tax refund discussion will continue for several years to come. For this next year, a revenue projection from the governor’s office estimates that TABOR refunds could total about $220 million while a projection from Legislative Council puts the TABOR refund estimate closer to $70 million. Depending on the amount of revenue collected above the TABOR cap and taxpayer income levels, taxpayers could see tax refunds ranging from $15 to $89.

The American Legislative Exchange Council has developed model policy that builds on the protections of TABOR and acts as an efficient tax and expenditure limitation. Overall, TABOR is an effective tool in making sure that state government does not grow faster than the state’s private economy and puts decisions about excess tax revenues directly in the hands of the taxpayers.