NCLA Legislative Update: Wins, Challenges & Key Policy Developments

Three tax bills, taken together, represent the most significant proposed increase in Colorado’s corporate tax burden in recent memory — and a direct continuation of the tax-break rollback effort that sponsors promised to renew after their 2025 effort was scaled back. NCLA opposes all three.

Background & Context

Two threads come together in this package. First, the 2025 session: sponsors Garcia and Zokaie introduced HB 1296 last session, which sought to roll back several business tax preferences. Business opposition forced significant amendments — the bill was gutted in committee — but sponsors promised publicly they would return in 2026 with an expanded effort. They have delivered on that promise.

Second, the federal variable: Congress passed H.R. 1 in 2025, which expanded a number of business deductions. Because Colorado’s income tax is tied to federal law by conformity rules established in 1987, those federal expansions automatically flowed through to reduce what companies owe the state — and as a side effect, Colorado’s existing Family Affordability Tax Credit (FATC) is projected to shut off entirely for tax year 2026. Democrats are using that shutoff as the political justification for this package, framing the bills as a response to federal action rather than a state tax increase.

The budget context matters too. The state faces an estimated $698 million shortfall for FY 2026-27, compounding pressure to find new revenue. This package is presented as revenue-neutral — every dollar raised from business goes into a new family affordability credit — but from the employer perspective, it is unambiguously a tax increase.

All three bills remain “in committee” status on public trackers, meaning they have passed the House Finance Committee and are now pending on the House floor. The House committee reporting deadline is March 13, making floor action imminent. The final passage deadline for House bills is March 20.

HB 26-1221 — Executive Pay Cap & Net Operating Loss Restrictions
Sponsors: Reps. Zokaie (Fort Collins) & Sirota; Sens. Amabile & Wallace
Revenue impact: $167.4 million annually when fully implemented

This bill makes two distinct changes unfavorable to Colorado employers:

• Caps the state deduction for executive compensation at $250,000 per salary — down from $1 million under federal law. As introduced, it would have eliminated the deduction entirely; the $250,000 figure was a committee amendment. This affects corporations deducting salaries for their top ten highest-paid executives, even if those executives are based outside Colorado.
• Tightens the net operating loss (NOL) deduction from 80% of taxable income over 20 years to 70% over 10 years. This is the provision that drew bipartisan concern in committee. Startup companies — particularly in technology and bioscience — commonly operate at a loss for many years before becoming profitable. The current 20-year carryforward is essential to their business models.

NCLA’s concern: Northern Colorado has a growing entrepreneurial economy. Restricting NOL carryforwards makes Colorado a less attractive early-stage investment destination at a time when we are competing aggressively with other states for that capital.

HB 26-1222 — Federal Decoupling from H.R. 1 Business Deductions
Sponsors: Reps. García & McCormick (Longmont); Sens. Amabile & Wallace
Revenue impact: Majority of the $320M+ raised in year one; ~$590M in year two

This is the largest and most complex bill in the package. It decouples Colorado’s tax code from four business deductions expanded or created under H.R. 1:

• Business interest expense deductions (commonly used by private equity and leveraged businesses)
• Bonus depreciation for equipment and property (including manufacturing plants)
• Expensing for research and development
• Expensing for certain other properties

Businesses would still be able to claim these deductions on their federal returns. But for Colorado tax purposes, they would have to add them back — effectively increasing their state taxable income. The revenue generated funds a new family affordability credit sized each year to match what is raised.

The CPA community has raised the concern that is most politically durable for our coalition: Colorado coupled to federal law in 1987 specifically to reduce compliance costs and administrative complexity. Multiple decouplings now — on top of other conformity changes made during the 2025 special session — compound the burden on every business that files a Colorado return, not just large corporations.

HB 26-1223 — Repeal of Downloaded Software Sales Tax Exemption
Sponsors: Reps. Woodrow & Boesenecker (Fort Collins); Senate sponsors TBD
Revenue impact: ~$90 million annually

This bill repeals Colorado’s sales tax exemption for software purchased online and downloaded — treating it the same as software delivered on a physical disc. Sponsors frame it as a consistency measure; opponents see it as a new tax on software that affects businesses of all sizes.

Key concern for northern Colorado: virtually every business — small and mid-sized alike — uses downloadable or SaaS software for operations, payroll, accounting, and customer management. This is not a tax on large tech companies alone; it flows through to Main Street employers immediately.

There is also a significant legal vulnerability: a Colorado Supreme Court ruling from last fall held that Lakewood’s expansion of its telephone tax without voter approval violated TABOR. Legal experts believe that precedent could be used to challenge HB 1223’s repeal of the software exemption as a new tax requiring voter approval. Opponents have signaled they are prepared to litigate if the bill passes.

Having passed the half-way point of the 2026 legislative session, a few glimmers of spring have emerged as the collective voice of the business community has scored a few victories in an otherwise unfavorable political environment. A few mid-term highlights include:

SB26-001 Workforce Housing & Housing Tax Credit – Awaits the Governor’s signature
Allows counties to allocate general funds toward housing development without having to allocate additional pro rata funding to incorporated municipalities, facilitating more concentrated investments. The bill also makes greater use of the middle-income housing tax credit program created by the legislature in 2024. Sponsored by Andrew Boesenecker of Fort Collins.

HB26-1012 Consumer Protections to Promote Fair Market Pricing – Postponed Indefinitely
This would have defined any consumer within a stadium, event venue, amusement park, airport or medical facility along with those ordering product delivery through a third party (Door Dash, etc) as a “captive consumer”, meaning someone lacking consumption choices. Delivery services would be required to post their price for a product alongside the comparable retail price available elsewhere. Stadium and airport vendors would be prohibited from charging higher prices for goods or services than the average cost outside the venue. Sponsored by Yara Zokaie of Fort Collins.

HB26-1210 Prohibit Surveillance Price & Wage Setting – Laid Over
This bill would have prohibited the use of electronic surveillance of consumer or employee activities and habits to establish consumer prices or wage and benefit offers to employees. Considerable conflict would have been created if HB1012 and HB1210 both passed.

HB26-1278 Local Government Approval of Transmission Infrastructure – Postponed Indefinitely
This bill would have added significant time, money and complexity to the build-out of our electric grid by requiring investor-owned utility providers to obtain local government approval before proceeding with condemnation proceedings for high-voltage transmission lines. Local governments already hold representation in the siting process for such facilities.

SB26-038 Colorado State University Ordinance Compliance – Postponed Indefinitely
This bill specifically required CSU to comply with all local sign and noise ordinances for any activities on campus grounds and other facilities across the state. Sponsored by Cathy Kipp of Fort Collins.

SB26-102 Large-Load Centers – Laid Over
This bill would have effectively prohibited any new construction of data centers drawing 30 megawatts or more by requiring the facility to secure 100% renewable power generation, which is not technically feasible at this time. Among other provisions, a data center developer would have been required to pay all public costs and third-party generation costs over the initial 15 year period of operation in advance. Sponsored by Cathy Kipp of Fort Collins.