The Fight Over State AI Laws
For the better part of a year, the federal government has tried several different routes to stop states from writing their own AI rules: twice through Congress, once through executive order, and now through direct litigation. Founders watching from the sidelines could be forgiven for assuming this fight will eventually clear the field and leave one simple federal standard. Colorado’s AI law saga, still playing out as of this month, is the best real-world test of that assumption so far, and the results are more complicated than a clean federal win.
Colorado passed a broad AI Act in 2024 requiring companies that build or deploy automated decision-making tools to assess and disclose the risk of algorithmic discrimination in areas like lending, hiring, and admissions. In April 2026, xAI sued to block it, and on April 24 the Department of Justice took the unusual step of intervening directly in that private lawsuit, arguing the law’s carveout for algorithms designed to advance diversity or address historic discrimination violated the Equal Protection Clause. That intervention came out of a Justice Department AI Litigation Task Force created under an executive order signed in December 2025, after two separate attempts to attach a nationwide moratorium on state AI laws to must-pass federal legislation both failed in Congress. A federal magistrate judge in Colorado paused enforcement of the law within days. Rather than defend the original statute, the Colorado legislature scrapped it and passed a narrower replacement, the Automated Decision-Making Technology Act, signed in May 2026. The new law drops the discrimination-assessment framework entirely in favor of consumer notice and a right to human review, and it is set to take effect January 1, 2027, contingent on the Attorney General finishing rulemaking that is still open for public comment through late October.
The lesson for a growth stage or founder led company is not that state AI regulation is on its way out. It is that federal pressure can force a law to be rewritten without making the underlying compliance question go away. Colorado’s obligations got narrower and more disclosure-focused, but companies serving Colorado consumers with automated decision tools still have a compliance deadline to plan around, just a different one than they thought a year ago. The AI compliance landscape is rapidly changing, and companies need to remain vigilant in monitoring their compliance obligations from state to state. As another example, Georgia passed a comprehensive law in 2026 regarding new requirements for conversational AI companion chatbots with a July 2027 effective date. If your company uses AI in hiring, lending, customer service chatbots, or any other consumer-facing or employment decision, the practical move is to inventory those uses now, keep an eye on the rulemaking dockets rather than just the statute text, and revisit your compliance plan whenever a law you were tracking gets challenged, paused, or replaced rather than assuming a legal challenge is the end of the story.
If you are trying to figure out where your company’s AI tools create compliance exposure across the states you actually do business in, we are glad to walk through it with you.
Helpful Resources:
Georgia General Assembly website of AI companion chatbot legislation (SB 540): https://www.legis.ga.gov/legislation/73452
DOJ Press Release on Intervention in xAI lawsuit regarding Colorado AI Algorithmic Discrimination Law: https://www.justice.gov/opa/pr/justice-department-intervenes-xai-lawsuit-challenging-colorados-algorithmic-discrimination
Original 2024 Colorado AI Law: https://leg.colorado.gov/bill_files/47770/download
Subsequent AI Law in Colorado: https://leg.colorado.gov/bill_files/116489/download
Executive Order directing the DOJ to challenge state AI laws:
Federal Register (the authoritative published version): federalregister.gov/documents/2025/12/16/2025-23092/ensuring-a-national-policy-framework-for-artificial-intelligence
White House (original posting): whitehouse.gov/presidential-actions/2025/12/eliminating-state-law-obstruction-of-national-artificial-intelligence-policy
GovInfo (government archive copy): govinfo.gov/app/details/DCPD-202501186