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

What This Bill Actually Does

Let’s start with a quick refresher on how the Taxpayer's Bill of Rights (TABOR) works in Colorado. The state constitution places a strict limit on how much revenue the state can collect and keep each year. If the state takes in more money than the cap allows, it has to return the excess to taxpayers through refund checks or tax breaks. But TABOR has a few built-in loopholes—specifically, it doesn't count "collections for another government" or "damage awards" toward that revenue cap.

Enter Senate Bill 26-042. This legislation is essentially a massive accounting reclassification. It takes a long list of taxes and fines that the state currently counts as revenue and officially re-labels them as either "damage awards" or "collections for another government." By moving these funds off the official TABOR balance sheet, the state artificially lowers its reported revenue. That means it takes longer to hit the TABOR cap, allowing the state to spend millions more of the general fund before it has to issue refunds to taxpayers.

So, what exactly is getting reclassified? First, the bill takes the excise tax on aviation gas and jet fuel and labels it a "collection for another government" because that money gets passed through to local airports. But the real meat of the bill is in the "damage awards" category. The bill reclassifies a massive sweep of state collections, including traffic and vehicle fines (like DUIs and speeding tickets) deposited into the Highway Users Tax Fund (HUTF). It also reclassifies civil penalties collected for Medicaid fraud, hazardous waste violations, hospital noncompliance, and mobile home park violations. By simply calling these regulatory fines "damage awards," the state gets to keep the money without it counting against the constitutional TABOR limit.

What It Means for You

What does this accounting maneuver mean for your wallet? For the upcoming fiscal year (2026-2027), this bill will reduce the state's official revenue by about $30.9 million. Because the state is suddenly "poorer" on paper, your TABOR refund check will be slightly smaller, as the state gets to keep and spend that money on state programs instead of sending it back to you. If you’re a taxpayer who relies on those annual checks to cover property taxes or holiday bills, this is a direct, albeit small, hit to your expected return.

But here is the part that matters—and it gets a little weird. Colorado has a complicated web of tax credits that are "triggered" based on how much TABOR revenue the state collects. Because this bill lowers the official revenue, it actually triggers a reduction in the Family Affordability Tax Credit and the Expanded Earned Income Tax Credit for tax year 2028. If you are a parent or a lower-to-middle-income earner who relies on those specific tax credits, your tax burden could go up. Paradoxically, because the state pays out fewer of these tax credits, it actually ends up with more revenue the following year, which might bounce your standard TABOR refund back up in 2028. It's a fiscal roller coaster.

Beyond the tax math, there’s a practical reality to how the state handles bad behavior. If you get a speeding ticket or a DUI, the fine you pay currently counts toward the state's revenue limit. Under this bill, that money becomes entirely "exempt." This means the state can collect infinite amounts of traffic fines without ever having to refund a single dime of it to taxpayers.

• Action Item: If you rely on the Family Affordability Tax Credit or the Earned Income Tax Credit, contact your state senator to ask how this bill's triggers will impact your family's specific tax situation in 2028.
• Action Item: Watch the upcoming hearing in the Senate Appropriations Committee. This is where the fiscal math gets debated, and public input on TABOR changes is usually highly scrutinized.

What It Means for Your Business

If you own a business in Colorado, this bill is a glaring signal fire about state enforcement priorities. When fines and penalties count toward the TABOR limit, the state has a slight disincentive to aggressively fine businesses, because collecting more money just means they have to refund more money to taxpayers. By reclassifying these penalties as TABOR-exempt "damage awards," the state now gets to keep every single dollar it collects from regulatory enforcement.

This directly impacts several specific industries. If you operate a nursing facility, a mobile home park, a tanning facility, or any business that handles hazardous and solid waste, the fines levied against you by the Department of Public Health and Environment or the Division of Housing are now exempt from TABOR. The same goes for the banking and insurance sectors—civil penalties collected by the Division of Insurance or the Division of Financial Services will go straight into the state's usable coffers. While no one plans to get fined, business owners should be acutely aware that state agencies now have a clear, unencumbered financial benefit to strict enforcement.

For the aviation and logistics sectors, the reclassification of the aviation fuel excise tax is worth watching. By officially declaring this a "collection for another government," the state is solidifying the pipeline of this tax money directly to local public-use airports. If you are a general contractor or a developer who bids on airport infrastructure projects, this ensures the funding stream remains robust and completely separate from state budget battles.

• Action Item THIS WEEK: Review your compliance audits. If you operate in healthcare, insurance, banking, or environmental services, ensure your training is up to date. The state just removed its own financial penalty for fining you.
• Action Item THIS WEEK: If you are an aviation contractor, reach out to your local airport authorities. The protective fencing around the Aviation Fund just got taller, making those infrastructure contracts more secure.

Follow the Money

The official fiscal note for this bill outlines a fascinating shell game with state funds. In the immediate term, the bill doesn't cost the state anything to implement—it’s just a paperwork change for the Office of the State Controller. However, by reclassifying these funds, the state's official revenue subject to TABOR drops by $30.9 million in FY 2026-27 and $31.3 million in FY 2027-28. That means the state keeps an extra $30+ million in the General Fund to spend on state programs rather than refunding it to taxpayers.

But here is the twist: because the state's official revenue drops, it triggers a legal reduction in certain income tax credits. Because the state will be giving out fewer of those targeted tax credits, its actual cash-on-hand goes up by $105.8 million in FY 2027-28. When you do the final math, the net result is that general TABOR refunds will shrink by $30.9 million next year, but then actually grow by $74.5 million the year after. It is a wildly complex domino effect, but the bottom line is that the state is trading short-term cash retention for a long-term shift in who gets tax relief.

Where This Bill Stands

SB26-042 was introduced in the Senate on January 27, 2026. It recently cleared its first major hurdle, passing out of the Senate Finance Committee on February 10, though it was amended during that hearing.

Because this bill directly impacts state revenues and the General Fund, it has now been referred to the Senate Appropriations Committee. This is the ultimate gatekeeper for bills involving money. Given that the prime sponsors include heavy hitters like Senator Mike Weissman and Representative Emily Sirota—lawmakers who frequently tackle complex TABOR and tax code legislation—this bill has serious momentum. Expect a rigorous debate in Appropriations before it heads to the Senate floor, as any legislation that touches TABOR refunds is heavily scrutinized by both sides of the aisle.