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I_TaxEval_2019A 08/19/2019 09:31:53 AM Committee Summary

PUBLIC
STAFF SUMMARY OF MEETING
INTERIM COMMITTEE  TAX EXPENDITURE EVALUATION INTERIM STUDY COMMITTEE
Date 08/19/2019
Attendance
Bockenfeld X
Moreno X
Snyder X
Tate X
Court X
Benavidez X
X = Present, E = Excused, A = Absent, * = Present after roll call
Time 09:31:53 AM to 04:22:19 PM
Place LSB A
This Meeting was called to order by Representative Benavidez
This Report was prepared by Greg Sobetski
Hearing Items Action Taken
Call to Order and Roll Call Committee Discussion Only
Policy Considerations IV: Administration Committee Discussion Only
Questions of the Department of Revenue Committee Discussion Only
Public Comment Committee Discussion Only
Requests for Draft Legislation Committee Discussion Only

Call to Order and Roll Call - Committee Discussion Only




Policy Considerations IV: Administration - Committee Discussion Only


09:32:53 AM  

Michelle Colin, senior legislative audit manager, and Trey Standley, legislative audit manager, from the Office of the State Auditor began their presentation concerning tax expenditures for which they had identified policy considerations related to administration of the expenditure.

09:34:16 AM  
Ms. Colin addressed the committee concerning the sales and use tax exemption for sales to charitable organizations. The expenditure allows charitable organizations to make tax-free purchases of goods and services related to their charitable work. Ms. Colin explained that OSA had found that the expenditure is occasionally difficult to access, since charitable organizations must provide documentation to retailers in order to access the exemption. The committee discussed this policy consideration.
09:49:53 AM  

The committee asked whether this policy consideration might best be handled by the Sales and Use Tax Simplification Task Force. Esther van Mourik, Office of Legislative Legal Services, explained that the task force is not currently authorized to continue beyond the 2019 interim, and that the task force is discussing its own extension and policy issues similar to this one.

09:51:51 AM  

Ms. Colin addressed the committee concerning the Rural Healthcare Preceptor Credit, which is available to healthcare preceptors working in rural and frontier counties. Ms. Colin explained that OSA had identified two policy considerations: the credit being allowed to ineligible taxpayers and the statutory definition of the preceptorship duration. She explained that the second policy consideration has already been resolved under House Bill 19-1088. The committee proceeded to discuss the policy consideration regarding ineligible taxpayers.

10:02:01 AM  
Ms. Colin proceeded to discuss the tax-exempt organization insurance premium tax deduction, which allows insurers to deduct from their premium tax any premiums for policies purchased by tax-exempt organizations for their employees. She explained that OSA had found the forms used to claim the deduction to be confusing, such that they had stopped some eligible taxpayers from using the deduction. The committee proceeded to discuss the deduction.
10:07:29 AM  
Ms. Colin addressed the committee concerning the sales and use tax exemption for energy used for industrial and manufacturing purposes. The expenditure allows manufacturers and other producers of industrial goods to make tax-free purchases of electricity and other fuel sources used in the manufacturing process. She explained that OSA had found that there may not be adequate guidance concerning when and how this exemption applies. Committee discussion continued regarding the exemption, including the overall purpose and value of the exemption.



Questions of the Department of Revenue - Committee Discussion Only


10:42:27 AM  

Mr. Josh Pens and Mr. Brendon Reese from the Department of Revenue. Mr. Reese discussed how if the committee wants more data, that requires the taxpayer to provide detailed information on each expenditure. He stated that this adds some burden to taxpayers.

10:44:06 AM  

Mr. Pens discussed the crop and hail exemptions. He mentioned that some of the expenses are reported for federal taxes and that would flow to Colorado returns so that Colorado doesn't have data on the exemption. Mr. Pens said that the data was reported on the "other exemptions" line so there is not further data on the number of taxpayers or the amount or revenue and that it will be included with other agricultural deductions starting with the 2020 returns. In response to a committee question on how the state knows if the exemption is meeting its purpose if the state does not have the data., Mr. Pens responded that there is a balance between getting more detailed reporting and simplifying the return that taxpayers provide.

