The OBBBA is projected to cause a significant shortfall in Colorado state revenues for the fiscal year that began on July 1.2 In response, Governor Jared Polis convened a special session of the General Assembly. The special session concluded with the passage of several tax laws designed to raise revenue, all of which will become effective for tax years beginning on January 1, 2026.
Addback of QBI. Under existing law, the QBI deduction allowable under Internal Revenue Code (“IRC”) Section 199A is added back for Colorado income tax purposes. This addback was set to expire for tax years beginning January 1, 2026. However, pursuant to H.B. 25B-1001, the addback will continue indefinitely.
Addback of FDDEI. Under IRC Section 250, as amended by the OBBBA, corporations are allowed a deduction for 33.34 percent of FDDEI (which essentially is a domestic corporation’s export income). H.B. 25B-1002 requires an addback of FDDEI in calculating net income for Colorado income tax purposes.
Expanded Tax-Haven List. H.B. 25B-1002 also expands Colorado's list of tax-haven jurisdictions. Corporations that are part of an affiliated group and incorporated in the listed foreign jurisdictions presumptively must be included in the group’s Colorado combined return. The updated list of jurisdictions presumed to be used for tax avoidance now includes Hong Kong, Ireland, Liechtenstein, the Netherlands, and Singapore. Furthermore, the legislation grants the Executive Director of the Colorado Department of Revenue expanded discretionary authority to determine whether an affiliated group member is incorporated within a listed jurisdiction for tax avoidance or legitimate economic reasons.
Elimination of Reduced Premiums Tax Rate. H.B. 25B-1003 repeals the reduced insurance premium tax rate for insurance companies that have a qualifying home office or regional home office location in Colorado. The 1% reduced rate was originally enacted to incentivize insurance companies to maintain a substantial work force within the state. However, the Colorado General Assembly determined that this provision did not have the intended effect and has reinstated the 2% insurance premium rate.
Authorization for Sale of Tax Credits. H.B. 25B-1004 authorizes the Colorado State Treasurer to sell corporate income tax credits and insurance premium tax credits to authorized taxpayers doing business in the state. The state Treasurer will have discretion regarding the value of the credits sold, the year in which the credits may be claimed, and the use of an independent third party to facilitate the sales. Purchased credits, however, may be carried forward through calendar year 2033.
Elimination of Sales Tax Vendor Reimbursement. H.B. 25B-1005 repeals a provision that allowed qualified retailers to retain a percentage of the sales tax collected as a fee to cover their expenses for collecting and remitting the tax.
- P.L. 119-21.
- “Tax Policy Impacts from the Federal Reconciliation bill, H.R.1,” Presentation by Mark Ferrandino, Director, Colorado Office of State Planning and Budgeting, July 30, 2025.
Client Alert 2025-243
