The non-partisan Tax Foundation just published its 2026 edition of the State Tax Competitiveness Index.
Colorado — already in the bottom half of states for tax competitiveness — continues to slide in the rankings, and the current political trajectory will only exacerbate the situation.
Colorado losing its edge
In last year’s index, Colorado placed 32nd in overall tax competitiveness, worse than all of the state’s immediate neighbors.
According to its subcategories, Colorado ranked 10th in corporate taxes, 18th in individual income taxes, 37th in sales taxes, 36th in property taxes, and 39th in unemployment insurance taxes.
This year, Colorado’s rank dropped to 33rd overall in tax competitiveness, again placing worse than neighboring states.
In terms of subcategories, Colorado ranked 20th in corporate taxes, 21st in individual income taxes, 39th in sales taxes, 34th in property taxes, and 40th in unemployment insurance taxes.
According to the Tax Foundation’s Colorado-specific analysis, the state’s corporate tax has considerable inefficiencies, the state and local sales tax administration lacks uniformity, and despite low effective property tax rates, per capita property tax collections remain high.
While the individual income tax ranking remains in the top half, Colorado is starting to lag as other states continue to move forward with tax reform.
Regardless, the downward slide is undeniable, as Colorado moved from 22nd in 2020 to 33rd in 2026.
Giving up ground
What Colorado chooses to do (or not do) in terms of tax policy doesn’t happen in a vacuum.
In other words, Colorado did not necessarily implement bad tax policy this year, but it also did not implement good tax policy either. Meanwhile, other states are actively pursuing tax reform, which is making them more competitive relative to Colorado.
For example, other states continue to carry the torch for the flat income tax revolution that, ironically enough, Colorado started in 1987.
Even states that still have graduated income taxes continue to phase in lower top brackets, like Nebraska, whose top marginal rate will be lower than Colorado’s flat rate by 2027.
Increasingly, states are opting to forgo income tax altogether. Regional neighbors like Wyoming, Nevada, South Dakota, and Texas all have zero state income tax.
Falling further behind
Colorado is at risk of falling further behind. At a time when the legislature should be pivoting to a more competitive tax structure, more fiscal responsibility, and more economic freedom, the state’s dominant progressives are instead doubling down on damaging tax policy, pushing for a graduated income tax to be placed on the ballot for voters next year, which if passed would decimate Colorado’s tax competitiveness.
Along with anti-competitive tax policy comes slower growth, higher prices, and economic suffocation. As proof of this, Colorado’s net migration has slowed by over 50% in the last decade, household savings remain below historic averages, construction is lagging, and consumer spending is falling behind the rest of the country.
It will be challenging to reinvigorate the state’s reputation so long as the Democrat majority refuses to bolster the state’s competitiveness.
If they change their mind, they can start with better tax policy.
