Last Updated: April 2026
Colorado's tax environment stands out for its combination of a genuinely low flat income tax rate and a constitutional mechanism — the Taxpayer's Bill of Rights (TABOR) — that automatically returns excess tax revenue to citizens. Colorado's flat 4.4% income tax rate is one of the lowest flat rates among states that levy income tax, placing Colorado firmly in the 'tax-competitive' category alongside states like Arizona (2.5%) and North Carolina (4.5%).
Denver, as Colorado's capital and largest city, levies a nominal Occupational Privilege Tax (OPT) of $5.75 per month on employees — just $69 per year — rather than a full city income tax. This is negligible compared to NYC's 3.876% city income tax or Philadelphia's 3.75% Wage Tax. Denver's overall tax burden, combining the state flat tax, the OPT, sales taxes, and property taxes, makes it one of the more affordable major US cities from a pure tax perspective, while still offering the amenities and economic opportunities of a major metro.
Colorado's state income tax is a flat 4.4% applied to Colorado taxable income, which generally follows federal adjusted gross income with Colorado-specific modifications. The rate was reduced from 4.55% in 2022 (effective for tax year 2022) under House Bill 22-1406, and the reduction was made permanent. The 4.4% rate applies to all Colorado taxpayers regardless of income level — there are no brackets.
Colorado's TABOR amendment (Article X, Section 20 of the Colorado Constitution) adds an unusual feature: when Colorado's state revenue exceeds a cap based on population growth plus inflation, the surplus must be refunded to taxpayers. In practice, TABOR refunds have been common in recent years during strong economic growth, effectively reducing the net income tax rate below 4.4%. For tax year 2023, for example, Colorado issued TABOR refunds of approximately $800 per taxpayer. These refunds are not guaranteed annually — they depend on revenue exceeding the cap — but they have occurred frequently enough to be a real benefit to Colorado taxpayers.
Denver's Occupational Privilege Tax is among the most modest local income-related taxes in any major US city. Workers employed in Denver who earn at least $500 in a calendar month pay $5.75 per month ($69 per year) as an employee OPT. Employers also pay $4 per month per Denver employee (the employer OPT). Both the employee and employer portions are flat amounts — they do not increase with income. A software engineer earning $200,000 in Denver pays the exact same $69/year OPT as a restaurant worker earning $25,000.
Denver is not unique in having an OPT — Aurora, Glendale, Greenwood Village, Sheridan, and other Colorado municipalities also levy OPT-type taxes, typically ranging from $2 to $10 per month. For comparison, New York City workers at $100,000 pay approximately $3,794 per year in city income tax. Denver's $69/year OPT is barely 2% of that amount. The OPT's primary purpose is administrative — creating a low-friction local revenue mechanism — rather than a major revenue source.
Denver's combined sales tax rate of approximately 8.81% is assembled from multiple overlapping jurisdictions:
| Component | Rate |
|---|---|
| Colorado state | 2.9% |
| City and County of Denver | 4.31% |
| RTD (Regional Transportation District) | 1.0% |
| Cultural Facilities District | 0.1% |
| Scientific and Cultural Facilities District | 0.1% |
| Football stadium district (if applicable) | 0.1% |
| Approximate Total | ~8.81% |
Colorado's 2.9% state sales tax rate is one of the lowest state base rates in the country — notably lower than California (7.25%), Illinois (6.25%), or Washington (6.5%). Denver's local additions bring the combined rate to 8.81%, which is moderate by major city standards. Groceries are subject to Denver's city sales tax but exempt from the Colorado state portion — a partial mitigation for food purchases.
Colorado's residential property tax system was shaped for decades by the Gallagher Amendment (1982-2020), which required residential property to generate a fixed share of statewide property tax revenue. As home values rose faster than commercial values, the residential assessment rate was repeatedly adjusted downward — falling from 21% of actual value to just 7.2% by 2020. Colorado voters repealed the Gallagher Amendment in 2020 (Proposition 116), freezing the assessment rate at the Gallagher-reduced level of approximately 7.15% of actual value for residential property.
The property tax calculation in Colorado: assessed value = actual (market) value × 7.15% assessment rate. The mill levy (set by each taxing entity) is then applied to the assessed value. For a $600,000 Denver home, assessed value is $42,900. At a typical Denver combined mill levy of approximately 80 mills ($80 per $1,000 assessed), annual property tax is approximately $3,432. This is notably lower than comparable Texas or Illinois property tax bills, reflecting Colorado's low assessment ratio even after Gallagher's repeal.
