DENVER (KDVR) — Colorado Gov. Jared Polis is speaking out about an IRS proposal that could mean Colorado residents will be paying taxes on their TABOR refund checks each year.
TABOR, also known as the Taxpayer Bill of Rights, is a law that limits the intake and spending of revenue by the state or local governments and refunds any amount collected over that to residents at the end of the year. This limit includes the combination of income, property and sales tax.
In 2022, these refunds were issued during the year under a program called Colorado Cash Back, in which individual tax filers received checks worth $750 and joint filers received $1,500.
The IRS has already said that those payments were not taxed.
Moving forward, however, the IRS is reviewing the mechanism by which Colorado residents receive their TABOR refunds and considering a ruling that opens them up to being federally taxed as income.
“State payments are subject to this general rule unless an exception applies to exclude such amounts from Federal gross income. Relevant exceptions include certain refunds of previously paid State taxes,” the IRS said on page 3 of its proposal.
Taxes on TABOR checks? Polis responds
On Wednesday night, FOX31’s Ashley Michels asked Gov. Jared Polis about the development.
“It’s about 10% of our population they want to tax it for,” Polis said. “It doesn’t make sense. We’re going to fight it. We’re working with Sen. (Michael) Bennet and others to try and provide comment during this period to say, wait a minute: If it’s a stimulus, that’s one thing. That’s not what this is. This is a constitutional TABOR refund. Should not be taxed.”
Polis said this proposal is “absurd.”
In an emailed statement earlier Wednesday, Polis called the proposal “absurd” and said the IRS would go back on “30 years of not treating TABOR refunds as taxable income.”
For example, if a taxpayer gets a state refund in 2022 for the taxes they paid in 2021, that refund would be included as part of their income in 2022 and taxed at the federal level.
In the IRS proposal, there are several notable situations in which this will not have an impact. The largest is for people who took the standard deduction when filing their taxes.
“(I)ndividuals who claimed the standard deduction (as most individuals do) will not include State tax refunds in Federal gross income because they would not have previously deducted on their Federal income tax returns the refunded amount of State taxes paid,” the IRS said on page 5 of its proposal.
Those who itemized their tax returns, however, generally are required to include state tax refunds as part of their gross income reporting.
Other exceptions include welfare and disaster relief payments, including the national COVID-19 stimulus checks that were issued in 2020.
“Our administration strongly disagrees with the IRS guidance as it fails to factor in that TABOR refunds are returning sales tax dollars in addition to income tax dollars and fees that our citizens have already paid and therefore are an entirely legitimate tax refund and should not be subject to further state or federal taxation,” Polis said.