Second Regular Session Sixty-seventh General Assembly STATE OF COLORADO INTRODUCED LLS NO. 10-0122.02 Ed DeCecco HOUSE BILL 10-1087 HOUSE SPONSORSHIP Swalm, Liston, Nikkel SENATE SPONSORSHIP Cadman, House Committees Senate Committees Finance Appropriations A BILL FOR AN ACT Concerning the elimination of the requirement that an employer withhold Colorado income tax. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Currently, an employer is required to deduct and withhold Colorado income tax from an employee's wages. The bill eliminates the mandatory deduction and withholding. Instead, an employer will only deduct and withhold Colorado income tax from an employee's wages if the employee and employer voluntarily agree to it. The bill also makes a conforming amendment to an income tax credit, so that the change to the withholding requirement does not affect the eligibility for the credit. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. 39-22-604, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBSECTION to read: 39-22-604. Withholding tax - tax lien - exemption from lien - legislative declaration - definitions. (19) (a) (I) The general assembly hereby finds and declares that: (A) The practice of an employer withholding Colorado income tax from a taxpayer's wages obscures taxpayers' understanding of how much they pay annually in Colorado income taxes, as well as their knowledge of the true costs of services provided by the state; (B) Individual taxpayers would have a clearer understanding of their income tax burden if they paid their taxes on a quarterly or annual basis; (C) Refunding income tax overpayments on an annual basis often leads taxpayers to think that they are receiving a reward, rather than the income that is rightfully theirs; (D) When income tax is withheld by the state, taxpayers lose the ability to potentially earn interest on that portion of their income; (E) Those persons who have little or no Colorado income tax liability would benefit greatly from keeping their entire paycheck, rather than temporarily surrendering part of it to the state; and (F) Income tax withholding imposes heavy burdens on employers, who must devote time and personnel to administering income tax withholding requirements. (II) The general assembly further finds and declares that ending the policy of mandatory Colorado income tax withholding by employers will: (A) Enhance government accountability and public knowledge of the Colorado income tax system by giving taxpayers a clearer understanding of their annual Colorado income tax burden; (B) Allow taxpayers to increase their personal wealth by collecting interest on income that is currently withheld by the state; and (C) Free employers from the burden of administering Colorado income tax withholding from their employees. (b) Notwithstanding any provision of this section to the contrary, on and after January 1, 2011, no employer shall be required to deduct and withhold any amounts of Colorado income tax from an employee's wages, unless the parties voluntarily agree to the withholding. If the parties voluntarily agree to the withholding, the employer shall be required to deduct and withhold amounts from the employee's wages as otherwise set forth in this section. (c) No employee shall be required to have an employer deduct and withhold amounts of Colorado income tax from wages pursuant to this section as a condition of employment. SECTION 2. 39-22-530 (1) (e), Colorado Revised Statutes, is amended to read: 39-22-530. Credit for employers that hire persons with developmental disabilities - definitions. (1) As used in this section, unless the context otherwise requires: (e) "Taxpayer" means an employer that deducts and withholds is eligible to deduct and withhold amounts from the wages paid to a qualified employee pursuant to section 39-22-604 (3). SECTION 3. Act subject to petition - effective date. This act shall take effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 11, 2010, if adjournment sine die is on May 12, 2010); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part shall not take effect unless approved by the people at the general election to be held in November 2010 and shall take effect on the date of the official declaration of the vote thereon by the governor.