It isn’t often that you see Republicans and Democrats at the state Capitol team up to deal with sales tax issues, but that’s the case with a new bill that seeks to simplify the process for dealing with certain municipal tax districts.
Reps. Kathleen Conti, R-Littleton, and Daniel Kagan, D-Cherry Hills, are the main sponsors of House Bill 13-1288, dubbed the “Establish Statewide Uniform Sales & Use Tax Base” bill.
HB 1288 seeks to address a common complaint among brick-and-mortar businesses in Colorado: the myriad of tax processes for dealing with home rule cities. This applies to sales and use taxes that are charged based on the location of the buyer, such as for home-delivered furniture and appliances or for large-ticket office equipment like copiers.
Colorado has 68 home rule cities, which under state law are allowed to collect their own sales and use taxes, rather than having those taxes collected by the state Department of Revenue. That means 68 different tax policies, rates and exemptions in those cities. Businesses must have a separate tax license for each home rule city in order to collect taxes payable to the home rule city. That can mean applying for dozens of tax licenses, as well as dealing with different ways in how the taxes are remitted and the auditing process.
Conti and Kagan both told The Colorado Statesman that Colorado businesses have been begging for years for a more simplified tax process in dealing with the home rule cities. “We’re really burdening businesses in a big way, and [the process] has cried out for simplification,” Kagan said this week.
Conti cited the experience of a copier business in Littleton. The owner told her that he has 40 tax licenses, and that his accountant spends 25 percent of her time just dealing with the sales tax issues pertaining to those 40 separate home rule cities.
HB 1288, if passed, begins a multi-year effort to simplify the process. Under the bill, the Department of Revenue would convene a group to develop a uniform list of what’s taxable and what isn’t. Kagan said the list would be developed in a way that would preserve the home rule cities’ jurisdiction and ability to set tax rates and preserve revenue streams. The uniform list, referred to as a tax base in HB 1288, would have to be revenue neutral for the state and the home rule cities. For example, if an item that has been previously exempted from taxes is added to the tax base, a home rule city can decide to tax it at zero percent, in order to preserve the exemption.
Both sponsors say that the bill will not change the sales and use tax rates charged by home rule cities, because that could impact tax revenues that the home rule cities rely upon to issue bonds and cover other obligations.
The second part of the process is a concurrent resolution that requires voters to allow the Department of Revenue to be the single source for remittance of sales taxes for home rule cities. If HB 1288 passes during the 2013 session, the resolution would be introduced in the 2014 session for voter approval in the November 2014 election.
One possible advantage for Colorado businesses under HB 1288 and the concurrent resolution is that they would no longer have to remit taxes separately to every home rule city, nor would they have to have a separate tax license for every home rule city. That collection would be handled by the Department of Revenue, and Conti said the department would then remit those taxes to the home rule cities within 72 hours of receipt.
Initially, businesses with more than 20 licenses would be able to obtain just one license that would apply to all the home rule cities where they provide goods and services. Eventually, that would drop down to businesses with more than 10 licenses and possibly further, Conti explained.
Conti noted HB 1288 and the concurrent resolution has drawn support from American Furniture Warehouse. In an April 9 letter to Conti, AFW President Jake Jabs called Colorado’s sales tax remittance system “among the most complicated in the United States.” Jabs said his business has to deal with more than 50 home rule cities on a monthly basis, and they must file more than 50 returns every month to pay each city individually. “This process demands a lot of time and effort, while creating stress on the business trying to comply with state sales tax rules,” Jabs wrote. It is even a greater inconvenience for small businesses. HB 1288 will simplify the remittance process and allow “businesses of any size to better manage their time,” and it will make Colorado a more business-friendly state, Jabs said.
The Colorado Retail Council also is on board with HB 1288. Chris Howes, in a March 28 email to Conti, said HB 1288 will “bring fairness to our sales tax system and create a level playing field and fair market in which our members can compete.”
To date, the Colorado Municipal League, which represents both statutory and home rule cities, is officially neutral on the bill. CML Deputy Director Kevin Bommer told The Statesman that the League is always open to conversations about the tax system and that the League is interested in amendments being proposed for HB 1288.