Legislators haggle over tax exemptions

Package of bills labeled 'Dirty Dozen'

By Marianne Goodland
THE COLORADO STATESMAN

This week, the House began to take up a package of 12 bills that would end tax exemptions or change income tax law and help the state cover about $140.7 million in its $1 billion shortfall for 2010-11. But the hearings on Wednesday and competing rallies on Thursday highlighted the friction between Democrats and Republicans at the capitol and between the business community and public employees, such as K-12 teachers.

Jim Noon, of Centennial Container, and Tony Gagliardi, NFIB/Colorado director, at a pro-business rally Thursday.
Photo by Brad Jones/The Colorado Statesman

Gov. Bill Ritter proposed the tax package in December as part of an effort to help balance the 2009-10 budget, which needed a combination of $2 billion in cuts or revenue, and the 2010-11 budget, which shows a $1 billion shortfall. Taxes from seven of the 12 bills could bring in an estimated $20.4 million for the 2009-10 budget. Taxes from the entire package could bring in $140.7 million for 2010-11, according to Legislative Council estimates.

The battles began Wednesday morning when the House Appropriations Committee heard 11 of the 12 tax bills, a session that was supposed to go 30 minutes and instead, because of delaying tactics by Republicans, went more than two-and-a-half hours. It continued the rest of the day, when the House Finance Committee worked on the bills late into the night and into the wee hours of Thursday morning.

More than 100 witnesses signed up to testify on the bills, most against them.

Speaking in favor of the entire package, Bruce Caughey of the Colorado Association of School Executives said that K-12 faces 5,000 teacher layoffs in the coming year. Some of these tax exemptions have time limits, he said. “Cuts to higher education and K-12 don’t.” Carol Hedges of the Colorado Fiscal Policy Institute said the state “cannot cut our way to prosperity.” Hedges said Colorado has the fourth lowest business tax burden in the country, according to the Metro Denver Chamber of Commerce; and CNBC ranks the state as the third best place in the country to do business. However, she said the state ranks nearly dead last in spending for K-12, higher education and Medicaid and in the bottom ten for providing food stamps and other human services.

Craig Meis of Olssen Associates in Grand Junction says Mesa County is an example of good business, and wants lawmakers to come see how it’s done on “the good side of the mountain.”
Photo by Brad Jones/The Colorado Statesman

“Is that balance?” she asked. And by cutting funding to the public sector the state will be cutting hundreds of good jobs, she said. “Our air still needs to be monitored and our roads still need to be plowed.”

Republican Senate candidate Cleve Tidwell asked the committee to withdraw all the bills under consideration. “Small business owners are scared of their government,” he said, asking if committee members had ever run their own businesses or taken a product to market. “If not, get out of the way of small business!”

After nine hours of testimony, the committee had finished only four of the 11 bills on the calendar, and they finally quit after 13 hours and six bills. Votes on the bills were along party lines, passing with the committee’s six Democrats voting in favor and the five Republicans voting against. At times the hearing broke down into heated remarks. Betty Jean Beall, of Adams County, accused lawmakers of stealing money from her grandchildren, saying because they had canceled the senior tax exemption she could no longer afford to give them birthday presents. “You’ve taken enough of my blood and my money,” she said angrily. “You will stop these increased taxes!... You’re trying to go around TABOR and you’d better not!”

There were also heated exchanges between legislators. Rep. Jack Pommer, D-Boulder, sponsor of five of the 11 bills, accused Republicans of asking him to cut everywhere else but in their districts. When Rep. Cheri Gerou, R-Evergreen, asked him to withdraw the package so other ideas could be worked on, Pommer refused, saying the Joint Budget Committee had been working on solutions for two years, and that Republicans had been there the whole time and could have given them ideas.

Bob Boswell, owner of a Western Sizzlin’ restaurant in Greeley, is running for House District 50.
Photo by Brad Jones/The Colorado Statesman

The bill that got the most witnesses was House Bill 1193, which would ask online retailers to collect sales tax on purchases made by Colorado residents. Pommer explained that all purchases are required to be taxed, whether a purchase made from a bookstore down the street or an Internet retailer. The misconception is that Internet sales are not taxed, Pommer said; it’s just that Colorado had not been able to collect the 2.9 percent state sales tax. Under HB 1193, Internet retailers who have a “presence” in Colorado would be required to collect sales tax on purchases made by Colorado residents. Those who did not collect sales tax would be required to send the state a list of people who make purchases above a certain amount and the state could then send those people sales tax bills.

