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State Tax Primer from A to W: Colorado

May 18, 2009 · 7 comments

Welcome to my sixth in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda, Colorado.

COLORADO

Population: 4,939,456 (22nd)

Capital: Denver

Largest City: Denver

Gross Domestic Product: $236 billion

GDP per capita: $40,963 (10th)

2008 election winner: Barack Obama

web site: http://www.colorado.gov/

Income Tax

Colorado does collect personal income tax. Taxes are a flat 4.63% of your federal taxable income, regardless of income level.

Colorado taxpayers must generally file an income tax return if they lived or worked in Colorado for part or all of the year.

Your filing status for Colorado purposes is the same as your federal filing status. If you file a joint federal return, you must file a joint Colorado return even if one spouse is not a Colorado resident.

Some special exemptions and incentives apply to taxpayers. For taxpayers receiving a pension, the first $20,000 (for persons 55 to 64 years of age) or the first $24,000 (for persons 65 years of age or older) of pension income is not taxed.

For families, payments or contributions made to qualified state tuition savings programs (529 programs) may be subtracted from taxable income. Additionally, taxpayers with federal adjusted gross income of $60,000 (in some cases $64,000) or less may claim a Colorado child care credit in addition to the federal child care credit.

The one “complicating” factor is the extensive system of credits. Colorado offers an additional 13 credits on personal income tax returns, including:

  • Plastic recycling investment credi
  • Colorado minimum tax credit
  • Historic property preservation credit
  • Child care center investment credit
  • Employer child care facility investment credit
  • School-to-career investment credit
  • Colorado works program credit
  • Child care contribution credit
  • Rural technology enterprise zone credit
  • Long term care insurance credit
  • Contaminated land redevelopment credit
  • Low-income housing credit
  • Weather related livestock sale credit
  • Aircraft manufacturer new employee credit

Colorado does participate in the Treasury Set Off program. A Colorado state tax refund will be taken to satisfy any outstanding liabilities owed to Colorado or to the Internal Revenue Service; a federal refund will be taken for same.

Colorado has a pretty nifty charitable giving program. Referred to as Checkoff Colorado, the program – the first of its kind in the country – allows taxpayers to make a donation to one of a number of charities by ticking a box on the taxpayer’s income tax return.

Colorado also includes a Colorado Organ & Tissue Donor Registry Form in its tax return booklet. As this is something that I feel very strongly about, I am pleased to see it.

Sales Tax.

Colorado imposes a state sales tax of 2.9% on any item priced at more than 17 cents. The total tax rate may be higher, depending on the district and local taxes that apply.

Sales tax is imposed on most retail goods and some services. In order to assist businesses and tax professionals with compliance issues, the Colorado Department of Revenue offers a series of free classes held throughout the Metro Denver Area, Colorado Springs, Fort Collins, Grand Junction and Pueblo. For those that cannot attend, there’s an online version of each class – that is service!

Tobacco Tax

Colorado’s cigarette tax is 84 cents per pack pack, currently the 32nd highest in the country. The national average now stands at $1.23.

There is also a tax on other tobacco products of 40% of the manufacturer’s list price.

In Colorado, the cigarette excise tax revenue is used to fund tobacco control programs – one of 12 states in the country to do so.

Gas Tax

The gas tax rate in Colorado is $.22 per gallon, making it the 33rd most expensive state in which to buy gas.

Property Taxes

Colorado does impose taxes on real property based on the assessed value of the property. Property tax calculations are determined by taking into consideration the actual value of the property; property classification; assessment rate; assessed value; and tax rate.

Seniors may be exempt from certain real property taxes. In addition, eligible taxpayers may receive a Property Tax/Rent/Heat Rebate. The program provides a rebate of property taxes and heating expenses to low income elderly and disabled individuals who reside in Colorado.

Colorado also imposes a tax on personal property according to the type of property and assessment value.

Inheritance and Estate Tax

Colorado does not impose an inheritance tax or a gift tax. Like most states, Colorado no longer has an estate tax since it was tied to the federal estate tax state death tax credit.

Overall Tax Burden

The overall tax burden in Colorado, taking into account taxes paid by individuals, results in a ranking as 34th most-tax burdened state in the country, according to Tax Foundation. Colorado has never been higher than 34th since the rankings were established.

taxgirl says

Colorado does a lot of things right. I have to say, I was really impressed by their state revenue department web site – so many of them are really terrible. It’s almost as if (gasp) the Colorado DOR wants you to understand your tax bill.

