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HB21-1311

Income Tax

Concerning income tax, and, in connection therewith, requiring additions to Colorado taxable income in amounts related to limiting certain federal itemized deductions, extending the limit on the federal deduction allowed under section 199A of the internal revenue code, limiting the deduction for contributions made to 529 plans, disallowing an enhanced federal deduction for food and beverage expenses at restaurants, and limiting the capital gains subtraction; allowing a subtraction from Colorado taxable income in amounts related to repealing the cap on the deduction for certain social security income; reducing state income tax revenue by increasing the earned income tax credit, funding the child tax credit, and allowing a temporary income tax credit for a business equal to a percentage of the conversion costs to convert the business to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust; increasing state income tax revenue by modifying the computation of the corporate income tax receipts factor to make it more congruent with combined reporting; preventing corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance; clarifying that certain captive insurance companies are not exempt from income tax; and making an appropriation.
Session:
2021 Regular Session
Subject:
Fiscal Policy & Taxes
Bill Summary

Section 2 of the bill modifies how taxable income is determined for individuals for purposes of the state income tax. Specifically, it:

  • Imposes a cap for taxpayers with adjusted gross incomes equal to or exceeding $400,000 on certain itemized deductions claimed under the internal revenue code;
  • Repeals, for social security income that is included in federal taxable income only, the cap on the deduction for pension and annuity income received;
  • Adds a cap, per taxpayer per beneficiary, on the deduction for contributions made to 529 plans;
  • Requires individual taxpayers to add amounts of federal taxable income that are equal to the enhanced federal deductions for food and beverage in a restaurant for the 2022 income year; and
  • Extends the limit on the federal deduction allowed under section 199A of the internal revenue code.

Section 3 increases the earned income tax credit to 20% for income tax years commencing on or after January 1, 2022, and but before January 1, 2023, and income tax years commencing on or after January 1, 2026. Section 3 also increases the earned income tax credit to 25% for income tax years commencing on or after January 1, 2023, but before January 1, 2026. Finally, section 3 applies the lowered minimum age for individuals without a qualifying child in the federal "American Rescue Plan Act of 2021" to the state credit for income tax years commencing on or after January 1, 2022.Section 4 funds the child tax credit for income tax years commencing on or after January 1, 2022, and allows a child tax credit in the state regardless of the federal requirement that a qualifying child must have a social security number for the federal child tax credit. Section 4 also specifies that if the changes to the federal child tax credit in the "American Rescue Plan Act of 2021" are no longer in effect, the percentages of the state child tax credit are increased.Sections 5 through 7 make the state's corporate income tax more uniform compared to other states by replacing the current combined reporting standard with the multistate tax commission's standard. In addition, these sections modify Section 5 modifies the computation of the corporate income tax receipts factor to make it more congruent with the unitary business principle combined reporting .In addition to making the state's corporate income tax more uniform compared to other states, section 6 Section 5 also prevents corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance.Section 7 Section 6 functions to prevent corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance and additionally modifies how taxable income is determined for C corporations for purposes of the state income tax. Specifically, it requires corporate taxpayers to add amounts of federal taxable income that are equal to the enhanced federal deductions for food and beverage in a restaurant for the 2022 income year.Section 8 repeals a Section 7 limits the state subtraction for certain capital gains incurred by allowing the subtraction to a taxpayer who is required to file a Schedule F, profit or loss from farming, as an attachment to the taxpayer's federal income tax return for the tax year in which the net capital gains arise for the sale of real property, not tangible personal property, that is classified as agricultural land for property tax purposes .Section 9 Section 8 creates a temporary income tax credit for a business for a percentage of the conversion costs to convert the business to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust.Sections 10 through 13 9 through 12 address the avoidance of income tax by certain captive insurance companies.Section 13 adds an appropriation to the office of the governor for use by the office of economic development for the administration of the income tax credit for a business converting to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust.

(Note: Italicized words indicate new material added to the original summary; dashes through words indicate deletions from the original summary.)


(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)

Status

Introduced
Passed

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