10:50:41 AM  

In response to a question about the interplay between the farm close-out exemption and the machinery exemption and on-road vehicles, Mr. Pens mentioned that the two exemptions may overlap, but they are largely on 2 different transactions. He stated that when the property is sold it is exempt as production equipment and then the farm-close out sale is also exempt. The sale may be exempt for more than one reason, but that a sale can only be exempted once.

10:56:50 AM  

The committee moved onto the long-term lodging exemption. DOR stated that guidance that the exemption applies to businesses was extended in 2000, likely to harmonize between natural persons and corporations and businesses. In DOR's view, there was not a tax-policy reason why there should be a distinction between the 2. They looked at some home-rule cities and they all have a similar rule.  The committee discussed the long-term lodging exemption. Mr. Pens responded that the rule would allow a corporation to rent a block of rooms and one example is airlines that rent a block of rooms for crews. He mentioned that it is a policy decision if the General Assembly thinks that is appropriate. Mr. Pens also brought up apartment complexes that rent to corporations and that they would not pay the lodging tax. Mr. Pens clarified that hotels know who is in the rooms, but that it is a step farther to provide that information to the DOR.

11:04:48 AM  

In response to a question about biogas sales tax exemption, Mr. Pens clarified that biogas produced at a landfill may qualify for the exemption, but that it depends on the equipment purchased.  DOR doe not have a list of goods exempt for the agricultural exemption. For example, DOR has a rule for breakage of alcoholic beverages, but not spoilage that is due to age or other reasons.

11:07:29 AM  

The committee moved onto asking about NOL deduction. Mr. Pens responded that since the state is tied to federal tax law, the NOL deduction applies unless the General Assembly affirmatively de-couples. The standard NOLs for financial corporations apply, even though they are for 15 years rather than 20 for C-corps. Mr. Pens explained that the federal level only allowed NOLs of less than 15 years for financial corporations so Colorado's statute was a way to expand the NOL. Mr. Pens mentioned that the state law is permissive, that financial firms may take the exemption but are not required to.

11:10:40 AM  

In response to a question about the childcare contribution credit, Mr. Pens talked about how many people have childcare expenses which leads to higher utilization and that it is similar to the federal childcare credit.

11:13:40 AM  

Mr. Pens addressed the concern if that retailers have discretion to allow exemptions. He stated that, in the case of dispute, DOR wants retailers to collect the tax and let it determine if it was taxable. In response to a committee question about if that provided a disincentive for retailers to disallow exemptions, Mr. Pens said he did not know of any retailers with a blanket policy of not allowing the exemptions. He noted that some retailers may be more conservative than others, but that there is a customer service aspect where the retailer doesn't want to send their customers to the state for refunds. Mr. Reese continued and said that there is a backlog in refund claims for sales tax refunds in the department. They have reassigned some resources and staff to try and work through the backlog. Jean Robinson, representing DOR, recommended reaching out to municipalities to see if home-rule cities accept the state's exemption certificate. Ms. Robinson also shared that the RFP for the simplified sales tax system are expected by September 13 and the department will have more information then.

11:23:17 AM  

There was some discussion about the rural healthcare preceptor credit and if DOR plans to do any paper audits since they have been identified by the state auditor as not being in compliance. In response to a question about the revenue impact of the energy sales tax exemption, Mr. Pens explained that it was complicated because of how the department tracks the data and that the exemption can be claimed several ways. In response to a question about if the department had any ideas about how to capture any more information to get better data on the exemption. Mr. Pens said the department is looking into how to provide more information on sales tax returns, but ultimately that will reduce errors rather than provide more information on the amount of the exemption.

11:34:09 AM  

In response to questions about the energy exemption, Mr. Pens responded that the department does not look at prices of goods. The committee asked for additional information and committee staff will try and provide a response.