The relatively low tax burden ranking makes sense. Colorado bases their income tax on the federal income tax with few “add ons” and deductions that aren’t state tax incentive related. Keeping it simple helps.

Along those lines, while I’m generally not a pure flat tax fan, Colorado comes pretty close to getting it right. The state taxes earned and unearned income (the pure flat tax system would only tax earned income – that means the folks who work for wages could end up paying more than Warren Buffet by the dollar, not by percent). The rate is relatively low and by basing the rate on the federal income tax system which already takes exemptions and deductions into account, there is little additional need for more exemptions and deductions.

The exception to the “simple” rule is the series of personal tax credits available to personal taxpayers. Those credits constitute 13 lines of what is basically a 45 line tax return. Additionally, most of them are clearly behavior-related.

With respect to American Recovery and Reinvestment Act (Recovery Act) dollars, Colorado is near the middle of the pack in terms of funding allocations. The state will receive $1,587,564,761 from ARRA with the biggest chunk going to the State Fiscal Stabilization Fund.

The economy remains strong, despite the recession. Colorado home prices, modest to begin with, are expected to show a slight gain of 1% – a good sign in comparison to its neighbors to the west. Total personal income is expected to rise 2.7% in 2009, according to Patty Silverstein, president of Development Research Partners in Littleton and chief economist for the Metro Denver Economic Development Corp. In the 3rd quarter of 2008, Colorado’s personal income growth was the fourth fastest-growing in the nation.

I don’t believe in straight line statistics, or the idea that X equals Y. So I’m not going to buy into the idea that Colorado’s lower tax burden is solely responsible for its continued solid economy. There are clearly other factors in play. But you have to give it some serious consideration. Sure, Colorado has well-to-do individuals that can afford to pay more but so does California and look where that’s gotten them.

A great example of the differences between Colorado and other states can be seen with respect to beer taxes (yes, beer taxes – I was researching this recently for a piece in the Legal Intelligencer). As the “home of the Rockies” and a certain major brewer (whose name I cannot utter lest my husband never forgive me), Colorado could afford to raise the excise taxes on beer. Americans tend to support those kind of increases, as opposed to income taxes. But instead of increasing taxes on beer, Colorado increased the opportunity to buy beer: they repealed the ban on selling beer on Sundays. The result? Increased excise tax revenue by more than 7%. No increased tax rates.

Thinking outside of the box is what we should demand of our lawmakers. It seems like, when it comes to taxes, Colorado is moving in the right direction.

(Note: tax rates were current as of 05-18-2009 and were taken from the CO Department of Revenue)

{ 7 comments… read them below or add one }

1 Billy Ervin June 4, 2009 at 10:48 am

I am starting a business of floor covering installation only no selling of materials just service. Im in the greater Denver area do I charge tax on my services ?

2 Billy Ervin June 4, 2009 at 10:50 am

I am starting a floorcovering company installation only, do I charge tax on my service?

3 Sara July 22, 2009 at 6:17 pm

Hi,
Thanks for this helpful information on CO taxes. Do you know if they provide incentives for living organ donors? I know some states provide paid time off to state employees while other states will provide a $10,000 state tax deduction.
Your help is appreciated,
Sara

4 Michael August 30, 2009 at 12:02 pm

Hey,

I was looking over my paystub this morning and wondering how I cold find some tax deductions for my State of Colorado taxes. Thanks for the article posting. You gave me some good direction on where to look.

Michael

5 Gerry January 23, 2010 at 7:26 pm

In the Denver Public School systems, if you send your child to full-time kindergarten, you pay a monthly fee ($270) p/child for the privilege. Is that amount deductible on federal/state income taxes? Thanks!

6 Brian February 8, 2010 at 3:52 pm

I thought I liked Colorado until I read about the Occupational Privilege Tax. This is nothing more than a fee on hiring an employee or even running a business and is required regardless of profit. http://www.denvergov.org/Portals/571/documents/TaxGuide/Occupational%20Privilege%20Tax.htm

This is stupidity in action!

Glad I live in Florida

7 In Response to Brian April 14, 2012 at 9:10 pm

The Occupational Priviledge Tax ( also called the “Head Tax”) is clearly one of the worst ideas in Colorado! but it’s only for Denver so feel free to come to any other part of the state.

I can’t think of anything more regressive and ugly than a straight tax on low income wage earners. It literally punishes employment.

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