In a bid to insulate Colorado nonprofits from federal political backlash, Gov. Jared Polis signed a bill on Monday, April 20, that preserves state-level tax benefits for charitable organizations that lose their federal status. 

Senate Bill 9 allows nonprofits to keep their state tax exemptions so long as they have a current or former letter from the Internal Revenue Service proving their 501(c)(3) status. The bill also directs the state not to assume that an organization is no longer qualified for state tax exemptions just because of a change in its federal status. 

The bill is sponsored by Sens. Marc Snyder, D-Manitou Springs, and William Lindstedt, D-Broomfield, as well as House Speaker Julie McCluskie, D-Dillon, and Rep. Rebekah Stewart, D-Lakewood.

“Think of any nonprofit in your community,” McCluskie said as SB 9 was being debated in the House last month. “This bill ensures that they will continue to qualify for sales tax and use tax exemptions.” 

Lawmakers say the measure comes in response to threats by President Donald Trump to strip nonprofits of their tax-exempt status if those organizations don’t align with his administration’s policy goals. 

The National Council of Nonprofits, in a statement, said that the Trump administration has “continued its broad attack on civil society by targeting nonprofit organizations on ideological grounds,” pointing to the president’s threat last year to strip Harvard of its tax-exempt status if it did not adhere to a list of demands. That included ending hiring and admission practices based on race and national origin, according to a letter sent to Harvard’s president by the U.S. Department of Education. 

The National Council of Nonprofits said the president does not have the authority to direct the IRS to strip a nonprofit of its 501(c)(3) status.

Jack Murphy, government affairs director for the Colorado Nonprofit Association, which represents over 1,000 nonprofits across the state, told lawmakers during a March committee hearing on the bill that the issue cuts both ways. He said ideologically-motivated threats have come from both Republican and Democratic administrations.

“While mission areas deemed ‘left-leaning’ have come under fire more recently, mission areas that are deemed ‘right-leaning’ have been targeted under previous federal administrations like the Biden and Obama administrations, and could be targeted again in the future,” Murphy said.

While SB 9 was uniformly supported by state Democrats, a handful of Republicans, mostly in the Senate, also voted to pass the measure. 

House Republicans attempted to pass amendments to the bill aimed at placing more guardrails on how and when the state reviews and determines tax exemptions for nonprofits, with some raising concerns that nonprofits that commit fraud could abuse state tax benefits. 

Democrats accepted one of the amendments brought by Republicans, which clarifies that the bill does not prevent the Department of Revenue from reviewing whether an organization qualifies as a charitable organization. McCluskie said the bill does not change the Colorado Department of Revenue’s existing ability to review and deny tax exemptions for organizations or work with the IRS to cross-check an organization’s practices.