Colorado Does Not Believe TABOR Refunds Should be Taxed

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18 states await IRS guidance on stimulus checks

DENVER - Today, the Colorado Department of Revenue (CDOR) announced that it does not believe TABOR refunds like last year’s Colorado Cashback refund, should be subject to federal income tax. The Department made the statement in response to a February 3rd statement made by the IRS telling taxpayers to “wait until additional guidance is available” before filing their returns. 

Colorado believes it is well positioned to make the argument that their refunds should be nontaxable. The state has used a refund mechanism for excess state revenues since the inclusion of the Taxpayer Bill of Rights (TABOR) as an amendment to the state constitution in 1992. TABOR requires the state to return "excess state revenue" to taxpayers through multiple refund mechanisms and Colorado has done so on numerous occasions and through various statutory methods since 1992. The IRS has never attempted to tax TABOR refunds in the past 30 years.

The Colorado Department of Revenue has provided detailed information to the Internal Revenue Service (IRS) in response to the questions they’ve raised regarding the refunds and is hopeful they will agree with the state’s position that TABOR refunds are nontaxable. 

The Department will also immediately release a statement upon hearing from the IRS on how they decide to proceed.