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February 17, 2022 SB 22-124
Legislative Council Staff
Nonpartisan Services for Colorado’s Legislature
Fiscal Note
Drafting Number:
Prime Sponsors:
LLS 22-0769
Sen. Woodward; Kolker
Rep. Ortiz; Van Winkle
Date:
Bill Status:
Fiscal Analyst:
February 17, 2022
Senate Finance
Jeff Stupak | 303-866-5834
Jeff.Stupak@state.co.us
Bill Topic: SALT PARITY ACT
Summary of
Fiscal Impact:
☐ State Revenue
☒ State Expenditure
☐ State Transfer
☐ TABOR Refund
☐ Local Government
☐ Statutory Public Entity
The bill allows pass-through businesses to elect to retroactively pay their state income
tax at the entity level, rather than the individual level, beginning in tax year 2018. The
bill will increase state expenditures beginning in FY 2022-23.
Appropriation
Summary:
For FY 2022-23, the bill requires an appropriation of $1,772,961 to the Department of
Revenue.
Fiscal Note
Status:
The fiscal note reflects the introduced bill.
Table 1
State Fiscal Impacts Under SB 22-124
Budget Year
FY 2022-23
Out Year
FY 2023-24
Revenue
- -
Expenditures General Fund $1,772,961 $144,133
Centrally Appropriated $331,153 $38,073
Total Expenditures $2,104,114 $182,206
Total FTE 22.2 FTE 2.6 FTE
Transfers - -
Other Budget Impacts General Fund Reserve $265,944 $21,620
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February 17, 2022 SB 22-124
Summary of Legislation
Pass-through businesses, such as sole proprietorships, partnerships, and S-corporations, do not pay
the corporate income tax. Rather, any profits generated by the business are “passed through” to the
owners of the business and subsequently taxed at the individual level. Under current law
(HB 21-1327), taxpayers may elect to pay their state income tax at the entity level, rather than the
individual level, beginning in tax year 2022. This bill allows partnerships and S-corporations to
retroactively elect to pay their state income tax at the entity level, rather than the individual level,
beginning in tax year 2018.
Background
The federal Tax Cuts and Jobs Act of 2017 placed a temporary $10,000 annual cap on the federal
income tax deduction for state and local taxes (“SALT” deduction) for individual income taxpayers.
No cap exists for this deduction for C-corporations. The cap is set to expire on December 31, 2025.
This bill allows Colorado owners of partnerships and S-corporations to file taxes at the entity level
instead of the individual level, which may allow taxpayers a larger SALT deduction.
Assumptions
The number of individuals and entity level tax returns that will be amended and refiled with the
Department of Revenue (DOR) as a result of this bill is uncertain. In the 2018 tax year, the most recent
data available and the first year of the SALT deduction cap, a total of 39,120 taxpayers that were part
of a partnership or S-corporations exceeded the SALT deduction cap on their tax return. Those
taxpayers were associated with 56,550 different partnerships and S-corps. However, the number of
distinct individual taxpayers who were associated with those 56,550 businesses was significantly
higher, about 220,530 individuals. As such, in 2018 there were 39,120 taxpayers who would directly
benefit from amending their returns and filing at the entity level; however, the total universe of
taxpayers that may file amended returns as a result of this bill could be as high as 220,530. This is
because if the business chooses to amend their returns to file at the entity level, all members of the
business will also have to amend their individual returns.
This fiscal note assumes that approximately 18 percent of this total universe of taxpayers and
businesses will choose to amend their returns to file at the entity level, or about 10,030 businesses and
39,120 individuals for tax year 2018. Further, this fiscal note assumes a similar number of returns will
be amended for tax years 2019, 2020, and 2021. This results in approximately 41,500 business returns
and 161,850 individual returns being amended and filed with the DOR for tax years 2018 through
2021. Additionally, this fiscal note assumes that 90 percent of amended returns will be processed by
the DOR in FY 2022-23, and 10 percent will be processed in FY 2023-24.
Because the number of taxpayers impacted by the bill may differ significantly from the assumptions
in this fiscal note, workload impacts may differ significantly from those estimated. If more (or fewer)
businesses and individuals file amended returns than assumed in this fiscal note, expenditures in
DOR could be significantly higher (or lower) than presented in this fiscal note. If this occurs, the fiscal
assumes that DOR would address this difference through the annual budget process. Page 3
February 17, 2022 SB 22-124
State Revenue
The bill is not expected to affect state revenue. Under Colorado law, taxpayers are required to add
back any state and local taxes deducted at the federal level to their Colorado taxable income. As such,
total Colorado taxable income is not expected to change under this bill.
