Colorado Taxes vs. Florida: Key Differences in Tax Burdens

Taxes influence both the cost of living and business operations. Colorado and Florida have distinct tax systems that shape financial decisions for residents and businesses alike. Comparing key aspects like income, sales, property, and corporate taxes clarifies which state may be more financially favorable depending on personal or business circumstances.

Income Tax Differences

Colorado imposes a flat income tax rate of 4.40% as of 2024, applying the same percentage to all residents regardless of earnings. The rate was reduced from 4.55% following the passage of Proposition 121 in 2022. The state offers deductions and credits, including a standard deduction, child tax credit, and earned income tax credit, which can lower tax burdens for qualifying individuals.

Florida does not levy a state income tax, making it attractive to retirees and high-income earners looking to minimize tax liabilities. Without an income tax, Florida relies more on sales and property taxes.

For self-employed individuals and business owners, Colorado taxes earnings from sole proprietorships, partnerships, and S corporations, as these entities pass income through to their owners. In Florida, these individuals only need to consider federal tax obligations, simplifying financial planning.

Sales Tax Structures

Colorado has a statewide base sales tax of 2.9%, one of the lowest in the country, but local governments can impose additional sales taxes. In cities like Denver, the combined rate reaches 8.81%. This decentralized system requires businesses to track varying tax rates across jurisdictions, making compliance more complex.

Florida’s statewide sales tax is 6%, with local governments adding surtaxes ranging from 0.5% to 2.5%. In Miami-Dade County, the total rate is 7%. Unlike Colorado, Florida administers its sales tax centrally, simplifying collection and reporting for businesses operating in multiple locations.

Both states exempt groceries and prescription drugs, but Florida extends exemptions to certain clothing and school supplies during tax holidays. Florida also does not tax residential electricity, while Colorado does, adding to household expenses.

Property Tax Considerations

Colorado assesses residential properties at 6.765% of their actual value in 2024, while commercial properties are taxed at 27.9%. The Taxpayer’s Bill of Rights (TABOR) restricts revenue growth, requiring voter approval for increases, which has kept property tax burdens relatively low but created funding challenges for schools and local governments.

Florida does not impose a state property tax but allows counties, municipalities, and school districts to levy their own. The average effective property tax rate in Florida is 0.91%, compared to Colorado’s 0.55%, though rates vary by location. Florida’s Homestead Exemption reduces the taxable value of a primary residence by up to $50,000, and the Save Our Homes (SOH) cap limits annual assessment increases to 3% or the change in the Consumer Price Index (CPI), whichever is lower.

Real estate investors face different tax implications in each state. Colorado taxes non-residential properties at a higher rate, increasing costs for investment properties. Florida does not extend the Homestead Exemption or SOH cap to second homes or rental properties, meaning these properties are taxed at full market value with no protection against rapid assessment increases.

Corporate Tax Requirements

Colorado imposes a flat corporate income tax of 4.40% on C corporations, applying to net income derived from Colorado sources. The state uses a single-sales factor apportionment formula, meaning tax liability is based solely on in-state sales, benefiting companies with significant payroll and property outside Colorado.

Florida levies a corporate income tax of 5.5% on C corporations, though deductions and credits can reduce the effective rate. Unlike Colorado, Florida uses a three-factor apportionment formula, considering sales, payroll, and property. Additionally, Florida requires many businesses to pay a $150 annual franchise tax if structured as a corporation or LLC, a cost that does not exist in Colorado.

Estate and Inheritance Tax Laws

Neither Colorado nor Florida imposes an inheritance tax, meaning heirs do not owe state-level taxes on assets they receive.

Colorado does not have a state-level estate tax. The state previously had a “pick-up tax” tied to the federal estate tax credit, but this was eliminated after federal law changes in 2005. Estates in Colorado are only subject to federal estate tax if they exceed the federal exemption threshold of $13.61 million per individual in 2024.

Florida also does not levy an estate tax. Like Colorado, it previously had a pick-up tax, but it was phased out due to federal tax law changes. Because Florida does not impose an income tax, estates with significant investment income or capital gains may benefit from lower overall tax exposure compared to states with both estate and income taxes. This tax-friendly environment has contributed to Florida’s popularity among retirees and high-net-worth individuals seeking to minimize tax burdens on their estates.