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). There are currently 2 active mechanisms for TABOR refunds, which occur in the following order of priority:

• First, 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); and
• Last, a sales tax refund for individual taxpayers, the amount of which is either an identical flat refund amount or based on 6 tiers of income.

Another refund mechanism exists in current law but is not active. That mechanism is a temporary reduction in the state individual income tax rate from 4.63% to 4.5%. Because the current state individual income tax rate is 4.4%, however, this temporary rate reduction refund mechanism is not able to be triggered by any excess state revenues.

The bill affects the existing TABOR refund mechanisms and creates a fourth TABOR refund mechanism; except that the homestead exemptions are not affected. Additionally, if Senate Bill 24-111 becomes law, the reimbursement to local governments to offset the reduction in property taxes resulting from the reduced valuation for assessment of qualified-senior primary residences created in that bill joins the homestead exemptions reimbursement as the first order of priority for TABOR refunds .

Under the current sales tax refund mechanism, all qualified individuals receive an identical refund amount if the identical refund amount is less than or equal to $15 dollars, but if the identical refund amount would be above $15 dollars, the excess state revenues are instead refunded through a 6-tier refund mechanism based on the qualified individual's adjusted gross income. The bill increases the identical refund amount above which the 6-tier mechanism is triggered and ties this identical refund threshold to internal revenue service calculations of sales tax paid in the state. The 6-tiered income classifications of the sales tax refund are not changed. The bill clarifies 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, no the identical refund is allowed and all excess state revenues are refunded through the 6-tier mechanism threshold remains $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. The sales tax refund mechanism is addressed in sections 3 4 through 8 9 of the bill.

The temporary income tax rate reduction is reactivated for income tax years 2025 through 2035. 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, 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 reimbursement is paid (remaining excess state revenues):

• If the remaining excess state revenues are above $300 million but less than or equal to $500 million, the individual 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 individual 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 individual 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 individual 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 individual 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 individual income tax rate is temporarily reduced by 0.13%; and
• If the remaining excess state revenues are above $1.5 billion, the individual income tax rate is temporarily reduced by 0.15%.

The individual income tax rate reduction refund mechanism is set to repeal on July 1, 2035. The income tax rate reduction refund mechanism is addressed in sections 1 and 2 through 3 .

The bill also establishes a fourth TABOR refund mechanism for remaining excess state revenues for fiscal years starting on July 1, 2024, but before July 1, 2034. Under this mechanism, if the amount of remaining excess state revenues is equal to or greater than $1.5 billion and exceeds the projected total amount of TABOR refunds issued as reimbursement to counties for the homestead exemptions and through the temporary income tax rate reduction, then the state sales and use tax rates are temporarily reduced by 0.13%. The state sales and use tax rate reduction refund mechanism is set to repeal on July 1, 2035. The sales and use tax rate reduction refund mechanism is addressed in sections 9 10 through 15 16 .

Whether the TABOR refund mechanisms are triggered and, if so, how many of the mechanisms are triggered depends on the amount of remaining excess state revenues 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 TABOR refund mechanism, then the affected refund mechanism is not triggered.

The bill 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, and makes conforming amendments.

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.

(Note: Italicized words indicate new material added to the original summary; dashes through words indicate deletions from the original summary.)

(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)