HB1222 revises Colorado’s income tax conformity rules for certain federal business deductions and creates a new refundable family credit. Beginning with tax years starting on or after January 1, 2027, the bill requires individual and corporate taxpayers to add back to Colorado taxable income the portion of federal deductions attributable to expanded business interest deductions, bonus depreciation, qualified production property depreciation, and immediate expensing of domestic research and experimental costs. The bill then allows those add-backs to be recovered over time through phased subtractions in later years, using schedules that mirror the prior federal treatment of the expenses.
The bill also creates a new refundable “family affordability credit” for tax years beginning on or after January 1, 2027. The credit is available to eligible taxpayers with qualifying children, with larger amounts for children age five and under and smaller amounts for children ages six through sixteen. The credit is income-limited, indexed for inflation beginning in 2028, and designed so that its total statewide cost is projected to match the revenue raised by the business add-back provisions. The Department of Revenue and Legislative Council staff are assigned ongoing forecasting and reporting duties to set and monitor the credit amount each year.
Impact
HB1222 would amend Colorado’s individual and corporate income tax statutes by decoupling the state tax base from several recent federal business tax changes and by adding a new refundable child-based credit. It changes sections governing federal taxable income for individuals, estates, trusts, and corporations, and adds a new section establishing the family affordability credit, including eligibility rules, phaseouts, refundability, inflation adjustments, and reporting requirements. The bill is structured to raise revenue from business taxpayers and redirect an equivalent amount to households with children, while also preserving partial conformity through future amortized deductions.
Sentiment
The available voting history suggests the bill advanced with meaningful but not unanimous support. It passed House Finance after amendments, moved through House Appropriations, and then passed House third reading by a 40-21 vote, indicating a majority in favor but notable opposition. The bill’s findings frame it as a family-affordability measure that offsets federal tax changes benefiting businesses, and the committee and floor votes are consistent with a generally supportive posture among sponsors and many majority members.
Contention
The main point of contention is the bill’s tax policy tradeoff: it increases Colorado taxable income for businesses by reversing federal deductions for interest, depreciation, and research expenses, while using the resulting revenue to fund a refundable credit for families. Supporters characterize this as protecting state revenue and prioritizing low- and moderate-income households, especially families with children. Opponents are likely to focus on the added tax burden for capital-intensive businesses, manufacturing, and firms with significant research or financing costs, as well as the complexity of the add-back and carryforward rules and the bill’s reliance on annual revenue forecasts to set the credit amount.