$67 million more in TABOR refunds slated for April: What you need to know if you pay taxes in Colorado

Colorado taxpayers are in line for almost $67 million in Taxpayer's Bill of Rights refunds that should have been paid years ago due, the result of an error by the state controller in determining what should — or shouldn't — be counted as TABOR revenue in the state's reinsurance program.

That money would have to be refunded to taxpayers next April with their tax filings, but how that money gets paid could change in the next week.

Where did this come from?

The state's annual financial audit — dated June 30, 2023, and published in February — discussed the problem, which started with legislation passed in 2020. Senate Bill 215 created the Health Insurance Affordability Enterprise, which pays for the state's reinsurance program. That's the kind of insurance for insurance companies to cover those extraordinarily large health insurance claims — consider $1 million or more — using fees paid to the state and placed into an "enterprise."

An "enterprise" is a type of state-run business, and the revenue generated by it, which insurance companies pay for, is outside of TABOR revenue calculations.

Since 1913, the state has collected a premium tax from insurance companies, calculated on the gross amount of all premiums collected. In 2023, that was $533 million, the audit said. SB 215 directed a portion of those premium taxes into the enterprise fund for the reinsurance program — between $9 million and $17 million per year for the past five years, a total of $66.9 million.

According to an April 26 memo from Joint Budget Committee analyst Eric Kurtz, the state controller treated the premium taxes transferred to the fund as exempt from TABOR.

However, the state auditor and the Attorney General recently agreed that the money should have been counted as TABOR revenue and would have been counted toward TABOR surplus calculations.

That means taxpayers are, in fact, in line for about $66.9 million in TABOR refunds.

How will these refunds be paid?

The legislation that seeks to fix the error and which govern at least some of the refund monies — about $33.9 million — doesn't change how the refund would be paid.

This means the refund would be done the same way the money has been paid to taxpayers for the past decade, not counting the "equalized" refunds in 2022 and 2023.

That also means the $66.9 million will just be added to the TABOR surplus, which is certified every September and paid through a series of TABOR refund mechanisms.

Two are in play, with a third proposed in legislation currently working through the General Assembly.

The first refund goes to seniors and disabled veterans who have owned their homes for at least 10 years, known as the homestead exemption.

That's roughly around $150 million to $160 million per year.

The second refund mechanism is a six-tiered sales tax refund that is tiered based on income and refunded when Coloradans file their annual tax returns.

However, those refund mechanisms could change in the next week due to other legislation moving through the General Assembly.

What about Senate Bill 228?

This bill, introduced this week, will impact how TABOR refunds are paid if it passes and is signed by the governor.

The bill says that when there's a TABOR surplus — when revenue exceeds the amount the state is allowed to spend — the state will reactivate the income tax rate reduction mechanism in TABOR between 2025 and 2035, decreasing the rate to 4.25%.

That's projected to happen for the 2025 tax filing.

After the 2025 tax year, if the remaining amount of the TABOR surplus is more than what's paid out for the homestead exemptions, another income tax rate reduction would be applied, tied to the amount of revenue available, ranging from 0.04% to 0.15%.

The measure repeals July 1, 2035.

Meanwhile, a wholly new refund mechanism will be applied to the sales tax refund and would be in effect from July 1, 2024, to July 1, 2034.

If the state holds at least $1.5 billion in its TABOR surplus, as certified each September, and the surplus exceeds both the amount paid out in the homestead exemption and the temporary income tax rate reduction, the state sales tax would be reduced, beginning with the following January, from 2.9% to 2.77% and for the entire year.