Colorado voters will decide two competing tax measures this November, and the outcome could reshape how business owners in Denver plan for years to come. Initiative 195 would scrap the state’s flat income tax rate in favor of a six-tier graduated system, while a competing measure, Initiative 232, would lock the current rate in place instead. For pass-through business owners — S corporations, partnerships, and sole proprietors who report business income on their personal returns — this is not an abstract policy debate. It is a live question about what your top marginal rate could look like starting with the 2027 tax year, and it is worth planning around now rather than after the votes are counted.
What Initiative 195 and Initiative 232 Would Actually Do
Initiative 195, also called the Income Tax Fairness Act, qualified for the November ballot on September 1, 2026. It would replace Colorado’s current flat 4.4% income tax rate with a six-tier graduated structure ranging from 3.7% to 8.4%, and the constitutional amendment would also remove Colorado’s long-standing requirement that state income tax rates be uniform for every taxpayer. Passing a constitutional amendment in Colorado requires a 55% supermajority.
Initiative 232 moves in the opposite direction. It would cap both individual and corporate income tax rates at the current 4.4%, preventing any future increase without another statewide vote. Because it is a statutory measure rather than a constitutional one, the state legislature could still amend it later by a simple majority.
If both measures pass, Colorado’s conflict-resolution rule applies: whichever measure receives more total votes prevails wherever the two conflict. Initiative 195’s removal of the uniform-rate requirement is a separate provision from its rate schedule, and some tax attorneys have flagged that this piece could survive even if Initiative 232’s rate cap wins on the headline number.
Why This Matters More If You Run a Pass-Through Business
Most small and mid-sized businesses in Colorado are not C corporations. They are S corporations, partnerships, and LLCs taxed as pass-throughs, which means business profit flows onto the owner’s individual Colorado return and is taxed at the individual rate — currently a flat 4.4% regardless of income level. Under Initiative 195’s proposed six-tier structure, an owner whose business income pushes their taxable income into the top bracket could see a materially higher marginal rate than today, layered on top of federal tax.
This is also where Colorado’s SALT Parity Act — the state’s pass-through entity tax (PTET) election — becomes more relevant, not less. The PTET election already lets many pass-through owners shift the state tax burden to the entity level and avoid the federal SALT cap on that portion of income. If Colorado moves to a graduated schedule, the PTET calculation and year-end estimated payments will need to account for which bracket the business’s income actually lands in, rather than a single flat rate.
Houston and The Woodlands: A Fixed Point of Comparison
None of this is on the table in Texas, and that gap is worth putting in writing for clients who operate in both states. Texas has no state individual income tax, and voters cemented that protection into the state constitution in 2019. Whatever happens on November 3, a Houston or Woodlands business owner’s state income tax rate on business profit will still be zero. That stability is one of the reasons multi-state businesses increasingly use a Texas entity as the anchor when structuring operations across both markets — right now, the Colorado side of the ledger is the only one actually in motion.
What to Do Before November
- If you own a Colorado pass-through entity, model your 2026 and projected 2027 state tax liability under both the current flat rate and Initiative 195’s proposed six-tier schedule, so you know your real exposure before the vote.
- Revisit your Colorado PTET election and Q4 estimated payments with an eye toward how a graduated rate could change the math if Initiative 195 passes.
- If you operate in both Houston or The Woodlands and Denver, talk with us about whether shifting more activity toward your Texas entity makes sense regardless of the outcome.
- Watch the November 3, 2026 election results directly — if both measures pass, the conflict-resolution outcome will determine which provisions actually take effect for the 2027 tax year.
Whether you are weighing this as a Denver business tax question or comparing it against how things work with a Houston tax attorney across the border, Petry Tax & Advisory can help you model the outcomes before your Q4 estimates are due — contact us for a consultation.
This post is for general informational purposes only and does not constitute legal or tax advice. Consult with a qualified professional about your specific situation.
Source: Colorado Secretary of State — News Release: Proposed Initiative #195
lucy.petry@petrylawfirm.com
