By Jackson Brainerd
As Colorado’s economy rebounds in the aftermath of the Great Recession, taxpayers may receive a tax refund courtesy of the state’s Taxpayer’s Bill of Rights (TABOR).
TABOR, the nation’s most stringent tax and expenditure limitation, mandates refunds when revenue exceeds the rate of inflation plus population growth, unless voters decide to let the state keep the money.
For the first time in 15 years, Colorado’s tax collections are expected to exceed TABOR’s revenue cap. Lawmakers are in a quandary over whether to return the money to taxpayers, or ask their permission to keep it. Since its implementation in 1992, the state has refunded more than $2 billion to taxpayers. Voters have chosen to forgo refunds before, however, most notably when they approved Referendum C in 2005 to raise the state’s revenue limit in the midst of a difficult budget climate due to TABOR limitations.
Governor John Hickenlooper, who will submit his proposed budget to the legislature on Nov. 3, has not yet indicated if he will recommend a tax refund, or let voters decide through a referendum. If the surplus is refunded, the Colorado Legislative Council has estimated that lawmakers will need to set aside $125.1 million for fiscal year (FY) 2017 and $392.6 million for FY 2018.
In FY 2017, the refund would come in the form of an earned income tax credit and sales tax refund estimated at $11 per taxpayer. The next year, it would come as a temporary income tax rate reduction from 4.63 percent to 4.5 percent and a six-tier sales tax refund would also become available.
Embroiled in this discussion is the fate of $30.5 million of marijuana tax revenue. Even though voters already approved this money for education spending in 2013 via Proposition AA, it could be returned to them in the likely event that state fiscal year spending exceeds the 2013 Blue Book estimate for FY 2015.
A TABOR provision regarding new taxes requires a full refund in such cases (though state legislators may be frustrated by the absence of statutory guidelines regarding how these excess tax dollars should find their way back to taxpayers). Should this occur, lawmakers will either have to dip into the General Fund to compensate for the lost education money, or Colorado’s school system will have to go without.
The silver lining surrounding this issue is that Colorado’s economy is growing. While many in the state would like to take this opportunity to rebuild programs that received years of cuts during the recession, others would prefer to see the TABOR refunds carried out.
Jackson Brainerd is a research analyst in NCSL's Fiscal Affairs Program.