Colorado acts to counter the OBBBA

House Bill 25B-1001: Qualified business income deduction

Under Colorado law, taxpayers are required to add back any federal qualified business income (QBI) deduction when calculating Colorado income taxes. The QBI addback was scheduled to expire at the end of 2025. With the OBBBA’s permanent extension of QBI, House Bill 25B-1001 removes the state addback expiration, extending the addback provision permanently. The change is anticipated to generate over $200 million over the next two fiscal years. For more information on the federal changes to QBI, please read our article, Permanent QBI deduction provides some tax planning certainty.

House Bill 25B-1002: Corporate income related to foreign jurisdictions

House Bill 25B-1002 makes several changes to the Colorado corporate income tax concerning tax haven provisions. First, the bill extends the presumption that a corporation is incorporated in a foreign jurisdiction for the purpose of tax avoidance to Hong Kong, Ireland, Liechtenstein, the Netherlands and Singapore for tax years commencing on or after Jan. 1, 2026. Those five jurisdictions are added to an existing list of approximately three dozen other tax haven jurisdictions intended to reduce tax avoidance through tax shelters. While Colorado requires combined reporting on a water’s edge basis for taxpayers engaged in a unitary business, a taxpayer may be required to include the income of foreign corporations in the Colorado combined report to the extent the foreign corporation is incorporated in a listed tax haven jurisdiction.

Additionally, the bill decouples from the federal deduction for foreign-derived deduction eligible income (FDDEI) effective for tax years beginning on and after Jan. 1, 2026. Beginning in 2026, taxpayers are required to add back the FDDEI deduction to the starting point of Colorado corporate taxable income.

The bill also updates the treatment of federal foreign tax credits. The bill expands the subtraction for foreign dividends by removing a current exclusion to the subtraction for dividends from jurisdictions presumed to be locations of tax avoidance. 

Finally, the bill removes references to global intangible low-taxed income (GILTI) from the statute, but no other substantive changes were made to the state provision. It is anticipated that the tax provisions of the bill will generate almost $200 million in revenue over the next several fiscal years. For more information on the international changes from the OBBBA, please read our article, International tax reform under the One Big Beautiful Bill Act.

House Bill 25B-1003: Insurance premium tax rate for home offices

House Bill 25B-1003 eliminates the reduced 1% insurance premium tax rate for companies maintaining a home office or a regional home office effective Jan. 1, 2026. The rate for such companies will be imposed at the standard 2% rate of premiums collected.

House Bill 25B-1004: Sale of state tax credits to discount future liability

House Bill 25B-1004 authorizes the state treasurer to sell corporate income tax credits and insurance premium tax credits to Colorado businesses to prepay their tax liability in future years. The tax credits are non-refundable and are sold at a discount on their face value. The Colorado Department of the Treasury may issue credits equal to the lesser of $125 million in face value or total sales proceeds of up to $100 million. Procedures will be developed for an application process that will involve businesses proposing a minimum offer for the discounted credits based on market conditions or 80% of the face value of the credits. The bill’s fiscal note estimates up to $100 million in revenue advanced to fiscal year 2026 from future years.

House Bill 25B-1005: Sales tax vendor fee

House Bill 25B-1005 eliminates the state sales tax vendor fee beginning Jan. 1, 2026. The state currently permits certain vendors to retain 4% of their sales tax collections, up to $1,000 per filing period, as consideration for collecting and complying with the state sales tax laws.