Senate extends existing state rule on federal QBI deduction to prevent automatic tax cut for top earners

The Colorado Senate on Aug. 24 adopted House Bill 1001 to maintain the state—s current treatment of the federal Qualified Business Income (QBI) deduction after federal law removed an expiration date. The measure removes the statutory reference to the federal deadline so Colorado—s existing add-back rules remain in place.

Supporters said the bill continues Colorado—s long-standing policy of applying a single approach to business income taxation and prevents a sudden, large deduction from flowing through to state taxable income for wealthy pass-through business owners. "If we do nothing, the continuation of federal QBI would create a new cut in Colorado state taxes disproportionately for the wealthiest business owners," said Senator Henriksen, the bill sponsor.

Opponents argued the measure is effectively a change in tax policy that increases state revenue and therefore should be referred to voters under TABOR (the Taxpayer Bill of Rights). An amendment to refer the bill to the people was proposed and defeated on the Senate floor; senators debated whether continuation of existing policy is a policy change or merely a continuation.

What the bill does: The bill removes the expiration reference in state statute that had tied Colorado—s add-back rules to the federal QBI expiration date. In practice, that means that for filers above the state—s thresholds (single filers over $500,000; joint filers over $1,000,000), the state will continue to disallow the QBI deduction for state-tax purposes, preserving current tax treatment.

Fiscal effect and next steps: Sponsors and the fiscal note cited revenue effects — tens of millions in the near term — if the change were not enacted. The Senate adopted the bill and it will proceed toward enrollment and transmittal for consideration by the other chamber.