Colorado’s special legislative session includes tax law changes

Earlier this year, Colorado enacted a balanced state budget. However, the recent federal legislation referred to as the One Big Beautiful Bill Act (OBBBA), passed in July 2025, affected the state’s budget and led to a projected budget gap. As a rolling conformity state, Colorado automatically adopts changes to the federal Internal Revenue Code (IRC) unless legislative action is taken (see Anschutz v. Colorado Dep’t of Revenue, 524 P.3d 1203 (Colo. Ct. App. 2022), a taxpayer win illustrating this issue for which one of the authors was instrumental).

In response, Colorado passed several tax bills during a special legislative session called by Governor Jared Polis at the end of August to raise revenue for the anticipated fiscal 2026 (year ending June 30, 2026) shortfall. The special session included measures to address conformity with specific provisions of OBBBA, among other changes. Collectively, these bills are projected to increase tax revenue by hundreds of millions of dollars in 2026 and subsequent years.

The changes include:

HB25B-1001: Qualified Business Income (QBI) deduction add-back

The federal QBI deduction was originally enacted in 2017 as part of the Tax Cuts and Jobs Act (TCJA), and now OBBBA has extended the QBI deduction permanently.

Colorado requires the QBI deduction that is allowed at the federal level be added back to federal taxable income to arrive at Colorado taxable income. Colorado’s addback provision of QBI was for income tax years commencing on or after Jan. 1, 2021, but before Jan. 1, 2026. However, HB 25B-1001 made the addback provision permanent, meaning the addback will be required for the 2026 tax year and beyond.

HB25B-1002: Foreign jurisdiction changes

Tax havens

Colorado law requires corporations incorporated in specific jurisdictions for purposes of tax avoidance (i.e. tax havens) to be included in a combined report.