Engage Colorado - The Tax Trajectory Colorado Is On

Newsletter — Issue 31 — Wednesday, July 22, 2026

This newsletter has been published by Engage Colorado.

The Drivers Series — Category 3 · Factor 3a

The Tax Trajectory Colorado Is On

This Engage Colorado Newsletter reflects the personal opinions of Dan Caruso, written with the support of the Caruso Ventures team. The Ensuring Colorado's Innovation Future Coalition did not review and has not endorsed this Engage Colorado Newsletter.

Colorado's 4.40% flat income tax is competitive with California, New York, and Illinois today. It is not competitive with Texas, Florida, Tennessee, or Arizona. That puts Colorado in the middle of the pack.

But the question founders and fund managers are actually asking is not “What is Colorado's tax rate today?” It is “What will Colorado's tax rate be in ten years, twenty years, thirty years?”

And on that question, the answer they are reaching is not one Colorado should be comfortable with.

We are moving into Category 3, The Cost of Doing Business, from The Honest Assessment. This issue covers 3a: Tax Burden. Follow-up issues will cover 3b: Cost of Living, Housing, and Operating Expenses; and 3c: The Forward Spending Trajectory.

As with the broader Innovation Vision and The Honest Assessment, I led the preparation of this section, and it reflects only my views.

A reminder before you dive in: we cannot address what we have not diagnosed. That is why this series exists. And as I said in “Take a Deep Breath, Colorado,” please don't beat up the messenger.

Factor 3a

What Tax Burden Actually Means

Category 3a of The Honest Assessment is tax burden: the combined income tax, corporate tax, sales tax, property tax, and unemployment insurance tax that a state imposes on residents and businesses.

But the important insight is that founders, fund managers, and executives do not price residency and location decisions on today's rate. They price on where the rate is going.

That is why 3a evaluates two questions, not one:

A state whose current rate is moderate but whose trajectory is upward gets discounted relative to a state whose current rate is higher but whose trajectory is stable or downward.

The Scoring

Factor 3a · scores are out of 5  ·  current → trajectory

Colorado's flat 4.40% income tax on both individual and corporate income puts Colorado in the middle of the pack. It is better than California (13.3% top rate), New York (10.9% top rate), or New Jersey (10.75%). It is not competitive with Texas (no state income tax), Florida (no state income tax, constitutional prohibition), Tennessee (no wage income tax), Arizona (flat 2.5%), or North Carolina (4.25% on a glide path to 2.5%).

But Colorado's trajectory score is 1.5, identical to the Departure Geographies' 1.5. On where taxes are heading, Colorado is already in Departure territory.

Why Colorado's Tax Trajectory Is Bad

Three specific dynamics account for Colorado's 1.5 trajectory score:

1. Ballot initiatives to replace the flat tax with graduated rates. Citizen-led initiatives to end Colorado's flat 4.40% income tax and replace it with graduated brackets (higher rates on higher incomes) are on track for the November 2026 ballot. Founders and fund managers read these as a clear signal: if passed, Colorado's tax environment becomes explicitly progressive, in the California/New York direction.

2. Sustained efforts to weaken TABOR. Colorado's Taxpayer's Bill of Rights has been one of the most business-attractive structural features of the state's tax code: it caps state spending growth and requires voter approval for tax increases. Founders and executives evaluating Colorado view TABOR as a durable business-friendliness signal. Ongoing efforts to weaken TABOR's voter-approval requirements, through reinterpretation, exemptions, and legal challenges, signal to founders that this structural constraint is not durable.

3. New payroll levies stacking up. The 0.88% payroll premium already imposed by the FAMLI Act (paid family leave) is now being followed by proposals for additional payroll-based programs. Each new payroll levy erodes Colorado's take-home compensation advantage.

The combined signal is unmistakable: Colorado's tax environment today is moderate, but the direction of travel is toward the Departure cluster.

What This Means for Colorado on Tax Burden

Founders and executives making 10-, 20-, and 30-year residency and location decisions do not price Colorado on today's 4.40% rate. They price Colorado on the probability-weighted future rate, factoring in the ballot initiatives, the TABOR erosion, and the payroll-levy proposals.

A state whose current rate is moderate but whose trajectory is decidedly upward is a state that loses the compounding relocation decisions. It does not lose them immediately, or in a way that shows up in this quarter's numbers, but cumulatively over the decade, in exactly the way Colorado has been losing companies since 2019.

Reversing the 1.5 trajectory score requires Colorado's governor, legislative leadership, and business community to actively defend TABOR, reject the graduated-tax ballot initiatives, and hold the line on new payroll levies. It also requires elected officials to publicly and consistently signal that Colorado will remain a moderate-tax state with structurally constrained spending, not a state on a glide path toward California-style taxation.

Colorado political leaders are doing the opposite of this today. But if they want Colorado to once again be a mecca for tech and innovation, they will need to evolve their mindsets. And if they do, every Coloradan will benefit.

What Comes Next

The next issue in this series covers 3b:

If We Work Together, We Can Reverse This Trend

But first, we have to diagnose the source of the problem, which is why this information is being shared.

If Colorado takes the appropriate steps, Colorado can be the most attractive innovation ecosystem in the world, and every Coloradan will share in the economic and cultural prosperity that leadership creates. This is the Innovation Vision for Colorado.

Go Deeper

— Dan Caruso, Engage Colorado

Managing Director of Caruso Ventures, Host of The Bear Roars Podcast, and Board Chair of Boulder Roots Music Fest