Colorado Sued for for Taxing Overtime Pay Exempted by Trump

By Michael Roberts | Westword

The lawsuit challenges a recently passed Colorado law that will continue taxing overtime pay at the state level.

As President Donald Trump’s One Big Beautiful Bill Act temporarily cuts federal taxes on overtime pay, some Colorado Republicans are seeking to force the state to follow suit.

The conservative advocacy group Advance Colorado filed a lawsuit on Thursday, July 24, challenging a new law that will continue taxing overtime pay at the state level, regardless of federal changes. The lawsuit was filed in Denver District Court against Governor Jared Polis and the head of Colorado’s tax agency. Other plaintiffs attached to the suit include Republican State Senator Barbara Kirkmeyer and Fremont County Commissioner Kevin Grantham.

The lawsuit targets House Bill 25-1296, which Polis signed into law in May, two months before Trump signed the Big Beautiful Bill. House Bill 1296 decoupled Colorado’s tax code regarding overtime pay from the federal tax code, requiring overtime pay to continue to be subject to Colorado income tax starting next year, even if it is no longer subject to federal income tax.

The law maintains the status quo for Colorado taxes, functionally continuing the same state tax on overtime income. But because the law effectively prevented a tax cut from happening at the state level, the lawsuit argues that it qualifies as a tax increase and, therefore, requires voter approval under the Taxpayer’s Bill of Rights.

“Legislators can’t just raise taxes whenever they want. They have to ask permission from voters,” said Michael Fields, president of Advance Colorado, in a statement. “We filed this lawsuit to stand up for working families. HB25-1296 is clearly a $500 million violation of TABOR.”

The lawsuit asks a judge to invalidate House Bill 1296. Advance Colorado is also seeking to run a ballot measure that would exempt overtime pay and tips from state taxes, said Fields. Under his leadership, Advance Colorado has successfully passed many conservative policies through ballot initiatives, and at times forced legislative compromises and special sessions.

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