While the presidential election is still yet to be decided, Colorado has finalized several ballot measures based on voting proportion while others remain undetermined. Based on where things sit, today, we’ll address the impact of measures that have passed (or are very likely to) and how that will affect your finances in the future. This is important for financial planning, both for individuals and business owners. As always, consult your accountant and Fee-Only CERTIFIED FINANCIAL PLANNER™ to see how this might affect you!
Colorado Constitutional Amendment B
Known as the “Gallagher Repeal,” Amendment B sought to remove the Gallagher Amendment from deciding where property tax assessments are allotted. Prior to the passage of the Gallagher Amendment in 1982, Colorado saw a massive influx of people moving into Colorado, while housing stock was not increasing proportionately, thus driving up the value of housing and the related tax assessments. To ease the burden on homeowners, the Gallagher Amendment capped the state’s maximum property tax revenue from residential real estate at 40% of property tax revenues. In the following decades, residential real estate has boomed in Colorado both in value and in the building of new units. As a result, the portion of your property that is assessed for tax purposes has shrunk, while the amount assessed against agricultural, industrial, and commercial use has increased significantly to make up for the forced funding shortfall. Consequently, in the past few years, business owners had seen significant double-digit increases to property tax assessments (anecdotally, the assessment on the building MY Wealth Planners® occupies in Longmont increased by over 38% from 2018 to 2019.) Amendment B removes the 40% cap on residential assessment while requiring that assessments not “re-ratio” automatically. As a result, we will see an increase in residential property tax in the future based on the current development rates. Still, now there is greater freedom by the Colorado Legislature to assess or adjust how property tax is used to fund public services.
Colorado Proposition 116
This measure reduced the state income tax of 4.63% to 4.55% (representing a 1.7% decrease in income tax.) While Colorado has a flat tax (known as a regressive tax due to its more significant dollar-for-dollar burden on low-income citizens), this measure saves citizens $.08 for every $100 earned and is expected to remove approximately $203 million from the state budget. This change takes effect on all tax years following January 1st of 2020, meaning that the change will be reflected in your tax return next spring (2021.)
Colorado Proposition 117
This measure combines to fill in a loophole in the Taxpayer’s Bill of Rights (TABOR.) TABOR is responsible for several funding issues in Colorado State operations. As a result, the state had utilized an enterprise fee exemption to drive revenue for various state functions in other areas. Under TABOR, taxpayers were required to vote for all tax increases. However, TABOR did not require a vote on enterprise fees (hunting licenses, medical service fees, etc.) Allowing for hundreds of millions to be pulled into enterprises under the levy of fees rather than taxes without voter approval. Proposition 117 requires that any enterprise with a funding level of fees greater than $100 million over five years require voter approval, thus effectively closing all but a de minimis loophole for nominal fees (i.e., your library dues might not require voter approval.)
Colorado Proposition 118
This measure establishes a paid Family and Medical Leave “insurance” organization via the state. The program will be funded by a payroll tax of .45% by employees and .45% by employers (though employers can pay the full amount), entitling beneficiaries to up to $4,400 in monthly wage replacement (calculated as 90% of wages up to that cap) for 12-16 weeks for specific medical and family leave events (including maternity.) The enterprise will take in funding for 3 years before benefits begin being paid out, and the specific definitions of which medical issues, for which family members, etc. will be hammered out by a bipartisan commission appointed for the management of the fund. Notably, self-employed professionals and small businesses (<10 employees) can opt-out of the program. Businesses can also opt-out of the program by attesting that they will provide a benefit equal to or greater than the benefits provided by the program (subject to enforcement by the Department of Labor.)
Your elucidation of the issues and their ramifications was enlightening. Thanks