Colorado Tax Law Changes: A 2026 SALT Guide
When Congress passed the One Big Beautiful Bill in July 2025, it did more than rewrite the federal code. It set off a chain reaction in every state that automatically follows federal law. Colorado, a rolling conformity state, watched its own tax revenue shrink alongside the federal base, and the state moved fast to close the gap.
This podcast breaks down the Colorado tax law changes that came out of a 2025 special session and the 2026 regular session, and what each one means for multi-state tax compliance. CFOs, controllers, and business owners who need to know what is already on their 2025 return and what to plan for through 2027 will gain insight by listening.
The analysis comes from Marc Gordon, State and Local Tax Senior Manager at TaxOps, who walks through the mechanics of each bill and the planning window they create.
What You’ll Learn
● Why Colorado’s rolling conformity forced the state to act after the One Big Beautiful Bill
● The five special-session bills already in effect for the 2025 and 2026 tax years
● How the QBI add back became permanent and who it hits
● What the new sales tax on software means for buyers and sellers
● Why worldwide combined reporting could help or hurt corporate taxpayers
● The SALT parity election that is still available for 2025 and beyond
Why Colorado Had to Respond to OBBBA Tax Provisions
Colorado is a rolling conformity state, which means state law automatically follows federal income tax changes unless the legislature decouples from a specific provision. When the One Big Beautiful Bill expanded a range of federal deductions, Colorado’s revenue was set to fall right along with it.
The projected damage was severe. Early estimates put the revenue loss as high as $1.2 billion, later revised down to $783 million. Either figure represented a serious budget deficit, so the governor called a special session. In this episode of Tax Intelligence, Marc Gordon highlights all of the ways Colorado has looked to offset this deficit.
The QBI Add Back Becomes Permanent
Federally, Section 199A lets owners of pass-through entities, S-corporations, partnerships, and LLCs deduct up to 20% of their qualified business income. The One Big Beautiful Bill made that deduction permanent.
Since the 2021 tax year, Colorado has required certain high-income taxpayers to add that deduction back on their state return. The add back was always temporary, scheduled to sunset after 2025, and many owners planned around its expiration. House Bill 25B-1001 removed the sunset date and made the add back permanent, mirroring the federal move on Section 199A. If you are a sole proprietor, operate a single-member LLC, receive flow-through income, or hold business-income assets in a trust, this one lands on your return.
Elimination of the Colorado Vendor Fee Allowance (Sales Tax)
For years, Colorado let retailers keep a small slice of the state sales tax they collected as compensation for collecting and remitting on the state’s behalf. This vendor fee was historically 4% of collections, capped at $1,000 per filing period. House Bill 25B-1005 eliminated it beginning January 1, 2026.
Elimination of Sales Tax Exemption for Intangibly Accessed Software (Sales Tax)
The bigger shift comes from House Bill 26-1223, signed in early June 2026 and effective January 1, 2027. It removes the exemption for computer software delivered by any means other than tangible, physical media. Colorado defines computer software as coded instructions designed to make a device perform a task and delivered by any means, including download or remote access, and even flags mobile applications.
Businesses making significant software outlays will feel it immediately. Software expenditures could see a roughly 8% increase for buyers not already paying sales tax in a home rule jurisdiction. Marc Gordon’s guidance is to move early: “no one likes to be blindsided by a price hike on an invoice, especially due to sales tax.” Start the conversations with vendors and customers now.
Worldwide Combined Reporting (Corporate Income Tax)
Colorado now joins the few states that default to combined worldwide reporting rather than following the federal consolidated group of domestic affiliates. An optional Water’s Edge election is available, but it binds the taxpayer for 10 years and renews automatically unless formally withdrawn.
The default is not automatically bad. Foreign affiliates operating at a loss can offset the U.S. tax base, and affiliates with no U.S. sales can dilute the apportionment factor. Flip those facts and the same method raises your Colorado tax. Modeling both scenarios matters, especially where pro forma federal returns, apportionment data, and intercompany eliminations all need rework.
The SALT Parity Election Is Still on the Table (Partnership / Individual Income Tax)
The One Big Beautiful Bill kept the federal SALT deduction cap alive, raising it to $40,000 and setting a January 1, 2030 sunset back to $10,000. In response to the original cap, Colorado enacted the SALT Parity Act, letting a flow-through entity pay the tax on behalf of its partners and pass through the full deduction.
Those provisions contain no sunset language, so the parity election remains available for 2026 and beyond. If you have not used it, the election can still be made for the 2025 tax year, either by filing Colorado form DR-1705 or by checking the box on the DR-0106 and paying the tax with the return.
“At TaxOps, absorbing that complexity on behalf of business owners and finance executives is precisely the work we do,” Gordon said. If any of these Colorado changes raise questions for your business, listen to the full episode of Tax Intelligence and reach out to the SALT team at https://taxops.com/contact.
About the Host
State and Local Tax Senior Manager Marc Gordon brings over a decade of specialized experience in state and local tax to mid-market businesses across the country. With deep expertise in both income tax and sales and use tax, Marc serves as an outsourced SALT resource for CFOs, controllers and business owners who need a knowledgeable, hands-on partner to manager their most complex and pressing state and local tax challenges.
Marc’s technical range spans the full spectrum of state and local tax needs: income tax compliance, sales and use tax support, nexus and taxability analysis, exposure modeling, voluntary disclosure and amnesty programs, and audit and notice defense. He works across all industries, recognizing that businesses of every kind accumulate state and local tax exposure — and that finding it, resolving it, and charting a clear path forward is where he delivers the most value.
Listen to the full conversation now on Tax Intelligence, or watch on YouTube.
Tax Intelligence with TaxOps
This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!
About TaxOps
At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.
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