For a single professional earning $100,000 and renting in Denver:
| Tax Type | Denver, CO | Seattle, WA | Chicago, IL | Austin, TX |
|---|---|---|---|---|
| State income tax | $4,400 | $0 | $4,950 | $0 |
| City income/OPT | $69 | $0 | $0 | $0 |
| Federal income tax | ~$17,400 | ~$17,400 | ~$17,400 | ~$17,400 |
| Sales tax (on $30K spend) | ~$2,643 | ~$3,030 | ~$3,075 | ~$2,475 |
| Total (approx) | ~$24,512 | ~$20,430 | ~$25,425 | ~$19,875 |
Denver's total burden is competitive with other major western cities. It is higher than no-income-tax destinations (Seattle, Austin) but lower than Chicago and significantly lower than NYC or San Francisco. Denver's combination of low flat tax rate, nominal OPT, moderate sales tax, and low property assessment ratio makes it one of the more favorable major US metros for income-earners seeking a balance of tax efficiency and quality of life.
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Get Matched with a Local CPA →TABOR (Taxpayer's Bill of Rights) refunds occur when Colorado's state revenues exceed the TABOR cap for a given year. When that happens, the Colorado legislature is constitutionally required to return the excess to taxpayers. In recent years (2021-2023), Colorado issued TABOR refunds ranging from approximately $400 to $800+ per taxpayer. The refund is distributed via a flat-rate check to eligible filers or a reduction in taxes owed. Whether you receive a refund in a given year depends on whether state revenues exceeded the cap — it is not guaranteed but has been common during strong economic periods.
Denver's Occupational Privilege Tax applies to employees who work in Denver — physically perform work within Denver city limits. Remote workers working from home outside Denver generally do not owe the Denver OPT even if their employer is located in Denver. If you live in Denver and work from home in Denver, you would owe the OPT as you are working in Denver. The amount is so small ($5.75/month) that it rarely drives significant planning decisions, but the technical residence vs. workplace rules mirror those of other Denver-specific taxes.
Colorado's income tax has been progressively reduced over time. The rate was 5% for many years before being reduced to 4.63%, then 4.55%, and most recently to 4.4% effective for 2022. Colorado's flat-tax structure means any future rate reduction applies uniformly across all taxpayers. There is political support in Colorado for further reductions, and TABOR-related ballot measures periodically propose lower rates. However, budget pressures — including school funding, transportation infrastructure, and healthcare — constrain how quickly the rate can be reduced further. Rates are subject to change; verify the current rate for your filing year.
Colorado's residential property tax burden (after the 7.15% assessment ratio is applied) results in effective property tax rates well below those of Texas, Illinois, or New Jersey. Denver homeowners typically pay effective rates of 0.5-0.7% of market value — much lower than the 1.8-2.2% effective rates in Chicago or the 1.6-2.5% rates in Texas cities. Neighboring Wyoming, with no state income tax and very low property taxes, is an outlier. Utah and Idaho have similarly moderate property taxes. Colorado's combination of moderate income tax and low effective property tax creates a favorable environment for homeowners compared to most other major metro areas.
Denver's combined ~8.81% rate is among the higher rates within Colorado due to the city's higher local component. Colorado's state base rate of 2.9% is one of the lowest in the US, but city and special district additions vary considerably. Colorado Springs has a combined rate of approximately 8.2%. Fort Collins is approximately 7.55%. Boulder is approximately 9.045%. Summit County ski towns (Breckenridge, Vail) can reach 9-10%. Denver is in the middle to upper range for Colorado cities but is not the highest. Colorado's low state base means even cities with high local additions rarely reach the 10%+ rates seen in Chicago, Seattle, or New York.
Colorado partially exempts retirement income from state income tax. Social Security income is fully exempt from Colorado state income tax regardless of age or income level — a significant benefit for retirees. Other retirement income (pensions, 401(k) distributions, IRA withdrawals) is partially exempt: Colorado allows a retirement income deduction of up to $24,000 per year for qualifying seniors over 65, and lower amounts for younger retirees. This makes Colorado moderately tax-friendly for retirees, though not as favorable as zero-income-tax states like Florida or Texas.
There are no current legislative or ballot proposals to replace Denver's minimal OPT with a full city income tax comparable to New York City or Philadelphia. Colorado's political culture generally favors low taxes and TABOR-style taxpayer protections, making a significant new tax unlikely without major voter approval. Denver has focused its local revenue needs on sales tax increases (approved by voters) and the existing business taxes rather than personal income taxes. The OPT is viewed as a minimal administrative fee rather than a meaningful revenue generator.