This story was produced as part of the Colorado Capitol News Alliance. It first appeared at coloradosun.com.
A handful of tax breaks for businesses in Colorado would be rolled back to fund a new per-child tax credit for families earning up to about $95,000 a year under a group of bills Democrats will introduce in the state legislature Tuesday.
Many of the business tax breaks targeted under the plan were created or expanded by Republicans in Congress through their One Big Beautiful Bill Act, formally known as H.R. 1, which President Donald Trump signed into law last year.
Because Colorado tax law mirrors federal policy, the changes were automatically applied on the state level, too.
The Democrats behind the proposal say they don’t know yet how much the change would cost businesses — and, consequently, how large the per-child tax credit for Colorado families earning up to the state’s median income will be. They are waiting for estimates from nonpartisan legislative staff, though they expect the number to be in the hundreds of millions.
“As soon as we get our bills introduced and get some fiscal notes, we’ll have a better idea of what a ballpark could be,” said state Rep. Lorena Garcia, an Adams County Democrat and one of the architects of the measures.
But they argue the trade-off is the right thing to do for families in Colorado.
“This is our way of saying corporations should pay in a little bit more” at a time when they’re getting a handout from the federal government, said state Rep. Yara Zokaie, a Fort Collins Democrat who is working on the proposals. “If we don’t pass these bills, what we are going to continue to see is middle income, hard working families subsidizing tax cuts for giant corporations.”
The bills aren’t coming in a vacuum. Democrats in the legislature have tweaked the state’s tax code in recent years to ease the financial burden on families on the lower half of the state’s income scale and eliminate tax breaks for businesses they feel are outdated or not functioning as intended.
Republicans and business leaders, however, have cautioned that the moves are making the state less competitive when it comes to attracting companies.
The fine print
One consequence of H.R. 1, Republicans’ federal tax and spending bill, and Colorado’s link to the federal tax code is that state tax revenues dropped precipitously — by an estimated $1.2 billion in the current fiscal year. One effect of that reduction is that it triggered a temporary shut-off of Colorado’s Family Affordability Tax Credit in 2026.
The credit, known as FATC, was created by Democrats in the legislature in 2024 and is available to families earning up to $95,000. It provides up to $3,200 per child depending on the age of the children and how much their parents earn.
But the credit is reduced or goes away entirely when state tax revenues aren’t projected to increase year over year at a fast enough clip. H.R. 1 dropped state tax revenues so much that the credit was turned off in 2026.
Democrats hope to make up for it with the creation of a new family affordability credit.
“We are creating the family affordability credit that mirrors FATC,” Garcia said. “It serves the same population, but it’s not dependent on a trigger like FATC is. So the same population will still get to benefit, even right now when FATC doesn’t exist for them. They will be able to benefit from the family affordability credit — at a lesser rate.”
At a lesser rate, or really to a lesser extent, because the four business income tax breaks slated for elimination would not generate enough revenue to fully duplicate the FATC.
The business tax breaks offered through H.R. 1 that Democrats want to eliminate on the state level are:
- An expansion of write-offs for industrial and manufacturing companies.
- A new tax deduction that allows some businesses to write off the cost of certain buildings or equipment all at once instead of over several years.
- A provision allowing companies to deduct all of their domestic research and experimental costs, even retroactively.
- An expansion of businesses’ ability to take interest paid on debt as a deduction.
Businesses will still get to claim the breaks on their federal taxes, which are much higher than their state taxes..
Democrats also want to prevent businesses from deducting the salaries of their highest paid employees, which they can do right now up to $1 million.
They also want to pare back how much in losses C corporations can deduct from their taxes and repeal a provision in the tax code that lets people who are charged a federal alternative minimum tax apply a credit to their Colorado income taxes.
Finally, Democrats want to eliminate a state sales tax exemption on software that is delivered electronically. If you buy software in a store, the purchase is subject to sales taxes.
“This is unnecessarily confusing,” said state Rep. Steven Woodrow, a Denver Democrat working on the change, adding that the exemption is applied differently in different parts of the state.
Eliminating the exemption, created in 2011, is expected to generate about $80 million annually. Those dollars would also go toward the new family affordability credit.
The credit would vary in size each year depending on how much revenue nonpartisan legislative staffers estimate the eliminated tax breaks will generate. Because the credit is tied directly to those revenue streams, the benefit doesn’t pose a risk to the legislature’s budget like the Family Affordability Tax Credit does.
The legislature has to pay out the FATC, even if it means reductions to state programs and services.
Other tax code changes being proposed by Democrats
Democrats in the legislature are also eyeing a list of other changes to Colorado’s tax code.
A separate bill would tweak about 20 provisions in the state tax code in what the Democrats behind the proposal say will result in no net change to total tax revenues.
The measure would eliminate or limit tax breaks on things like metal bullion, fuel sales and companies’ research and development costs to continue or expand tax breaks on things like electric lawn equipment purchases, wildfire mitigation and the renovation of vacant buildings.
State Sen. Mike Weissman, an Aurora Democrat who is a main sponsor of the bill, said the measure is aimed at making sure “on average that the scales balance out for working people.”
“It is ultimately the easy and correct choice to eliminate and tighten up ineffective tax measures and try to do better for struggling people in our state,” he said at a news conference in the Capitol unveiling the measures.
