Colorado’s state income tax rate is 4.40%, the lowest permanent rate the state has ever charged.1Colorado Department of Revenue. Individual Income Tax Guide The history of the Colorado state income tax rate runs from a graduated system adopted in 1937, through a shift to a 5% flat tax in 1987, and down through four separate reductions that brought the rate to where it sits today.
Where It Started: The 1937 Graduated Tax
Colorado began collecting a state income tax under the Income Tax Act of 1937.2Colorado General Assembly. Individual Income Tax The original structure mirrored the federal approach: lower earners paid a smaller percentage, higher earners paid more, and the top bracket reached 10%. Taxpayers calculated different portions of their income at different rates.
The graduated system lasted 50 years.
1987: The Switch to a Flat Rate
In 1987, the legislature replaced the graduated brackets with a single flat rate of 5% on all individual taxable income.2Colorado General Assembly. Individual Income Tax Every resident now applied the same percentage, regardless of income level, and Colorado became one of the first states to abandon a progressive income tax for a uniform one.
The corporate rate did not move in tandem. Corporations were not subject to the flat 5% rate until tax year 1994.3Colorado General Assembly. Corporate Income Tax From 1994 forward, the individual and corporate rates have moved together.
1999 and 2000: Two Legislative Cuts
The 5% rate held for over a decade before the legislature cut it twice in quick succession. In 1999, lawmakers reduced the individual income tax rate from 5% to 4.75%. The following year, they dropped it again to 4.63%.3Colorado General Assembly. Corporate Income Tax The corporate rate followed the same path on the same schedule.
Both cuts came during strong late-1990s revenue growth and were enacted directly by the legislature without going to a public vote. The 4.63% figure then held for the next two decades, surviving recessions, budget shortfalls, and shifts in political control.
2020 and 2022: Voters Cut the Rate Twice
The next two reductions came from the ballot box, not the capitol. In November 2020, voters approved Proposition 116, which permanently cut the individual and corporate income tax rate from 4.63% to 4.55%, applied retroactively to tax years beginning on or after January 1, 2020.3Colorado General Assembly. Corporate Income Tax
Two years later, voters went further. Proposition 121 on the 2022 ballot reduced the rate from 4.55% to 4.40% for both individuals and corporations, effective for tax year 2022 and beyond.4Colorado General Assembly. Proposition 121 – State Income Tax Rate Reduction It passed with about 65% of the vote. The 4.40% rate remains the permanent rate for tax year 2025, with no further permanent reductions currently enacted.1Colorado Department of Revenue. Individual Income Tax Guide
The Full Rate Timeline
Every permanent individual income tax rate Colorado has applied since the flat tax began:
- 1987–1998: 5.00%
- 1999: 4.75%
- 2000–2019: 4.63%
- 2020–2021: 4.55% (Proposition 116)
- 2022–present: 4.40% (Proposition 121)
A taxpayer with $100,000 of Colorado taxable income paid $5,000 under the first flat rate and pays $4,400 today. That is a 12% reduction in the state’s take at the same income level.
Years When the Effective Rate Was Lower Than the Statutory Rate
The permanent rate is not always the rate taxpayers actually paid. When state revenue exceeds Colorado’s constitutional spending cap, the state has to return the excess, and one of the mechanisms it uses is a temporary rate reduction. For tax years 2019 through 2021, individual and corporate income tax rates were temporarily reduced to 4.50% to refund a Taxpayer’s Bill of Rights (TABOR) surplus.3Colorado General Assembly. Corporate Income Tax The effective rate in those years was lower than the statutory rate on the books.
SB24-228, enacted in 2024, formalized this approach through 2034. If remaining excess revenues top $300 million in a given year, a temporary income tax rate reduction is triggered, which can lower the effective rate by roughly 0.04 to over 0.13 percentage points below the permanent 4.40%.5Colorado General Assembly. SB24-228 TABOR Refund Mechanisms Larger surpluses add sales tax refund mechanisms on top; smaller surpluses skip the rate reduction and refund through sales tax alone.
Why the Rate Has Only Moved Down
Every change since 1987 has been a cut, and that pattern reflects a constitutional constraint rather than a coincidence. Voters added the Taxpayer’s Bill of Rights to the Colorado Constitution as Article X, Section 20 in 1992.6Colorado General Assembly. TABOR
TABOR requires advance voter approval for any new tax, any tax rate increase, or any tax policy change that directly produces higher net revenue.7FindLaw. Colorado Constitution Art X, Sect 20 The legislature cannot raise the income tax rate on its own. It also caps annual state spending growth at inflation plus population change, which is what triggers the refund mechanisms when collections run ahead.
Cutting the rate can happen two ways. The legislature can do it directly, as in 1999 and 2000, or voters can do it at the ballot, as in 2020 and 2022. Raising it, by contrast, always requires a statewide vote. Every proposed income tax increase since 1992 has had to clear that bar, which is why the direction of travel for 38 years has been one way.