Colorado voters weigh tax cap against new brackets

Colorado business owners face competing income-tax choices on Election Day. One ballot proposal would prevent the current 4.4 percent rate from rising. Amendment 87 would change the state constitution to permit tiered taxation of personal and corporate income. A related statute would initially charge 7.4 percent beyond $500,000, 7.9 percent beyond $750,000 and 8.4 percent beyond $1 million. Legislators could later revise those percentages and thresholds.

The outcome is particularly important for companies whose profits flow onto their owners’ personal returns, such as partnerships, LLCs and S corporations. Colorado has 731,000 small businesses, which employ almost 49 percent of the state’s workers. Most are pass-through entities. Among 53,640 tax filers reporting adjusted gross income greater than $500,000, 30,850 reported earnings tied to partnerships or S corporations. Another 14,310 had other professional or business income. At that income level, households receive 27 percent more from businesses than from wages.

Colorado replaced its graduated system with a single rate in 1987. Amendment 87 would remove the constitutional restriction requiring one rate. Its wording allows passage by a simple majority rather than the usual 55 percent. The proposed thresholds would also be identical for single people and married couples filing together. The Tax Foundation says higher marginal rates could affect company profits, investment, hiring, expansion, wages and prices.