State Expenditures
The bill increases state expenditures in the Department of Revenue by $2,104,114 in FY 2022-23 and
$182,206 in FY 2023-24 from the General Fund. Expenditures are shown in Table 2 and detailed below.
Table 2
Expenditures Under SB 22-124
FY 2022-23 FY 2023-24
Department of Revenue
Personal Services $1,155,261 $134,223
Operating Expenses $32,805 $3,510
Capital Outlay Costs $148,800 -
GenTax Programming $90,000 -
Computer and User Acceptance Testing $186,795
Document Management and Form Changes $152,899
Data Reporting $6,400 $6,400
Centrally Appropriated Costs
1
$331,153 $38,073
Total Cost $2,104,114 $182,206
Total FTE 22.2 FTE 2.6 FTE
1
Centrally appropriated costs are not included in the bill's appropriation.
Department of Revenue. The DOR will require an additional 22.2 FTE tax examiners in FY 2022-23
and 2.6 FTE tax examiners in FY 2023-24 to implement this bill. The bill generates additional workload
for the department to process amended returns for both businesses and individuals across
four different tax years. The department anticipates that amended returns will include more errors
than usual and require longer review times due to the retroactive nature of these changes.
Computer programming and testing. For FY 2022-23 only, the bill will require changes to DOR’s
GenTax software system and additional testing. Changes are programmed by a contractor at a
cost of $225 per hour. Approximately 400 hours of computer programming are required to
implement this bill, totaling $90,000. Additional computer and user acceptance testing are
required to ensure programming changes are tested and functioning properly, resulting in an
additional $186,795 in expenditures by the department.
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February 17, 2022 SB 22-124
Document management and form changes. The bill requires $152,899 in FY 2022-23 for
expenditures related to document management, data entry, and tax form changes. These
expenditures take place in the Department of Personnel and Administration using reappropriated
funds from the DOR.
Data reporting. Beginning in FY 2022-23, the Office of Research and Analysis within DOR will
expend $6,400 annually to collect and report data related to the changes in this bill.
Centrally appropriated costs. Pursuant to a Joint Budget Committee policy, certain costs associated
with this bill are addressed through the annual budget process and centrally appropriated in the Long
Bill or supplemental appropriations bills, rather than in this bill. These costs, which include employee
insurance and supplemental employee retirement payments, are shown in Table 2.
Other Budget Impacts
General Fund reserve. Under current law, an amount equal to 15 percent of General Fund
appropriations must be set aside in the General Fund statutory reserve beginning in FY 2022-23. Based
on this fiscal note, the bill is expected to increase the amount of General Fund held in reserve by
$265,944 in FY 2022-23 and by $21,620 in FY 2023-24, which will decrease the amount of General Fund
available for other purposes.
Effective Date
The bill takes effect upon signature of the Governor, or upon becoming law without his signature.
State Appropriations
For FY 2021-22, the bill requires a General Fund appropriation of $1,772,961 to the Department of
Revenue, and 22.2 FTE. Of this amount, $152,899 is reappropriated to the Department of Personnel
and Administration.
Departmental Difference
DOR estimates the bill requires General Fund expenditures of $12,020,748, and 143.9 FTE in
FY 2022-23 and $525,509, and 7.7 FTE in FY 2023-24 on the assumption that a total of 205,420 business
and 1,027,100 individual tax returns will be amended and filed with DOR as a result of this bill. This
fiscal note uses different assumptions and estimates that a total of 41,500 business returns and 161,850
individual returns will be amended and filed with DOR as a result of this bill. The number of amended
returns is expected to be lower than the estimate presented by DOR due to the relatively small number
of individuals who would directly benefit from amending their returns, and the additional
inconvenience to file amended returns. As such, the workload impact and associated expenditures in
this fiscal note are significantly lower than the estimate provided by DOR.
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February 17, 2022 SB 22-124
State and Local Government Contacts
Information Technology Law
Personnel Revenue
The revenue and expenditure impacts in this fiscal note represent changes from current law under the bill for each
fiscal year. For additional information about fiscal notes, please visit: leg.colorado.gov/fiscalnotes.