Many Denver business owners and families will be happy to learn that sometime later this year residents will receive a state dividend payment. Governor Polis announced last week that the state will be issuing a $400 or $800 dividend payment to taxpayers as required under state law. To receive payment, there are certain eligibility criteria that must first be met. Unlike other years where payments were held until the following Spring, this time checks will be distributed this summer. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
Why the Refund?
Though most people don’t need to ask why they’re getting an automatic refund, Coloradans need only look to the state’s economy to find the answer. The post-pandemic rebound is moving faster than almost every other state. In fact, the job recovery rate is more than 100% with a low unemployment rate of 3.7%. The strong performance has led to a state surplus that’s part of a larger tax rule first implemented in the 1990s.
Due to the surplus, the rebate is legally required under Colorado’s Taxpayer’s Bill of Rights (TABOR). It was originally passed in 1992 and sets a limit on how much tax Colorado can collect and spend; excess amounts are refunded to taxpayers. To qualify, residents must have lived in Colorado full-time in 2021 and file state tax returns by May 31st of this year. Single filers will receive a $400 rebate check and joint filers will receive $800. Taxpayers do not need to do anything to claim the rebate.
Rules Governing Colorado State Surplus
Under TABOR rules, Colorado’s “revenue limit is equal to the prior fiscal year’s limit plus the rate of inflation and population growth in Colorado, or the current fiscal year’s revenue, whichever is less.” Due to the strong and unexpected economic performance, the state hit this limit sooner than expected.
There are three ways to distribute excess state revenue:
- Local property tax exemption reimbursement
- Reimbursement to local governments for any property tax exemptions claimed by local seniors and disabled veterans; must be distributed first.
- Temporary income tax reduction, from 4.55 percent to 4.5 percent.
- This applies to every individual, estate, trust, and corporation.
- Sales tax refund
- Will appear on individual state income tax returns as reimbursement for sales tax revenue paid in 2021.*
The state revenue surplus in 2021 was large enough to fund all three.
*If the state sales tax refund is more than $15 per taxpayer, it’s distributed on a six-tier level depending on taxpayer income. Like the rebate checks, joint filers will receive double the sales tax refund. To qualify for this portion, residents must file their 2021 return by October 18, 2022. The Colorado Cashback program is a product of the third refund mechanism, the sales tax refund.
This is not the first time residents have received a refund from the state surplus in the last few years. In 2018 and 2020, TABOR revenue limits were hit though 2021 triggered all three refund mechanisms. Other states have also issued rebate checks, including Georgia, New Mexico, Indiana, Idaho, and New Jersey.
The recent announcement of the Colorado State Surplus payment is welcome news for Denver individuals and families. If you have questions about the information outlined above or need assistance with a tax planning or compliance issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.