Federal State/Local Sales Tax itemized deduction option and Colorado Tabor Sales Tax Refund
In my Tax Year 2023 Federal return I itemized deductions and used the State/Local Sales Tax deduction option because of a couple large purchases made in 2023. In my Tax Year 2023 Colorado State return I received a $940 refund ($1600 MFJ Tabor Sales Tax Refund - $660 remaining Income Tax obligation), paid in 2024. I did not receive a 1099-G from Colorado.
There is a long standing **precedent** for treating the Colorado Tabor refunds as non-taxable. If I had used the State/Local **Income** Tax deduction option for Tax Year 2023 I would not even think about accounting for the Tabor refund in my Tax Year 2024 return. However, as I read the "Recoveries" section of Publication 525, it seems to me that I need to report/include the $1600 Sales Tax refund in my Tax Year 2024 Federal return for consideration of taxability (subject to the limits documented in Publication 525) **because** I used the Sales Tax deduction option for Tax Year 2023. Am I right about that?
