A contentious tax reform package making its way through Colorado's legislature has sparked intense discussion among the state’s business community. Democratic Representatives Yara Zokaie and Lorena Garcia are leading House Bill 1296, which would eliminate approximately $250 million in tax incentives for sectors such as software, insurance, and oil and gas. The goal? To redirect those funds toward child care programs and low-income seniors.
Supporters argue the bill is a long-overdue reckoning with a tax code bloated by ineffective and outdated incentives. Critics, on the other hand, call it a destabilizing move that threatens investment, job growth, and economic development, particularly in Colorado’s more vulnerable rural regions.
One of the most hotly contested elements of the bill is a change to a tax credit for insurance companies with offices in Colorado. Currently, insurers qualify for a premium tax reduction if 2.5% of their workforce is based in the state. HB 1296 would raise that threshold to 7%.
Lawmakers backing the bill say the incentive hasn’t delivered as promised. A state audit revealed that many insurers who claimed the credit in recent years simultaneously reduced their in-state workforce.
“We should not be rewarding companies for offshoring jobs,” Zokaie said during committee discussions. “This is about smarter spending — using tax dollars to support outcomes we actually want.”
But insurers and economic development advocates warn that the change sends a signal of uncertainty to companies considering investment in the state.
“If you keep moving the goalposts, businesses stop playing the game,” said Rep. Chris Richardson, a Republican opponent of the measure. “We’ve had zero net job growth in the last year — this won’t help.”
Enterprise zones — state-designated areas meant to attract investment to economically distressed regions — are another flashpoint. HB 1296 would place a lifetime cap on tax credits for enterprise-zone investments and exclude entire industries like oil and gas, mining, and telecommunications from eligibility.
That’s a gut punch for rural Colorado, say local leaders.
“These are the very industries still investing in communities where others won’t,” said Candace Carnahan, president of the Grand Junction Area Chamber of Commerce. “Stripping them of support could dry up capital flows into places that need it most.”
The bill’s authors counter that these credits rarely influence company location decisions in sectors like mining or oil and gas, which are more dependent on geography and infrastructure than tax savings.
Still, critics warn that removing support too aggressively — without offering viable alternatives — risks doing more harm than good.
Colorado’s tech industry is also watching the bill closely. HB 1296 proposes ending sales tax exemptions for many off-the-shelf software products, including downloadable apps and cloud-based services. Supporters argue this move aligns Colorado with other states and eliminates an outdated loophole.
However, legal experts are raising red flags. They caution that expanding the definition of taxable software might violate Colorado’s Taxpayer Bill of Rights (TABOR), which requires voter approval for new taxes.
“If this is challenged, the state could face a costly legal fight — and it’s not clear they’d win,” warned Michael Plachy, a lawyer representing the Colorado Competitive Council.
While some industries brace for the loss of tax incentives, HB 1296 would also introduce or extend other credits. The bill includes a new tax credit for low-income seniors and extends one for donors to child care centers and early education programs, signaling a broader shift in what the state considers worth incentivizing.
“This isn’t about punishing business,” Garcia said. “It’s about making sure tax dollars are creating real, measurable value for Coloradans.”
The House Finance Committee postponed a vote on HB 1296 to allow time for amendments. Lawmakers are now navigating a complex political landscape, balancing fiscal responsibility, economic competitiveness, and social equity.
In the backdrop is a national conversation about how the government should support businesses, especially small businesses that have weathered a gauntlet of recent challenges, from inflation to rising lending rates. Local tax reform feels especially urgent as many communities are still recovering from pandemic-era disruptions and reductions in federal aid.
Whether HB 1296 emerges in its current form remains to be seen. But one thing is clear: Colorado’s tax code — once riddled with quiet carve-outs and under-the-radar credits — is being dragged into the spotlight, and reimagined piece by piece.
