Bennet, Neguse, Colorado Delegation Urge IRS to Not Tax TABOR Refunds

Washington, D.C. — Colorado U.S. Senator Michael Bennet, chair of the U.S. Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight, joined Colorado U.S. Representative Joe Neguse and Colorado’s bipartisan Congressional delegation to urge the Internal Revenue Service (IRS) to follow a thirty-year precedent and not tax Colorado Taxpayer’s Bill of Rights (TABOR) refunds. 

“TABOR has been part of Colorado’s Constitution since 1992. It requires the State to return excess state revenues from sales tax that the State has not been authorized to retain. [...] Until the recent proposed guidance by the Internal Revenue Service (IRS), TABOR refunds have never been considered federal taxable income, regardless of whether these sales tax refunds are issued through income tax returns, and that process should have no impact on the IRS’s decision on how the proposed guidance will impact TABOR refund payments,” wrote the lawmakers. 

In August, the IRS issued a policy proposal that would potentially require Coloradans to pay taxes on future TABOR refunds and is now accepting public feedback on the proposed guidance. Approved by voters in 1992, the TABOR Amendment mandated the State of Colorado to refund excess state revenue – collected through property, gas, and sales taxes as well as fees – back to Coloradans.

Bennet has repeatedly pushed the IRS not to tax Colorado’s TABOR payments. In February, Bennet called on then-acting IRS Commissioner Douglas O’Donnell to continue treating TABOR payments as nontaxable after the IRS asked Coloradans to stop filing their taxes until they determined how to handle TABOR payments. Following Bennet’s call, the IRS announced its decision to not tax 2022 TABOR payments. In April and again last month, Bennet urged IRS Commissioner Danny Werfel to follow three decades of precedent and not tax TABOR refunds. 

In addition to Bennet and Neguse, Colorado U.S. Senator John Hickenlooper and Colorado U.S. Representatives Diana DeGette, Doug Lamborn, Jason Crow, Lauren Boebert, Brittany Pettersen, and Yadira Caraveo co-signed the letter.

The text of the letter is available HERE and below.

Dear Commissioner Werfel:

As you consider how to apply recent Internal Revenue Service (IRS) guidance (Notice 2023-56) to Colorado, we urge you not to tax Colorado Taxpayer’s Bill of Rights (TABOR) refunds. Colorado passed the TABOR amendment in 1992, limiting the amount of tax revenue retained by the State and refunding the excess revenue to our taxpayers. The IRS has never treated TABOR refunds as income subject to tax. The IRS’s historical practice makes good sense in lieu of its traditional recognition of states’ prerogatives to design and administer tax refunds. The IRS should not change course now.

We urge the IRS not to abandon 30 years of precedent, and we hope you can resolve the current ambiguity so that Colorado’s taxpayers do not face further confusion to say nothing of the nightmarish burden of an unprecedented tax. We would welcome the opportunity to meet with you at your earliest convenience to discuss this matter.