After six days of intense policy formulation and debate, the Colorado General Assembly adjourned the 2025 Special Session on Tuesday, August 26. The session was called by Governor Polis to address the state’s $783 million deficit, which incited intense debate on the best approach for reducing the state’s budget shortfall.

As the main vehicle to address the deficit, legislators and the governor passed legislation that will roll back existing tax credits for insurers, retailers, and other businesses. It is expected that this new legislation will help to shore up approximately $150 million of the $783 million deficit.

Alongside these measures, the General Assembly passed HB 25B-1004, Sale of Tax Credits, allowing the state to sell up to $100 million in tax credits to qualified businesses to pre-pay future taxes at a discounted rate. To address the remainder of the state’s deficit, Governor Polis signed a new executive order on August 28th outlining budget cuts across state departments totaling $103 million. The approximate budget cuts to be endured by various state departments for the remainder of FY2025-2026 are as follows:

• Department of Corrections: $3.68 million
• Department of Health Care Policy & Financing: $79.14 million
• Department of Higher Education: $12.72 million
• Department of Human Services: $1.71 million
• Department of Information Technology: $100,121
• Department of Local Affairs: $100,121
• Department of Public Health & Environment: $5 million
• Department of Revenue: $637,500

In addition to the above cuts, Governor Polis’s executive order also redirects over $149 million in cash fund transfers to Colorado’s General Fund. Additionally, Governor Polis has informed the Joint Budget Committee that he plans to utilize $325 million from the state’s $3.3 billion reserve fund to shore up the remainder of the deficit.

The rollback of tax credits for businesses—coupled with the new budget cuts to state departments—will almost certainly impact both the Department of Revenue and CPAs across Colorado.

Beyond these actions, the 2025 Special Session saw new legislation seeking to amend SB 24-205, Consumer Protections for Artificial Intelligence. Lawmakers introduced SB 25B-004, Increase Transparency of Algorithmic Systems, to provide further regulations for developers and deployers of AI to protect consumers interacting with the technology. Ultimately, the bill was gutted of its original provisions and instead transformed into a postponement of SB 24-205’s effective date to June 30, 2026 rather than February 1, 2026. Lawmakers anticipate that debate surrounding the responsibilities of developers and deployers of AI, as well as privacy concerns for consumers interacting with the technology, will be a priority heading into the 2026 Session. 

Key Tax Policy Changes

Several pieces of legislation that will change the tax credits administered by CDOR were signed into law shortly after the special session adjourned. HB 25B-1003, Insurance Premium Tax Rate for Home Offices, will end the regional and home office tax credit for insurers who had at least two and a half percent of their workforce operating in Colorado. HB 25B-1003’s fiscal note indicates that removing the tax credit will allow the state to generate an additional $44.1 million in revenue for FY2025-2026, $91.9 million, and $97 million in subsequent years. 

HB 25B-1005, Eliminate States Sales Tax Vendor Fee, also sought to cut Colorado’s bulging deficit. The new law eliminates the vendor fee which allowed retailers to keep four percent of the sales tax they collected. Lawmakers in favor of the bill noted that the vendor fee was being eliminated to promote fairness among retailers, as the fee was only made available to retailers having total taxable sales at or below $1 million. HB 25B-1005’s fiscal note indicates that omitting this fee would save approximately $57 million annually in state revenue. 

HB 25B-1002, Corporate Income Tax on Foreign Jurisdictions, was also passed by the General Assembly and signed by Governor Polis.  The legislation places further limits on corporate tax avoidance for Colorado businesses by severing state tax law from federal tax breaks on business income originating from foreign countries. The bill’s fiscal note is projected to generate approximately $72 million in new state revenue. 

Similar to HB 25B-1002, lawmakers also passed HB 25B-1001 Qualified Business Income Deduction Add-Back, further severing Colorado from federal tax breaks. HB 25B-1001 detaches Colorado from the Federal Qualified Base Income (QBI) tax deduction. The QBI deduction—which allows certain businesses to deduct 20% of their income from their taxes—will no longer be accessible for LLCs, S-corporations, and other pass-through entities that report over $500,000 in income. HB 25B-1001 is expected to save over $95 million in new revenue for the state during this fiscal year.

The COCPA CDOR Working Group will be discussing the impacts of these changes with CDOR and maintain focus on collaborating on implementation.

Colorado’s AI Fight Pushed to 2026 Regular Session 

Proposals introduced this special session originally included new provisions to enhance transparency around the use of artificial intelligence following the passage of the original 2024 bill. However, the legislation was met with such opposition from the tech industry that the bill’s chief sponsor modified the text to merely delay the implementation date of SB 24-205 to June 30, 2026.

There was also a competing proposal introduced: HB 25B-1008, Consumer Protections for Artificial Intelligence Interactions. Ultimately, this competing proposal failed and did not receive a vote in either chamber. 

AI technology continues to present new challenges and opportunities for the profession in Colorado and will remain a priority for the COCPA. Heading into the 2026 Regular Session, the COCPA will engage with lawmakers to make sure CPAs are included in the impacts considered by lawmakers while they are formulating a statewide framework for the emerging technology.  

The COCPA looks forward to continuing our advocacy efforts following the 2025 Special Session and into the 2026 Regular Session. We will continue to work to ensure lawmakers hear the voice of Colorado’s CPAs when formulating state policy proposals. 

Support the COCPA’s efforts to build productive legislative relationships and promote a collaborative advocacy landscape by donating to the CPA-Political Action Committee.