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SB 25-138

Permanent Reductions to State Income Tax

2025 Regular Session Introduced by John Carson

SB 25-138 aimed to permanently reduce Colorado's state income tax, ultimately eliminating it by 2035, easing tax burdens on individuals and corporations.

Senate Committee on State, Veterans, & Military Affairs Postpone Indefinitely
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Bill Summary · SB 25-138

Summary of SB 25-138: Permanent Reductions to State Income Tax

Bill Information:
- Bill Number: SB 25-138
- Title: Permanent Reductions to State Income Tax
- Status: Postponed Indefinitely by the Senate Committee on State, Veterans, & Military Affairs
- Introduced: February 5, 2025
- Fiscal Note Date: May 22, 2025

Purpose and Intent

SB 25-138 aimed to implement permanent reductions to the state income tax rate in Colorado. The bill proposed a gradual decrease in the income tax rate, ultimately leading to the complete elimination of the state income tax by 2035. The intent behind this legislation was to reduce the tax burden on individuals, estates, trusts, and corporations, thereby potentially stimulating economic growth.

Key Provisions

  • Income Tax Rate Reduction:

    • For tax years 2025 through 2034, the state income tax rate would be reduced from 4.40% to 4.25%.
    • Starting with tax year 2035, the state income tax would be completely eliminated.

  • Fiscal Impact:

    • The bill projected significant reductions in state revenue:
    • FY 2024-25: Decrease of $211.9 million
    • FY 2025-26: Decrease of $457.5 million
    • FY 2026-27: Decrease of $480.2 million
    • FY 2035-36: Estimated decrease of $18.3 billion due to the elimination of the income tax.

  • State Expenditures:

    • An appropriation of $18,478 was required for the Department of Revenue in FY 2025-26 to implement the changes.
    • Additional costs of $8,702 were projected for FY 2026-27.

  • TABOR Refunds:

    • The bill was expected to decrease the amount of state revenue required for TABOR (Taxpayer's Bill of Rights) refunds, which would affect how surplus state revenue is distributed to taxpayers.

Affected Parties

  • Individuals and Corporations: The bill would have directly impacted taxpayers by reducing their income tax obligations.
  • State Revenue: The significant reduction in income tax revenue would affect state funding for various programs and services.
  • Department of Revenue: The department would incur costs related to implementing the new tax structure.

Procedural Aspects

  • The bill was introduced and assigned to the Senate Committee on State, Veterans, & Military Affairs.
  • On February 27, 2025, the committee recommended that the bill be postponed indefinitely, effectively halting its progress through the legislative process.

Conclusion

SB 25-138 proposed a substantial shift in Colorado's tax policy by reducing and ultimately eliminating the state income tax. While the bill aimed to alleviate the tax burden on residents and businesses, its indefinite postponement means that these changes will not be enacted at this time. The fiscal implications of such a reduction would have required careful consideration of state funding and budget priorities.

Compiled from official sources — confirm details with the bill’s official record.

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