Pommer explained that under HB 1193, an Internet retailer establishes presence when a Colorado Web site links to an Internet retailer, which is known as an affiliate relationship. He said similar legislation has been passed in three other states. In North Carolina and Rhode Island, Amazon.com ended its affiliate relationships as a result of the law’s passage; in New York, the law is being challenged in court but Amazon is collecting the tax. Not all online retailers avoid collecting sales tax, Pommer explained; most online retailers that do collect sales taxes base it on the billing address of the credit card. But by not collecting the sales tax, “we lose the tax, the jobs and the contributions to our local infrastructure,” Pommer said.

Bill Downing, of EIS Solutions, speaks on behalf of the Greeley Chamber of Commerce.
Photo by Brad Jones/The Colorado Statesman

Seventy witnesses signed up to testify against the bill and a handful were in favor of it.

ShopAtHome.com is the nation’s largest site for coupons and cash-back offers, according to owner Marc Braunstein. The company employs 50 people in Colorado, he told the committee. HB 1193 will not work, Braunstein said, because large online retailers will cancel their affiliate relationships and the state will not collect the revenue estimated in the fiscal note, about $900,000 in 2009-10 and $20.4 million in 2010-11. It would cost his company 20 to 40 percent of its revenues, and jobs will be lost.

Jeannine Crooks and her husband own several Web sites that have affiliate relationships with retailers like Overstock.com, which also does not collect state sales taxes. She said she started the Web sites after her 401(k) tanked, and that she recently got a letter from Overstock saying the company would stop working with her if the bill passed. “This bill would wipe me out overnight,” she said.

Chris Howes, representing the Colorado Retail Council, which has 2,000 retail members with more than 100,000 employees, said his group supports HB 1193. “We are playing by the tax rules,” he said. “This is not a new tax on customers or companies… This is about equity and promoting fair competition.” He said his members operate at a 7 percent or 8 percent disadvantage in the marketplace and it gets worse every year, as online retailers get more of the market and don’t have to collect sales tax from the customer. As to jobs lost, Howes, said, “Does anyone remember Circuit City?” He blamed the collapse of the electronic chain in part on Internet competition.

Three people representing Colorado independent bookstores also spoke in favor of HB 1193. Lisa Knudsen, representing the Mountains and Plains Independent Booksellers Association, said brick-and-mortar bookstores have obeyed the law and contributed their fair share to the tax base that pays for police, fire departments and roads, “while Internet businesses and their affiliates have gotten a free ride.” By refusing to obey the law online retailers have “siphoned off critical revenue for essential services.” Neil Strandberg of the Tattered Cover said his bookstore has laid off 200 employees since the late 1990s when Amazon became a household name. People who order from Amazon and don’t pay sales tax are “getting a deal and it’s at my expense,” Strandberg said.

Enstrom says candy bill isn’t so sweet

Another bill that got a lot of attention was HB 1191, which would apply the state sales tax to candy and soda. If passed, the bill would go into effect on March 1 and would bring in $4 million in 2009-10 and $18 million in 2010-11.

Dave Csintyan, CEO of the Colorado Springs Chamber of Commerce, addresses the rally Thursday morning.
Photo by Brad Jones/The Colorado Statesman

Howes, who had testified in favor of HB 1193, testified against HB 1191 on behalf of the Colorado Beverage Association, warning that the sales tax would result in lost jobs. The most popular witness appeared to be Rick Enstrom, manager of Denver operations for Enstrom Candies, who brought the committee samples of his company’s wares. Enstrom told the committee that the problem is not eating candy, but poor health management. “I’m struggling to understand why it’s candy [as a target],” Enstrom said, explaining the industry in Colorado is made up of small “mom-and-pop candy shops. You’re not taking on Mars and Hershey’s,” he added. “Why candy? Things are so desperate that we’re going after kids’ candy bars? That’s desperate!” But Finance Chair Rep. Joel Judd, D-Denver replied that “we’re either going after the kid’s candy bar or after the kid’s teacher.”

