Colorado Tax Guide 2026

Flat 4.40% income tax with TABOR overlay

Colorado's flat tax (Colo. Rev. Stat. §39-22-104) is currently 4.40% for tax year 2026. Voters reduced the rate from 4.63% to 4.55% (Prop 116, 2020) and to 4.40% (Prop 121, 2022). Subsequent TABOR rebate years have temporarily reduced the rate further (e.g., 4.25% for 2023). TABOR (Colorado Taxpayer's Bill of Rights, Colo. Const. Art. X §20, enacted 1992): when state revenue exceeds the TABOR cap (population growth + inflation), the surplus must be refunded — either via temporary income tax rate reductions, sales tax refunds, or property tax credits. The mechanism creates year-to-year variability in the effective income tax rate. Colorado conforms to federal taxable income — uses federal AGI as starting point with limited modifications. Conforms to QBI §199A (subtraction allowed). Standard deduction matches federal. Capital gains: taxed at the flat 4.40%. Colorado-source capital gains subtraction (Colo. Rev. Stat. §39-22-518) for qualified assets located in CO and held 5+ years — but limited to ~$100k per year.

Sales tax — low state base, high local complexity

State rate 2.9% — the lowest state base sales tax among the 45 states that have one (Colo. Rev. Stat. §39-26-106). But Colorado has 'home-rule' municipal authority: 70+ cities can set, administer, and audit their own sales taxes independent of the state — a uniquely complex compliance burden for remote sellers. Common combined rates: • Denver: 8.81% (2.9% state + 4.81% city + 0.1% RTD + 1% culture/scientific) • Boulder: 8.985% • Colorado Springs: 8.20% • Fort Collins: 7.55% • Aspen: 9.30% • Vail: 8.40% • Telluride: 8.65% For a remote seller subject to CO economic nexus ($100k state threshold; Colo. Rev. Stat. §39-26-102(3)(a)(II)), the state portion can be filed centrally via Colorado SUTS portal, but home-rule cities require SEPARATE registrations and filings (though SUTS is gradually integrating more cities). Marketplace facilitator law (Colo. Rev. Stat. §39-26-104(2)) shifts collection to platforms for many transactions. Groceries: state-exempt; some home-rule cities still tax. Prescription drugs exempt.

Property tax — among the lowest

Statewide average effective ~0.49% — among the lowest US rates. Denver County ~0.55%, Boulder ~0.53%, El Paso (Colorado Springs) ~0.51%, Larimer (Fort Collins) ~0.50%, Pitkin (Aspen) ~0.36%, Eagle (Vail) ~0.41%. Residential assessment rate (after Gallagher Amendment was repealed by Amendment B in 2020): 6.7% for tax year 2025; statutorily adjusted by SB 233 of 2024 and subsequent legislation. Commercial assessment rate ~27.9%. The residential rate is set by formula; legislative tweaks have been frequent post-Gallagher. Senior Property Tax Homestead Exemption (Colo. Const. Art. X §3.5): 50% of the first $200,000 of actual value exempt for 65+ owner-occupants residing in the home 10+ years (subject to legislative funding — was suspended 2009–2012, restored). Disabled veterans get similar. Mill levies set locally; Boulder ~85 mills, Denver ~80 mills, Telluride/Vail much lower per dollar of value because of high property values.

PTET (SALT Parity Act)

Colorado PTET (Colo. Rev. Stat. §39-22-340 et seq., SALT Parity Act enacted 2021, eligible 2018 forward via retroactive election option): S-corps and partnerships elect to pay 4.40% Colorado tax at the entity level. Owners receive a REFUNDABLE Colorado credit equal to distributive share. Election: made on Form DR 1705 with the entity return; annual; can be made retroactively for tax years 2018–2021 (for which Colorado uniquely allows back-election under SB 22-124). Federal SALT-cap benefit: 37% × full state liability paid via PTET. For a Denver-based partner with $500k K-1 income: PTET $22,000 × 37% = $8,140 federal tax savings annually. Colorado PTET is straightforward — single state rate, no county/city overlays to manage, clean refundable credit. Among the easier PTETs to administer.

