Of the state revenue loss, about $326 million comes from individual income tax breaks, and about $825 million comes from corporate tax breaks, according to estimates from the governor’s Office of State Budgeting and Planning for the current fiscal year, which began July 1.
“It does benefit lots of different kinds of businesses, but the biggest windfall in terms of dollars is going to happen to the biggest corporations and the biggest businesses,” said Caroline Nutter, the legislative and policy manager at the Colorado Fiscal Institute.
Causes of State Revenue Loss
As Colorado lawmakers prepare to head back to the Capitol for a special legislative session on Thursday, they’re tasked with addressing the nearly $800 million gap in the state budget, caused by the tax code changes and other provisions in the One Big Beautiful Bill Act. Before that law was passed and signed by President Donald Trump in July, the state budget was balanced.
In Colorado, the state tax code is linked to the federal tax code, through a policy known as rolling conformity. Colorado also uses federal taxable income to determine state taxes. These two factors make the state’s tax revenue especially susceptible to federal changes.
Colorado is one of four states that have this combination of policies.
“We have a double hit from the federal government, because we automatically take all of their tax changes, and we start with their income after all of their deductions,” Nutter said.
The tax code changes that have resulted in the biggest revenue losses are those affecting business depreciation and interest, standard and itemized income tax deductions, and qualified business income tax deductions, as well as the elimination of taxes on qualifying tips and overtime.
Impacts on Businesses Vary
Corporations with high revenues, and therefore substantial tax liabilities, are the businesses that benefit most from the tax code changes, Nutter said. Compared to large C corporations, S corporations, LLCs and sole proprietor businesses are unlikely to see as much benefit, she said.
Because Colorado bases its state taxes on federal taxable income, the state tax revenue is also reduced by federal deductions, including those that don’t bring benefits to Colorado, Nutter added.
“If you’re a corporation and you claim a federal deduction for a machine that you bought in Michigan, you are still able to reduce your Colorado taxable income, because we just automatically take federal taxable income and multiply our tax rate by that number,” Nutter said.
Hunter Nelson, the Colorado director of the nonprofit Small Business Majority, said the One Big Beautiful Bill Act “disproportionately helps the wealthiest businesses.” Small Business Majority advocates for its network of about 4,200 Colorado small businesses, which operate in several industries including food services and marketing.
“We’re continuing to see a lack of bottom-up tax relief benefits for small businesses,” Nelson said.
Beyond taxes, a major concern for Colorado small businesses is the federal law’s changes to Medicaid and enhanced premium tax credits for health insurance. The law cuts more than $1 trillion from Medicaid, a state-federal health insurance program for low-income people.
The Medicaid cuts, which take effect in 2027, will put an estimated 377,000 Coloradans at risk of Medicaid disenrollment.
Nelson said that those cuts are “drastic and concerning” for low-income people who are self-employed, and for small business employees who do not receive health coverage through their jobs.
“We’re worried about the impact that this will have on our community, our small businesses in Colorado, especially in rural Colorado, and the ripple effects,” Nelson said.
This story first appeared in Colorado Newsline. Read the original here.
