The median U.S. household in Colorado pays 8.66 percent of their annual income, or $6,841, on state and local taxes, according to a WalletHub study released last week. That is the seventh-lowest of any state, with a national average of 10.92 percent or $8,627.
The analysis is based on households with an annual income of $79,004, a home valued at $303,400, a car valued at $28,700, and the annual spending of a household earning the median U.S. income.
The only states with lower effective tax rates than Colorado, from first- to sixth-lowest, are Alaska, Delaware, Wyoming, Idaho, Montana and Nevada, according to the study. The tax rates range from 6.77 percent (or $5,348) in Alaska to 16.58 percent (or $13,099) in Illinois.
Source: WalletHub
Colorado's top-ten placement on the list is a major jump; last year, WalletHub reported that Colorado was the 24th most tax-burdened state. That was with a slightly lower state and local tax rate of 8.42 percent, suggesting that Colorado's taxes are increasing at a lesser rate than the rest of the country.
That could be due to Colorado's Taxpayer's Bill of Rights (TABOR), a constitutional amendment that requires voter approval for tax increases and limits annual growth of government revenues and spending. The restriction has contributed to Colorado's $1.2 billion budget shortfall, as healthcare costs climb faster than the state revenue cap can account for.
Colorado has also moved to lower various taxes in recent years. Voters approved ballot measures to reduce the state income tax in 2020 and 2022, and another one is on the way for the 2026 election. State legislators have also passed multiple rounds of property tax relief measures, including during two special sessions dedicated to the issue in 2023 and 2024.
This year, Colorado ranked fourth for the lowest real estate tax, eighteenth for sales and excise tax, and 21st for income tax. However, the state ranked fortieth for vehicle tax rates.
Overall, red states had slightly lower tax rates, the report found. States that voted for Republican Donald Trump during the 2024 presidential election ranked at 24.39 on average for lowest state and local tax rates, compared to 28.5 for states that voted for Democrat Kamala Harris.
Colorado was one of only three Democrat areas to make the top ten list for lowest tax rates, joining second-place Delaware and tenth-place Washington, D.C.
