TABOR Refund Mechanisms

If the state exceeds its constitutional fiscal year spending limit, it is required by the Taxpayer's Bill of Rights (TABOR) to refund the excess state revenues (TABOR refunds). The act concerns the 4 TABOR refund mechanisms: a reimbursement to counties for lost property tax revenue, an income tax rate reduction, a sales and use tax rate reduction, and a sales tax refund.

The first mechanism through which excess state revenues are refunded is a reimbursement paid to counties for allocation to local governments to offset the reduction in property taxes resulting from property tax exemptions for qualifying seniors, veterans with disabilities, and spouses of veterans who died in the line of duty or as a result of a service-related injury or disease (homestead exemptions). Additionally, for property tax years commencing on or after January 1, 2024, the reimbursement to local governments to offset the reduction in property taxes resulting from the newly reduced valuation for assessment of qualified-senior primary residences created in Senate Bill 24-111, concerning a reduction in the valuation for assessment of qualified-senior primary residence real property, joins the homestead exemptions reimbursement as the first TABOR refund mechanism.

The temporary income tax rate reduction is active for income tax years 2024 through 2034. To refund excess state revenues from fiscal year 2023-24, the income tax rate for income tax year 2024 is temporarily reduced from 4.40% to 4.25%. After that year, if the amount of excess state revenues exceeds the projected total amount of TABOR refunds issued as reimbursement to counties for the homestead exemptions and the qualified-senior primary residence valuation reductions, then the state individual income tax rate is temporarily reduced by the following percentages according to the total amount of excess state revenues remaining after the homestead exemptions reimbursement and the qualified-senior primary residence reimbursement are paid (remaining excess state revenues):

• If the remaining excess state revenues are above $300 million but less than or equal to $500 million, the income tax rate is temporarily reduced by 0.04%;
• If the remaining excess state revenues are above $500 million but less than or equal to $600 million, the income tax rate is temporarily reduced by 0.07%;
• If the remaining excess state revenues are above $600 million but less than or equal to $700 million, the income tax rate is temporarily reduced by 0.09%;
• If the remaining excess state revenues are above $700 million but less than or equal to $800 million, the income tax rate is temporarily reduced by 0.11%;
• If the remaining excess state revenues are above $800 million but less than or equal to $1 billion, the income tax rate is temporarily reduced by 0.12%;
• If the remaining excess state revenues are above $1 billion but less than or equal to $1.5 billion, the income tax rate is temporarily reduced by 0.13%; and
• If the remaining excess state revenues are above $1.5 billion, the income tax rate is temporarily reduced by 0.15%.

The sales and use tax rate reduction refund mechanism is active for fiscal years 2024-25 to 2033-34. Under this mechanism, if the amount of remaining excess state revenues is greater than $1.5 billion, as annually adjusted by a percentage equal to the percentage of allowable increase in state fiscal year spending, and exceeds the projected total amount of TABOR refunds issued as reimbursement to counties for the homestead exemptions and the qualified-senior primary residence valuation reductions, plus refunds issued through the temporary income tax rate reduction, then the state sales and use tax rates are temporarily reduced by 0.13%.

Under the sales tax refund mechanism, all qualified individuals receive an identical refund amount unless the amount of excess state revenues to be refunded would make that identical refund exceed a certain threshold, in which case the excess state revenues are instead refunded through a 6-tier refund mechanism based on the qualified individual's adjusted gross income. The identical refund amount above which the 6-tier mechanism is triggered is tied to annual federal internal revenue service calculations of sales tax paid in the state by family size and income level; except that, if, by September 1 of any year, the executive director of the department of revenue has not received advice from the internal revenue service that such an identical refund is regarded as a refund of sales tax and not as an accession to wealth, the identical refund threshold remains the existing rate of $15. An individual may claim the sales tax refund by filing an income tax return or a specified assistance grant application by October 15 of the calendar year following the taxable year for which the refund is being claimed.

Whether the TABOR refund mechanisms are triggered and, if so, how many of the mechanisms are triggered depends on the amount of excess state revenues remaining after reimbursement to counties for the homestead exemptions and the qualified-senior primary residence valuation reductions as follows:

• If remaining excess state revenues are less than or equal to $300 million, TABOR refunds are distributed only through the tiered or flat sales tax refund mechanism;
• If remaining excess state revenues are greater than $300 million but less than or equal to $1.5 billion, TABOR refunds are distributed first through the income tax rate reduction and then through the tiered or flat sales tax refund mechanism; and
• If remaining excess state revenues are greater than $1.5 billion, TABOR refunds are distributed first through the income tax rate reduction, next through the sales and use tax rate reduction, and finally through the tiered or flat sales tax refund mechanism.

If there are not sufficient excess state revenues to pay the full amount of an income tax rate reduction refund mechanism or the sales and use tax rate reduction refund mechanism, then the affected refund mechanism is not triggered.

The act also repeals statutory sections related to TABOR refund mechanisms that are no longer applicable, including the 4-tier sales tax refund mechanism to refund excess revenues from fiscal year 1997-98.

For the 2024-25 state fiscal year, $59,443 is appropriated from the general fund to the department of revenue for personal services and tax administration IT system support.

APPROVED by Governor May 14, 2024

PORTIONS EFFECTIVE May 14, 2024

PORTIONS EFFECTIVE August 7, 2024
(Note: This summary applies to this bill as enacted.)