Gaines: Colorado’s add-back taxes are a backdoor tax on overtime

By Cory Gaines | Commentary, Colorado Accountability Project

The Great Colorado Add Back?

My state senator (B Pelton) alerted me to something you’ll almost certainly see in the coming state special session: add back taxes.

I thought it would be good to give some resources on that so you’ll better understand it and (I hope) be a better advocate on the issue.

This is something I will follow up on as the special session gets going; Sen Pelton is running a bill to make such taxes conform to TABOR limits. I have asked for a copy of that bill and will share if and when I get it.

There are many different kinds of tax add backs, but I’ll stick to the topic of state income tax add backs because I can use the link below as a reference.

The State of Colorado weblink at bottom gives a reference on what a state income tax add back is. I’ll leave it to you to study up, but in brief, an add back is where you have to return taxable income to a state return even though you could remove it from your Federal return.

One easy example, which is already law (see the second post today), is linked second below. Figuring that the Feds would drop the income tax on overtime, and fearful of losing tax revenue, Colorado worked to pass a law that requires people in Colorado to pay state income tax on overtime even if they don’t pay a Federal income tax on it.

So if you get overtime, when you fill out your Federal income tax forms, you can take out the overtime income. When you go do your state taxes, you will have to add back that income.

When you read or hear the term add back, just remember this example. It is the State of Colorado forcing you, or a business, to relist income that they are able to exclude from Federal income taxes back into the Colorado income tax calculation. It will be a way for the state to raise more money.

Per what I wrote above regarding Sen Pelton’s bill, I have to say that I agree with his reasoning. What the state does with add back taxes is to create a new form of tax. It’s not a unique, standalone tax, but it is a new tax because it didn’t exist before.

If you are familiar with TABOR, this would be a violation. Making any new revenue that is gathered by such a means should be subject to TABOR limits–at the least.

If and when I hear more, I will share and update. If you get wind of something, please let me know.

https://tax.colorado.gov/income-tax-topics-state-income-tax-addback

https://leg.colorado.gov/bills/HB25-1296

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Paging the irony department …

I wanted to just point something out to you. The post prior to this one talks about a bill where our state legislators, sensing that the Feds would temporarily stop taxing overtime, made sure that Colorado taxed overtime.

The irony here is who sponsored this bill. Take a look at the screenshot heading this post. The bill’s sponsors are shown there, a who’s who of uber progressive legislators to be sure.

Is it just me or is it progressives who constantly talk about looking out for the little guy? The folks who don’t have much?

Now why on earth would such a group want to make sure to tax overtime if the Feds wouldn’t? This is all the more true given that it would harm mostly hourly employees and not salaried professionals.

Hmmm. Couldn’t be that their professed values don’t match what they actually value could it?

https://leg.colorado.gov/bills/HB25-1296

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