Tax Foundation counts roughly 40 state tax measures; Colorado top rate would reach 8.4%

Colorado voters face Amendment 87, which would replace the state's 4.4% flat income tax with a graduated schedule. Its top initial rates are 7.4% above $500,000, 7.9% above $750,000 and 8.4% above $1 million.

The Tax Foundation's Oct. 7 episode puts the November ballot count at roughly 40 state tax measures and says the slate also covers top-earner rates, constitutional rate locks and property tax relief.

Those rates apply above each threshold, so the planning question is how much of a client's salary, business distributions, realized gains or Roth conversion income sits above each line. The figures are described as top initial rates rather than settled ones, so any projection should be run against the stated numbers with that caveat attached.

Take a hypothetical Colorado client with $1.2 million of ordinary income. If the measure passes, the $250,000 between $500,000 and $750,000 moves from 4.4% to 7.4%, a three-point difference worth $7,500; the next $250,000 moves to 7.9%, worth $8,750; and the $200,000 above $1 million moves to 8.4%, worth $8,000.

On the $700,000 of income above the $500,000 threshold, that is $24,250 more than the flat rate would produce. The arithmetic treats the new rates as marginal, applying only within each slice.

The measures are decided in November, and the reporting frames the current quarter as the final planning window before rates change. That ordering matters for a client weighing a large realized gain or a Roth conversion: the vote can be watched before income is triggered, instead of guessed at in advance.

The desk-level move is a client sort rather than a market call. Identify whose income this year is likely to run above $500,000 and flag those households for a look at the November result before any gain or conversion is triggered; clients whose income sits well below the first threshold have little riding on the outcome.

If a higher rate applies, a dollar of deduction saves more. That argues for holding a controlled deduction, a charitable gift among them, for the higher-rate year rather than front-loading it into this one.

A Roth conversion is discretionary income, and the rate is knowable before the client commits. If the measure passes, conversion dollars landing above $500,000 cost more than they would at the current 4.4% flat rate, which makes a conversion sized to stop at a threshold worth modeling against one run at today's rate. If the measure fails, the flat rate stands and the conversion math does not change.

Some of the measures in the Tax Foundation's count would write rate locks into state constitutions. Where that type of provision passes, the rate set at the time becomes the durable one and the planning horizon extends past a single tax year.

A Missouri proposal described as a fund that could replace every state tax is different in kind. No rate, base or effective date appears in that description, so there is little to put into a client projection yet; for now it reads as a conversation item rather than a modeling input.

For Colorado clients below $500,000 of income, the stated rates begin above them. The description does not give the rates that would apply underneath those thresholds, so those clients have less to recalculate, but not nothing.