11:38:18 AM  

In response to a committee question about some of the data deficiencies in the exemptions, Mr. Reese discussed that there are some issues with getting data from taxpayers, but there is also additional Gen Tax resources that were provided this past session and they are getting put on board. In response to a question about additional audit costs for new programs, Mr. Reese responded that they try and put some additional resources in fiscal notes, and also said that if reporting is required in statute then they will provide it, but that may increase the costs in the fiscal note. He stated that the reporting costs are often the first item cut to lower the costs, because the Department of Revenue still needs to administer the tax. Ms. Robinson mentioned that there is a constant balance between reporting and getting data and taxpayer compliance and that additional lines add additional complexity and can introduce errors.  The committee recessed.



Public Comment - Committee Discussion Only


01:15:26 PM  
The committee reconvened to hear public testimony.
01:18:13 PM  
Ryan Woods, representing Xcel Energy and the Colorado Chamber of Commerce Tax Council, testified concerning the sales and use tax exemption for energy used in manufacturing and industrial processes. He asked that the committee preserve the exemption.
01:27:42 PM  
Ann Rajewski, representing the Colorado Association of Transit Agencies, testified regarding the nonprofit agency fuel tax exemption. She asked that the committee retain and expand the exemption, and specifically that the exemption be expanded to include all fuel types.
01:37:38 PM  
Ali Mickelson, representing the Colorado Fiscal Institute, testified regarding the creation of a tax commission or a permanent interim committee to discuss the issues that the committee has discussed during the 2019 interim. She also suggested that the committee consider commission of a comprehensive tax study.
01:50:16 PM  
Mark Turner, representing the Colorado Nonprofit Association, testified regarding harmonization of the state and local sales tax bases in regards to sales to nonprofit agencies. He also requested that exemption forms and related documents provide additional guidance to tax-exempt nonprofit organizations to allow them to best utilize that exemption.
01:56:45 PM  

Chaer Robert, representing the Colorado Center on Law and Policy, testified concerning different child care tax credits available in Colorado. She spoke specifically concerning the "cliff" that exists for certain low-income taxpayers who receive minimal tax benefit due to the interaction between the federal standard deduction, the federal child care expenses credit, the state low-income child care credit, and the state child care expenses credit.

02:12:35 PM  
Dianna Orf, representing the Colorado Mining Association, testified regarding the sales and use tax exemption for manufacturing and industrial processes. She asked that the committee preserve the exemption in order to avoid double taxation.



Requests for Draft Legislation - Committee Discussion Only


02:16:45 PM  

Esther van Mourik, Office of Legislative Legal Services, briefed the committee regarding the processes for requesting draft legislation, as well as constitutional constraints on the legislature's ability to enact, without voter approval, a tax policy change directly causing a net tax revenue gain to any district. In particular, she explained that she could not provide legal guidance regarding voter approval requirements for specific legislation until after the bill is drafted and a fiscal note is prepared.

02:26:09 PM  
Ms. van Mourik requested permission from the committee to combine multiple bill draft requests in single bill drafts where this could be accomplished within the constitutional single subject requirement. The committee approved this request without objection.
02:31:49 PM  
The committee proceeded to discuss requests for bill drafts. Motions were made as shown below and discussed by committee members.
02:35:12 PM  

The committee discussed drafting legislation concerning the non-profit transit agency fuel tax exemption. Representative Bockenfeld moved that the committee draft legislation to expand the exemption, however, the motion lost because no second was offered.



02:42:28 PM
Motion Draft legislation to repeal the non-profit transit agency fuel tax exemption
Moved Snyder
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


02:53:32 PM
Motion Draft legislation requiring that future legislation to create tax expenditures include certain content
Moved Court
Seconded Moreno
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS
02:53:35 PM  
The committee discussed the newspapers exemption, and concluded that it will not draft legislation concerning this exemption.