Family and Medical Leave Insurance (FAMLI)

Colorado FAMLI (Colo. Rev. Stat. §8-13.3, voter-approved Prop 118 of 2020): 0.9% combined payroll tax (0.45% employer + 0.45% employee) on wages up to the Social Security wage base ($184,500 in 2026). Benefits up to 12 weeks paid leave (16 weeks for serious pregnancy/childbirth complications). Applies to all CO employers and employees. Self-employed may opt in. Local government employers may opt out (with employee vote). Benefits launched January 2024; contributions began January 2023. For a $200k single-employee S-corp owner: FAMLI cost ~$830 employer + $830 employee = $1,660 annual.

Self-employed considerations

LLC formation: $50 (Colorado Secretary of State — one of the lowest in the US). Periodic Report: $25 annually. No state-level S-corp election form — federal Form 2553 controls. Colorado is overall a self-employment-friendly state: 4.40% flat income tax, conforms to QBI §199A federal deduction, very low LLC fees, no state-level franchise tax. The drawbacks are the FAMLI cost (~$1.7k for single-employee S-corp at the wage cap) and the home-rule sales tax complexity for product sellers. Cannabis industry note: Colorado has unique cannabis tax structure (15% retail excise + 2.9% sales tax + 1% retail marijuana tax) — see Colorado Department of Revenue Marijuana Enforcement Division for licensing/tax obligations.

Worked example: Marco Delgado, Denver-based residential architect (single, S-corp, 2026)

Marco's S-corp earned $245,000 net profit. He paid himself $145,000 W-2 + $100,000 distribution. Owns a $725,000 Denver home.

Federal: SE tax savings on $100k distribution; QBI §199A applies (architecture is NOT an SSTB) — full 20% QBI deduction on distribution. Colorado state income tax: Federal AGI flowing in: ~$245,000 + QBI computations Federal QBI deduction: 20% × ~$100k distribution = ~$20,000 (CO conforms; deduction allowed) CO taxable income: ~$225,000 CO tax: $225,000 × 4.40% = $9,900 Denver does not have a city income tax (Denver Occupational Privilege Tax is $5.75/month flat for employees + $4/month employer — a flat per-employee fee, not an income tax). FAMLI on Marco's W-2: Employer portion: $145,000 × 0.45% = $652 (Marco's S-corp pays) Employee portion: $145,000 × 0.45% = $652 (withheld from Marco's wages) Combined: $1,305 annual FAMLI PTET option: S-corp pays 4.40% × $245,000 = $10,780 PTET at entity level (federally deductible) Federal benefit: 37% × $10,780 = $3,989 federal savings Marco's personal CO liability reduced by refundable credit ~$10,780 Net: PTET worth electing — saves ~$4k/year federal Property tax on $725k Denver home at 0.55% effective: ~$3,988/yr. LLC annual report: $25. Denver sales tax of 8.81% applies to taxable purchases — affects spending but not the income tax base.

Statute references

• Personal income tax (flat 4.40%) — Colo. Rev. Stat. §39-22-104
• TABOR — Taxpayer's Bill of Rights — Colo. Const. Art. X §20
• SALT Parity Act (PTET) — Colo. Rev. Stat. §39-22-340 et seq.
• Sales tax — state rate — Colo. Rev. Stat. §39-26-106
• Sales tax — economic nexus — Colo. Rev. Stat. §39-26-102(3)(a)(II)
• Capital gains subtraction (qualified CO assets) — Colo. Rev. Stat. §39-22-518
• Family and Medical Leave Insurance — Colo. Rev. Stat. §8-13.3
• Senior Homestead Property Tax Exemption — Colo. Const. Art. X §3.5

Related pages

• PTET Analyzer →
• State Tax Comparison →
• Wayfair Sales Tax Nexus →