How a New Bill Redefines State Revenue to Shrink Your TABOR Refund

The Bottom Line

Colorado's Taxpayer's Bill of Rights (TABOR) limits how much tax money the state can keep, forcing lawmakers to refund the excess to taxpayers. This legislation shifts roughly $45 million worth of regulatory fines, aviation taxes, and background check fees off that official ledger, allowing the state to keep the cash. If you rely on your yearly TABOR check, expect it to be a little lighter going forward.

What This Bill Actually Does

If you've lived in Colorado for more than a minute, you know about TABOR (the Taxpayer's Bill of Rights). It creates a strict limit on how much revenue the state government is allowed to keep and spend each year. If the state collects more than the cap allows, the excess must be refunded to taxpayers. However, the state constitution explicitly exempts certain types of money from this cap, specifically collections for another government and damage awards. The problem? Those terms have historically been loosely defined, meaning the state has been counting tens of millions of dollars against its revenue cap that it arguably didn't need to.

This legislation cleans up the accounting by officially reclassifying several major revenue streams so they are permanently exempt from the TABOR limit. First, it tackles the collections for another government bucket. The state acts as a middleman for a lot of cash. For example, it collects excise and sales taxes on aviation gas and jet fuel, but then passes that money directly to local governments and public airports through the Aviation Fund. Similarly, it collects fees for criminal background checks and passes them straight to the FBI. By formally defining these pass-through funds as exempt, the state essentially takes them off its own revenue books.

Here is the part that matters just as much: the bill radically expands the definition of damage awards. It dictates that a massive laundry list of state-imposed civil fines and penalties are now exempt from TABOR. This includes penalties collected for air and water pollution, Medicaid overpayments, banking and insurance violations, labor law infractions, and limited gaming violations. By officially tagging these regulatory fines as damage awards, the state effectively shrinks the total revenue pie that is subject to the TABOR cap by tens of millions of dollars every single year.

What It Means for You

Let's start with your wallet. The most immediate and universal impact of this legislation is on your annual TABOR refund. Because the state is moving roughly $45 million per year into the "exempt" column starting in the 2026-2027 fiscal year, that is $45 million less that gets distributed back to taxpayers across the state. Spread out among millions of Colorado residents, this accounting shift won't bankrupt you, but it certainly shaves a noticeable amount off the refund check you get after filing your state taxes.

Beyond your taxes, there is a massive hidden win in this bill if you or a family member ever rely on the Crime Victim Compensation Fund. Under previous rules, local district attorneys and judicial districts were allowed to siphon off up to 22.5% of the money in this fund just to cover their own administrative and overhead costs. This bill officially stops that practice. It mandates that all administrative costs be paid out of the state's General Fund, ensuring that every dollar meant for crime victims actually stays in the fund to support them during the hardest moments of their lives.

Finally, this policy creates a subtle domino effect for local community services that you should be aware of. Historically, the state uses excess TABOR funds to reimburse local governments for programs like the senior homestead property tax exemption, which helps keep local fire, police, and school districts fully funded. With less TABOR surplus available due to these reclassifications, the state will be forced to dip directly into its General Fund to make those local communities whole. It is a classic government shell game, but the durable takeaway is that the state is giving itself far more flexibility with how it accounts for its incoming cash.

What It Means for Your Business

If you operate a business in a heavily regulated industry—like healthcare, banking, insurance, construction, or gaming—you need to understand how the state views your regulatory fines. Under this new framework, civil penalties issued by the Department of Public Health and Environment, the Division of Banking, or the Division of Labor Standards and Statistics are strictly classified as exempt "damage awards." While this doesn't increase the fines themselves, it does mean the state retains every single dollar of regulatory penalties without worrying about hitting a revenue cap. State agencies no longer have to view penalty collections as a potential liability that might trigger broader taxpayer refunds.

For the aviation sector, logistics companies, and regional developers, this legislation provides a major structural win. The bill officially exempts the excise tax on aviation gas and jet fuel from state revenue limits. Because these funds are collected by the state but passed through to the Aviation Fund to support local, FAA-designated public use airports, exempting them ensures that local airport funding streams won't inadvertently trigger state revenue limits. If your business relies on regional airport development, maintenance contracts, or aviation infrastructure, this provides long-term stability and guarantees that aviation taxes actually stay within the aviation ecosystem.

On a broader operational level, if your hiring process relies heavily on criminal background checks—think childcare facilities, private security firms, or financial advisors—the background check fees you pay to the Department of Public Safety that are routed to the FBI are now officially off the state's TABOR books. There is no immediate compliance shift or new paperwork required on your end. However, as a business owner, you should recognize the macroeconomic effect: this legislation results in a slightly larger, better-funded state government and slightly smaller consumer tax refunds circulating through the local retail economy each spring.

Follow the Money

The math on this accounting shift is substantial. By reclassifying these revenues, the state effectively lowers its TABOR refund obligation by $44.7 million in FY 2026-27 and $45.3 million in FY 2027-28. The largest chunks of that shifted money come from aviation fuel taxes (roughly $30.6 million annually) and the Crime Victim Compensation Fund ($10 million annually). Because TABOR refunds are paid out of the General Fund, decreasing the refund obligation automatically increases the amount of General Fund revenue the state has available to spend or save.

However, it isn't purely free money for lawmakers. Because the bill stops local judicial districts from using the victim compensation fund for their own overhead, the state has to appropriate $2.25 million annually from the General Fund to the Judicial Department to cover those administrative costs. Additionally, because the state frequently uses TABOR surpluses to reimburse local governments for property tax exemptions, shrinking the surplus means the state will likely have to spend an estimated $47 million from the General Fund in FY 2027-28 just to backfill those local community budgets.

Where This Bill Stands

SB26-042 is currently Signed Into Law. The latest official action came on 05/29/2026: Governor Signed.

That means the legislative process is complete and the bill is now law. The remaining questions are about implementation timing and how agencies, businesses, or local governments respond.