A conservative advocacy group and a state senator sued Gov. Jared Polis and the head of Colorado’s tax agency Thursday, alleging that recent legislation requiring the continued taxing of overtime pay — in the face of federal changes — violates the state constitution.
The lawsuit, filed in Denver District Court, argues that House Bill 1296 violates the state’s Taxpayer’s Bill of Rights, or TABOR, which requires voter approval before the state can levy new taxes. HB-1296, which Polis signed into law in May, requires the state to continue taxing overtime starting next year — and it was passed in anticipation of a provision in Congress’ tax bill this month that will temporarily allow workers to deduct a large portion of overtime from their federal taxes.
Colorado’s law was drafted as federal debates about cutting taxes on overtime — a campaign promise by President Donald Trump — were developing. Now lawmakers are grappling with the potential for hundreds of millions of dollars in cuts to state funding resulting from the final tax bill.
The new suit, which Democrats dismissed as a political stunt, was filed by Advance Colorado and Republican Sen. Barbara Kirkmeyer, as well as by a Fremont County commissioner, Kevin Grantham — a former Senate president — and two Coloradans who receive overtime pay.
Income declared on earners’ state tax return is typically influenced by what is on their federal tax forms. The suit alleges that restarting the overtime taxation at the state level constitutes the creation of new revenue, which would require voter approval, and it asks a judge to invalidate the law.
The state legislation didn’t necessarily create a new tax, though it changed the collection mechanism to ensure that tax on overtime was still collected regardless of federal changes. Functionally, it continues a tax on overtime income that the federal government now allows to be deducted to a significant degree — up to $12,500 annually — for the next four years.
Michael Fields, the president of Advance Colorado, accused Democratic lawmakers of trying to sidestep TABOR and voter approval.
“It’s an add-on — they’ve added it back on,” Kirkmeyer said of the bill’s Democratic supporters. “So the federal government has eliminated it, even if it’s only for a couple of years,” and the state law “added it back in, which would’ve created a new tax.”
The Democratic sponsors of HB-1296 criticized the lawsuit as political posturing. Advance Colorado, which was heavily involved in last year’s property tax policy wars, is also pursuing a ballot initiative to block state taxation of overtime and tips, which also received a new deduction from Congress.
At the same time, lawmakers also bracing for a likely special session next month to grapple with the tax bill’s steep impacts, an emergency gathering that will likely include discussions around overtime taxation.
“The complaint contains errors of both fact and law,” Sen. Mike Weissman, a Denver Democrat, said. “Advance Colorado is a political organization, and the complaint is a political document.”
Rep. Yara Zokaie, a Fort Collins Democrat, said the legislation “is not a new tax or a tax increase.” She dismissed the lawsuit as a “political stunt by far-right actors.”
The lawsuit — and the bill it seeks to invalidate — land at the intersection of TABOR and the seismic changes unfurling from Trump’s massive tax bill.
Policymakers are already wrestling with the bill’s impacts for the state: The legislation’s tax cuts are projected to cost the state’s already razor-thin budget as much as $800 million by the end of the fiscal year next June, and the suit represents a preview of the tense debates that are likely to unfold should lawmakers return to the Capitol next month to solve the shortfall.
The lawsuit alleges that continuing to tax overtime in 2026 — as required by HB-1296 — would generate $400 million to $600 million in additional revenue from taxpayers. While Fields and Kirkmeyer argue that represents money that should stay in Coloradans’ pockets, the lawsuit’s success would require lawmakers to make the same amount of cuts to state programs and services.
Shelby Wieman, a spokeswoman for Polis, declined to comment on the merits of the lawsuit.
But, she added in a statement, “one thing is for certain: the impacts of the President’s big, bad bill, which is backed by Senator Kirkmeyer, will kick people off their health care and raise costs on everyone. Just last week insurance companies announced premium increases of 28% because of non-renewal of credits in the big bad bill.”
Kirkmeyer acknowledged that the lawsuit’s success would require additional cuts. But she accused Democrats of overspending and failing to prepare during the well-moneyed days of the pandemic.
She castigated the continued tax on overtime as “shameful.”
“That’s why we have a structural deficit,” she said. “Not because of TABOR, not because of (the tax bill) and President Trump. It’s because of this continual overspending.”
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