Sponsors significantly pared down a bill Monday that had sought to roll back tax breaks for insurers, software purchasers and enterprise-zone investors — but vowed to return next year with a new effort to end a tax break aimed at incentivizing insurance-sector jobs.
As it stands, the rewritten version of House Bill 1296 still nixes a little-used business personal property tax credit and narrows slightly the industries eligible to receive enterprise-zone investment tax credits. But it ends worries, at least in the short term, that certain employers who invested in putting a workforce or capital equipment into Colorado, particularly in the insurance and natural-gas industries, would see tax breaks they got for doing so evaporate as soon as next year.
Sponsoring Democratic Reps. Lorena Garcia of Adams County and Yara Zokaie of Fort Collins did little to hide their frustrations while asking the House Finance Committee to approve an amendment that removed many of the most controversial changes in their bill. Zokaie said she needed to express her “disappointment” that legislators from both parties labeled the bill as being too big and having too many things in it, and she called the inability to advance HB 1296 as originally drafted “a failure” on the part of the committee.
How HB 1296 has changed
That original bill had sought, for instance, to raise to 7% from 2.5% the minimum portion of an insurance company’s workforce that must reside in Colorado to reduce the tax on its premium revenues from 2% to 1% — a change stricken from the new version of the bill. Sponsors pointed to a state auditor’s finding that 15 of 18 insurers receiving the tax break cut workforce from 2022 to 2024, negating the purpose of the break, but insurers argued the staffing investments they had made were due to that regional-home-office credit.
The original version of HB 1296 also sought to end the sales-tax exemption on software that is not custom-made, including cloud-computing tools, software downloaded from the internet and software manually installed on a computer by a vendor’s representative. That change came out after several tax attorneys pointed to statements from Gov. Jared Polis that the exemption removal could boost state coffers by $100 million and warned that such a major policy shift equated to an unconstitutional creation of a new tax.
Finally, the bill had sought to eliminate companies’ ability to receive investment tax credits in enterprise zones if they engaged in extraction of gas or hard-rock minerals, aviation, the retail sale of fuel products or the construction of wireless telecommunications facilities. The amended version of HB 1296 now bars those credits only for wireless telecom facilities and for fuel sellers — a change that proponents for extraction companies say will help them to lean toward Colorado when deciding to invest here versus other states.
Business leaders decried original bill’s “whiplash”
Insurance-sector leaders called the originally proposed changes to the regional-home-office credit unfair because a 2021 law raised the minimum portion of in-state workforce from 2% to 2.5% over between 2022 and 2024 — a change that was viewed as a deal. Software-industry observers, meanwhile, said that increasing the types of software subject to sales tax would undercut the state’s efforts to attract more data centers, even as a separate bill seeks to offer new incentives for that sector.
Phil Horwitz, state and local tax director at Moss Adams and chairman of the Colorado Chamber of Commerce Tax Council, said the original bill sent a dangerous message that the state’s taxation policy could shift at any time. That, he explained, would create uncertainty that would make Colorado a much less attractive state for investment.
“Companies, particularly large companies, depend on stability and depend on policy they can count on,” Horwitz said. “And it really undermines our position as a business-friendly state when you get whiplash from legislative change.”
But Garcia, even as she asked the committee to approve the strike-below amendment to HB 1296, warned critics that the debate on several of the proposals is just beginning. She vowed to bring back a bill to narrow the software sales-tax exemption next year — and to introduce legislation that simply would eliminate the regional-home-office credit, which she said has been proven to not be creating jobs anymore.
Sponsors vow to resurrect several tax-break rollbacks next year
“Tax credits are not rewards … They are policy tools that we use to shape the policy we want to see in the state, whether that’s encouraging investment, making sure that young families can move out of poverty or creating jobs,” Zokaie said, adding that sponsors took “quite a bit” out of this bill. “That is what our tax code and our tax credits specifically are meant to be. We as a body — and particularly this committee — are required to reassess when they are outdated or not meeting their original purpose.”
HB 1296 still eliminates the business personal property income tax credit companies can claim on their first $18,000 worth of property — a provision of law used far less than a BPPT exemption awarded to all companies with less than $56,000 worth of personal property. And it extends to 2029 an expiring tax credit that goes to donors to childcare facilities or schools, programs that train childcare providers and grant or loan programs for parents requiring financial assistance for childcare programs.
One other key provision in the bill decouples state tax policy from federal tax policy on overtime pay. Congressional leaders have discussed eliminating federal tax on overtime pay, which could cost Colorado $400 million to $600 million in annual revenue if its overtime tax policy remains coupled to federal policy, thereby eliminating state tax on overtime pay.
Even with the changes, the bill still passed out of committee only with a 7-6 vote, as Democratic Rep. Bob Marshall of Highlands Ranch joined with all five committee Republicans in opposing it. It heads next to the House Appropriations Committee and still must pass both the House and the Senate before the 2025 legislative session adjourns on May 7.