Tax Credits to Boost Working Families and Restaurants Pass Senate

DENVER, CO – The Senate today passed two bills to adjust Colorado’s tax code to support working people and small businesses after Congress passed H.R. 1, which granted massive tax breaks to corporations while raising taxes on working families in Colorado. 

HB26-1223, sponsored by Senators Matt Ball, D-Denver, and Dylan Roberts, D-Frisco, would repeal Colorado’s downloadable software exemption to ensure taxes on these products are consistent, no matter how or where they are purchased, in order to fund tax credits for working families and provide relief to Colorado restaurants.

“Right now, software products are taxed differently depending on where they are purchased,” said Ball. “It’s a patchwork system that simply doesn’t make sense with the current way we make purchases in our modern, online society. By fixing this discrepancy, we’re putting money back into the hands of Colorado families and supporting restaurants.”

“This is a win-win-win for hardworking Coloradans, for local restaurants, and for modernizing our tax code,” said Roberts. “It is narrowly focused on one outdated statute that taxes software differently based on where and how it is purchased. By standardizing this inconsistency, we can fund tax credits that give hardworking Coloradans a chance to get ahead and give Colorado restaurants a much-needed boost by relieving them of sales tax burdens."

The Colorado Office of the State Auditor reported that the antiquated sales tax exemption for certain downloadable software was being applied unevenly across the state, with 14 percent of vendors not applying the exemption at all.

With part of the revenue generated from closing this exemption, the bill would create a new tax credit for hardworking families. The Family Affordability Credit (FAC) would go to families eligible for the highly successful Family Affordability Tax Credit (FATC) in current law. Estimates show families could receive up to $260 for each child under age six and up to $195 for each child between six and 16. 

The bill would also fund tax relief for restaurants through a temporary sales tax deduction and permanent expansion of a utility tax deduction. In 2027 and 2028, for July, August, November, and December, restaurants, bars, and other food vendors would retain the state sales tax collected on up to $14,000 of taxable sales in that month. Additionally, in current law, certain restaurants are allowed to subtract 55 percent of their energy bills from their tax obligations. The bill would permanently expand this to allow restaurants to deduct 100 percent of gas and electricity purchases from their taxable sales. 
HB26-1289 would modernize and simplify the tax code by eliminating ineffective or unnecessary special tax exemptions and deductions to expand and extend tax credits for food access, wildfire and beetle kill mitigation, job creation, and investments in clean energy. This bill would make Colorado’s tax code more consistent and efficient.

"Our tax laws must be continually reviewed and updated to make sure they are working for Coloradans," said Weissman. “Particularly as federal law changes in recent years have negatively impacted Colorado, we must use this moment as an opportunity to revise or eliminate ineffective tax laws, continue or extend those that work, and make sure our tax laws work in service of our bigger goals of supporting working people, saving Coloradans money on energy, and managing wildfire risk. At the end of the day, tightening up ineffective tax laws to continue impactful tax credits for working families is an easy choice."
HB26-1289 would eliminate ineffective tax exemptions for purchases regarding space flight and vendor discounts for cigarettes, nicotine, and tobacco products.

It would also make changes to existing tax credits, including:

• Increasing access to the Community Food Access Tax Credit that offers small food retailers and family farms a refundable tax credit,

• Renewing the Renewable Energy Enterprise Zone Investment Tax Credit to reward businesses that invest in projects that generate renewable energy,

• Expanding the Wildfire Mitigation Tax Credit by allowing it to be carried forward to count against future tax liability and increasing eligibility to boost wildfire mitigation efforts, and

• Expanding a tax credit for businesses that rehabilitate vacant properties. 

In recent years, Democrats in Colorado have expanded the state Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) and created the FATC to boost the incomes of hardworking Colorado families and lift children out of poverty. A 2026 report found that the EITC, CTC and FATC cut child poverty by 37 percent and family poverty by 32 percent. These tax credits were entirely turned off for the next tax year due to H.R. 1, raising taxes on families, and forecasts show H.R. 1’s revenue impacts may reduce the credits in future years, too.

HB26-1223 and HB26-1289 now head back to the House for consideration of amendments.