Also among the bills making its way through the process Wednesday was HB 1189, which would permanently end the state sales tax exemption for cooperative direct mail advertisers. That includes companies such as Valpak, which prints and sends out coupons and other advertising from multiple advertisers. The exemption applies to purchases of printing services for the coupons. According to the fiscal note, if passed, the tax would go into effect on March 1 and would bring in an estimated $200,000 for 2009-10 and $800,000 in 2010-11.

Gary Yeats, vice president of Valassis Communications, one of the nation’s largest direct mailers, noted that the company has an Aurora facility that employs 57 people. He said cooperative mail is mail where several advertisers put their ads into a common package. It’s less expensive for advertisers, he said, and an effective way for them to reach as much as 40 percent of their customer base. A 2.9 percent state sales tax would be passed along to those advertisers. It could also result in the company looking at whether it could shift some of the work to its Salt Lake City facility, he said. But in response to a question from Pommer, Yeats said Utah also imposes a tax on this kind of direct mail. “Why would you move to Utah?” asked Pommer. “The question is, why would I stay here?” Yeats replied.

Pommer told the committee later this was a threat he has heard a lot but found it odd since Colorado has the third or fourth lowest tax burden in the country. Pommer also pointed out that Utah’s state sales tax is 4.8 percent, and for Valassis to move to Utah would increase the company’s tax burden. “We’re still preserving a very low tax structure,” Pommer said. “If we have to pull back some special interest taxes it’s reasonable.”

The rest of the package includes bills to eliminate sales and/or use tax exemptions for online software purchases, nonessential food containers and certain agricultural products such as pesticides and bull semen. The last four bills deal with income tax legislation on conservation easements, the alternative minimum tax, net operating losses and alternative fuel tax credits. The last bill of the package, HB 1200, which deals with enterprise zone investment tax credits, is awaiting action in the House Appropriations Committee.

In related news, representatives of various business groups and chambers of commerce held a press conference on the west steps of the Capitol Thursday. Don Csintyan, CEO of the Colorado Springs Chamber of Commerce, told reporters that small business is carrying a “disproportionate share” of the burden. Csintyan said, “Legislators should ask voters to share in the decisions being made,” and refer the tax package to the voters instead of dealing with it at the Capitol. When asked what ideas he or his associates would have to solve the budget crisis, Csintyan did not offer any but stated that legislators need to make sure they pay close attention to the business community and talk to their constituents. “The best ideas come from the bottom up,” he said.

Bill Downey of EIS Solutions, of Greeley, said Gov. Bill Ritter would have people believe that jobs have been lost because of the economy. “That’s an insult.” Downey said taxes taken from business take away their ability to hire. “Policies induced by this Legislature matter.”

Bill supporters quickly gathered at the Capitol two hours later to voice their support and their frustrations. “I can’t tell you how nice it is to see friendly faces,” Pommer told the group of about 75. He told the audience that he spent more than 15 hours Wednesday listening to “incessant attacks on public workers” and being told that laying off public teachers didn’t count. “We got fed up,” he added.

The audience included state workers, public school teachers, college students and seniors. Andrew Bateman, a student at Metropolitan State College of Denver, pointed out that higher education has taken hundreds of millions of dollars in budget cuts. If the tax bills do no pass, the money to cover the shortfall will have to come out of vital services like K-12 education, higher ed and public safety. Colorado’s low tax rate is “a poor tradeoff for being uneducated and unsafe,” he said. “A quality education is at least as important as low taxes… It’s time for a budget that is balanced, not just a balanced budget.”

JBC Vice-chair Sen. Moe Keller, D-Wheat Ridge, sounded a conciliatory tone and pleaded for cooperation with the business community. “I am very sorry it has come to this,” Keller said, “where we are fighting against and amongst each other rather than working cooperatively together. It is not out of line to say to business: come to the table and work with us. We’ve asked seniors to give up homestead exemptions, asked higher ed to take $250 million in cuts… we’ve asked developmentally disabled and mentally ill, state employees have been hit. It isn’t unfair to ask the business community to take a little hit, too.”

The battle is expected to continue on Friday, when the House Finance Committee takes up the next five bills in the package.

Marianne@coloradostatesman.com