02:57:30 PM
Motion Draft legislation to repeal the crop hail insurance premium tax exemption
Moved Moreno
Seconded Snyder
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:01:37 PM
Motion Draft legislation to repeal the farm close-out sales and use tax exemption
Moved Benavidez
Seconded Snyder
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:04:46 PM
Motion Draft legislation to repeal the sacramental wines excise tax exemption
Moved Snyder
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:06:43 PM
Motion Draft legislation to repeal the occasional sale of liquor by public auction exemption
Moved Court
Seconded Snyder
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:08:15 PM
Motion Draft legislation to repeal the tax exemption for sales to residents of bordering states
Moved Moreno
Seconded Court
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:13:57 PM
Motion Draft legislation to repeal the long-term lodging exemption
Moved Benavidez
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:15:31 PM
Motion Draft legislation to repeal the pre-1987 net operating loss deduction for individuals, estates, and trusts
Moved Snyder
Seconded Court
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:17:22 PM
Motion Draft legislation to repeal the previously taxed income or gain deduction for C corporations
Moved Court
Seconded Snyder
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:19:24 PM
Motion Draft legislation to repeal the employee retirement plan insurance premium tax deduction
Moved Benavidez
Seconded Court
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:21:47 PM
Motion Draft legislation to repeal the excise tax credit for unsalable alcoholic beverages
Moved Snyder
Seconded Benavidez
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:25:05 PM
Motion Draft legislation to repeal the insurance premium tax exemption for fraternal societies
Moved Court
Seconded Benavidez
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:26:57 PM
Motion Draft legislation to repeal the crop and livestock contribution corporate income tax credit
Moved Benavidez
Seconded Snyder
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS
03:27:05 PM  
The committee discussed drafting legislation concerning the agricultural inputs sales tax exemption. The committee asked staff to draft a letter to refer discussion of this exemption to the Joint Agriculture Committee. The letter will be drafted for the committee's consideration at its October 30 meeting.


03:37:36 PM
Motion Draft legislation to limit the net operating loss deduction carryforward to 20 years and to treat financial institutions like C corporations for the purpose of the deduction
Moved Benavidez
Seconded Snyder
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS
03:37:40 PM  
The committee discussed insurance premium tax expenditures, and decided not to draft legislation concerning these expenditures.
03:38:46 PM  
The committee discussed the child care expenses income tax credits. Representative Benavidez moved to expand one or both state child care expenses credits to provide an income tax benefit to taxpayers who currently do not qualify for the low income child care expenses credit and who currently do not receive a significant benefit from the child care expenses credit.


03:47:47 PM
Motion Draft legislation to decouple the federal and state child care expenses credits
Moved Benavidez
Seconded Court
Bockenfeld Yes
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 5   NO: 0   EXC: 1   ABS:  0   FINAL ACTION:  PASS


03:53:15 PM
Motion Draft legislation to repeal the deduction for wages and salaries taxable due to Internal Revenue Code section 280C
Moved Benavidez
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS
03:53:20 PM  
The committee discussed the state income tax refund deduction for individuals, estates, and trusts, and decided not to draft legislation concerning this deduction.
03:54:34 PM  
The committee discussed the sales tax exemption for sales to charitable organizations, and decided not to draft legislation concerning this exemption.
03:56:11 PM  
The committee discussed the rural and frontier healthcare preceptor credit, and decided not to draft legislation concerning this credit.
03:59:24 PM  
The committee discussed the tax-exempt organization insurance premium tax deduction, and decided not to draft legislation concerning this deduction.


04:12:46 PM
Motion Draft legislation to clarify the purchases for which the sales and use tax exemption for energy used for industrial or manufacturing processes applies
Moved Benavidez
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS
04:12:51 PM  

The committee discussed drafting legislation concerning the codification of future review of OSA tax expenditure evaluations. In particular, the committee discussed either extending the current Tax Expenditure Evaluation Interim Study Committee or creating a Tax Commission to provide constant oversight of the tax system.



04:18:39 PM
Motion Draft legislation to establish a Tax Commission
Moved Benavidez
Seconded Court
Bockenfeld No
Moreno Yes
Snyder Yes
Tate Excused
Court Yes
Benavidez Yes
YES: 4   NO: 1   EXC: 1   ABS:  0   FINAL ACTION:  PASS


04:22:19 PM   The committee adjourned.