Concerning modifying certain tax expenditures, and, in connection therewith, making an appropriation.
House Bill 26-1223 makes two major tax policy changes in Colorado. First, it creates a new refundable income tax credit for resident taxpayers with children, layered on top of the existing child tax credit and family affordability tax credit. The new credit is designed to target low- and middle-income families, with larger amounts for younger children and a reduced amount for children ages 6 through 16. The credit is income-tested, indexed over time through legislative council projections, and structured so that the total amount of credits claimed each year is intended to match the revenue raised by the bill’s other tax changes.
Second, the bill changes the tax treatment of computer software. Beginning January 1, 2027, it repeals the downloaded software sales and use tax exemption and treats most software available for repeated sale or license as tangible personal property subject to state sales and use tax. The bill preserves exemptions for software governed by a negotiable license agreement or developed for a particular user. It also updates definitions in the sales tax code, including the definition of computer software, and directs that certain local governments and special districts may tax software in the same way unless they affirmatively adopt compliant local measures.
The bill’s fiscal structure also adjusts revenue distributions. It reduces the percentage of sales tax revenue credited to the housing development grant fund beginning in 2027, reflecting the new software tax base. The bill further directs legislative council staff to estimate the revenue gain from the software tax changes and to set the child-related credit amount so that projected credit claims equal that revenue gain. In effect, the bill uses the expanded taxation of software to finance the new refundable family credit.
The overall sentiment reflected in the bill text is strongly supportive of the policy goals of family tax relief and child poverty reduction, while also emphasizing tax simplification and horizontal equity in software taxation. The legislative declaration frames the bill as a comprehensive tax policy change intended to make the tax system more equitable and to offset federal changes that reduced the family affordability tax credit. The bill passed and was signed by the governor, suggesting it had sufficient support to advance without recorded opposition in the available materials.
The main point of contention implied by the bill is the tradeoff between expanding taxes on software purchases and creating a new refundable credit for families. Businesses and software purchasers may object to the repeal of the downloadable software exemption, especially because the bill broadens the sales tax base to software delivered electronically or licensed for repeated sale. By contrast, supporters are likely to emphasize the benefit to families with children and the bill’s attempt to preserve tax relief for lower-income households while maintaining revenue neutrality.
The bill amends Colorado’s sales and use tax statutes to treat most computer software as tangible personal property subject to tax starting January 1, 2027, while carving out exceptions for software under negotiable license agreements and software developed for a particular user. It also revises local tax authority provisions so counties, municipalities, and certain districts may tax software consistently with the state framework unless they adopt compliant local definitions. In addition, the bill creates a new refundable income tax credit in Article 22 of Title 39 for taxpayers with qualifying children, and it coordinates that credit with the existing child tax credit and family affordability tax credit. The bill also adjusts the distribution of sales tax revenue to the housing development grant fund.
The bill’s tone is policy-driven and affirmative, with the legislative declaration presenting the measure as a way to improve equity, reduce child poverty, and simplify software taxation. The available context shows no recorded committee transcript or vote breakdown, but the bill’s final status as governor-signed indicates it ultimately received enough support to become law. Overall, the sentiment appears favorable toward family tax relief and tax-base modernization, with the bill framed as a balanced revenue-neutral package rather than a pure tax increase or tax cut.
The principal tension in the bill is between expanding taxation of downloadable and licensed software and using the resulting revenue to fund a refundable child-based tax credit. Software vendors, business taxpayers, and purchasers may view the repeal of the downloaded software exemption as a tax increase and a compliance burden, especially where software is delivered electronically or through licensing arrangements. Supporters are likely to argue that the change promotes uniform treatment of software transactions and funds targeted relief for families with children. Another possible point of contention is the bill’s interaction with local tax authority, since it requires counties, municipalities, and districts to align their software tax treatment with the state framework or take affirmative action to preserve taxation authority.