Amendment 87 Passed: What Colorado's Graduated Income Tax Means for Business Owners, Sellers and Trusts

Colorado voters approved Amendment 87 on November 3. The Associated Press called the race on November 6, and unofficial returns show the measure passing with about 51 percent of the vote, as reported by Chalkbeat and The Denver Gazette. Voters also rejected Proposition 136, a competing measure that would have capped the rate at 4.4 percent. Amendment 87 replaces the state's flat income tax with graduated rates for tax years beginning on or after January 1, 2027. The result still has to be certified, and the Department of Revenue has not yet issued implementing guidance. That leaves business owners, people planning to sell a business, and trustees a short window to look at how the change affects them.

What changed

Colorado currently taxes income at a single 4.4 percent rate. Amendment 87 amends the provision of the Colorado Constitution that requires a single income tax rate and adds new rate schedules to the income tax statutes. The measure's text, printed in the Legislative Council's 2026 State Ballot Information Booklet (the Blue Book), sets these marginal rates:

• Up to $25,000: 3.7 percent

• $25,001 to $100,000: 4.2 percent

• $100,001 to $500,000: 4.4 percent

• $500,001 to $750,000: 7.4 percent

• $750,001 to $1,000,000: 7.9 percent

• Over $1,000,000: 8.4 percent

Each rate applies only to the portion of income that falls within that bracket. One schedule, in new C.R.S. § 39-22-104(1.8), applies to individuals, estates, and trusts. A separate schedule with the same thresholds and rates, in new C.R.S. § 39-22-301(1)(d)(I)(L), applies to C corporations. The ballot title describes the measure as a tax increase of $2.7 billion annually, and the Blue Book states that the additional revenue is exempt from the TABOR limit.

Two other details matter. First, taxable gain from the sale of a principal residence above the federal exclusion stays at 4.4 percent. Second, the Blue Book states that the new brackets are not adjusted for inflation, so over time more income will fall into the higher brackets.

Who it affects

The Blue Book estimates that taxpayers with taxable income under $500,000 will see a modest decrease, with a maximum reduction of $325. The increases fall on income above $500,000. For many business owners and families, the questions are less about an ordinary year and more about unusual ones.

Business owners whose business income is reported on their personal returns may find that a strong year moves part of their income into the 7.4 to 8.4 percent brackets. Sellers of a business face the same issue on a larger scale, because a sale often produces a single year of income far above the normal level. The 4.4 percent carve-out covers only a principal residence, not gain from selling a business. Estates and trusts are taxed on the same schedule as individuals, so trustees and personal representatives should ask how the new brackets will apply to the income of the trust or estate they manage.

How the new rates apply in a particular case will depend on the certified result and on guidance from the Department of Revenue. We will watch for that guidance.

What to consider now

• If you are negotiating the sale of a business, talk with your tax advisor about whether the timing of closing, the use of installment payments or earnouts, or the purchase price allocation changes your after-tax result under the new rates. Those choices also affect deal terms, so they should be settled before the purchase agreement is final.

• If you own a profitable closely held business, review year-end compensation and distribution decisions with your CPA while 2026 is still taxed at the flat rate.

• If you serve as a trustee or have a trust in your estate plan, ask whether the trust's distribution provisions and the trustee's discretion still fit the family's goals under the new structure.

• Do not make irreversible changes based on a headline. Wait for the certified result and the Department of Revenue's guidance before restructuring an entity or a trust.

Questions

Amendment 87 is a tax measure, but much of the planning it prompts happens in purchase agreements, operating agreements, and trust documents. If you have questions about how the change may affect a transaction or an estate plan, contact LMB Partners. We can work alongside your tax advisor on the legal side of these questions.

Sources: Colorado Legislative Council, 2026 State Ballot Information Booklet (Blue Book), Amendment 87 analysis and text; Chalkbeat, updated Nov. 6, 2026; The Denver Gazette, Nov. 6, 2026.

This post is general information, not legal or tax advice. Reading it does not create an attorney-client relationship. Election results described above are unofficial until certified.