Colorado‘s tax system ranks 32nd overall on the 2025 State Tax Competitiveness Index. Colorado’s individual and corporate income is taxed at a flat rate of 4.25 percent. Individual taxpayers are subject to an alternate minimum tax, requiring some to calculate their liability twice—first under ordinary income tax rules and then under the alternate minimum tax—and pay whichever amount is highest.
While the corporate tax code features a single rate, it also contains some inefficiencies. Colorado imposes a throwback rule and taxes “nowhere income” in the state from which sales are made because the seller lacks sufficient nexus to be taxed in the destination state, leading to taxation in the wrong state at the wrong rate. Colorado is also among the minority of states to tax global intangible low-taxed income (GILTI).
Of the 45 states that levy a sales tax, Colorado’s statewide rate is the lowest (2.77 percent). Local jurisdictions add an average of 4.91 percent in local sales taxes. Highly unusually, the Centennial State also lacks uniform sales tax administration. While this affects sellers in the state, it particularly impacts remote sellers and marketplace facilitators who may be required to collect and remit sales taxes despite having no physical presence in Colorado. Colorado also lacks local base conformity, with bases varying across jurisdictions.
Effective property taxes are low, though state and local property tax collections per capita remain high. Like much of the country, property owners have seen valuations rise significantly, and lawmakers have worked to provide property tax relief. This, however, is nothing new for Colorado. In 1982, voters approved the Gallagher Amendment, which limited the amount of property tax revenue that could be collected from residential property to 45 percent of the state’s total. The remaining 55 percent would come from other property types. In 2022, voters repealed the Gallagher Amendment, paving the way for significantly increased property tax liability for homeowners. Since then, the state has seen several legislative attempts and citizen-led initiatives to provide relief. The state’s Taxpayer’s Bill of Rights (TABOR), though significantly amended over the years, also influences the overall shape of the state’s tax environment.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 32 | 1 | 5.02 |
| Corporate Taxes | 10 | 1 | 5.65 |
| Individual Income Taxes | 18 | 2 | 5.64 |
| Sales Taxes | 37 | 0 | 4.19 |
| Property Taxes | 36 | -1 | 4.48 |
| Unemployment Insurance Taxes | 39 | 7 | 4.51 |
Get facts about taxes in your state and around the U.S.
Thirty-nine states will begin 2025 with notable tax changes, including nine states cutting individual income taxes. Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up.
25 min read
Tax avoidance is a natural consequence of tax policy. Policymakers should consider the unintended consequences, both to public health and public coffers, of the excise taxes and regulatory regimes for cigarettes and other nicotine products.
5 min read
Many policies, such as minimum wage levels, tax brackets, and means-tested public benefit income thresholds, are denominated in nominal dollars, even though a dollar in one region may go much further than a dollar in another. Lawmakers should keep that reality in mind as they make changes to tax and economic policies.
6 min read