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9D9E54929D0A71418725844100579868 Hearing Summary


Date Jul 24, 2019      
Location HCR 0112

Policy Considerations II: Clarifying Statute - Committee Discussion Only

10:25:26 AM  

The committee came back to order. Mr. Stanley discussed the farm close-out sales tax exemption. The farm close-out sales tax exemption was created in 1945 and concerns when a farm is closed out and the property is sold off. OSA discussed that there appears to be a discrepancy between the farm close-out exemption, which would include trucks and vehicles, and the sales tax exemption for agricultural inputs which does not include vehicles. The committee discussed the exemption trying to determine who benefits from the expenditure. OSA reached out to various groups and there is not good data available for vehicles sold at farm close-out sales so it was hard to quantify. There is some lack of clarity when vehicles are being registered they show an exemption certificate from the farm close-out sale.

10:43:51 AM  

Ms. Colin introduced the long-term lodging exemption which was collected in 1959 when the sales tax was extended to hotels and other short-term lodging. To receive the exemption, there must be a written agreement such as a receipt or lease agreement. One clarification is if the exemption applies to third-parties (such as an employer putting employees up in a hotel). The second clarification surrounds home sharing like VRBO and AirBNB. The exemption is being unevenly applied partly because the sales tax is not always being collected or is being collected unevenly.. Mr. Stanley responded to committee questions by stating that the DOR does not have formal policy on home-shares, but that they have allowed it on an informal basis. The committee continued to discuss the long-term lodging sales tax exemption.

10:59:40 AM  

Ms. Colin introduced the sales tax exemption for newspapers which was created in 1943. The OSA suggested clarification for the definition of "newspaper", which has a specific definition in statute. As the newspaper business has evolved there is a lack of clarity in if digital newspapers qualify for the sales tax exemption.

11:18:59 AM  

Ms. Colin introduced the biogas sales tax exemption which was created in 2014 and expired on July 1, 2019. The exemption is for equipment bought to convert biogas to energy for electricity or fuel. The policy consideration is if biogas used to power biogas facilities should be exempt for sales tax and there are other exemptions that may apply. The committee discussed the history of the exemption and if there was a bill introduced in the last legislative session. The committee also discussed what the sales tax exemption applies to for biogas.

11:34:43 AM  

Ms. Colin introduced the agricultural inputs sales tax exemption which covered 6 exemptions that are commonly purchased for agricultural production. The exemptions were put in place between 1949 and 1999 and OSA inferred that the exemptions were to insure that the sales tax only applied to the final sale of agricultural products. Policy considerations are that several similar agricultural inputs are not exempt. This includes fish for non-stocking purposes, embryos and fish eggs, and includes fertilizer, but a bill just recently passed to clarify that fertilizer is exempt. The committee discussed the purpose of the agricultural input sales tax exemption and how Colorado compares to other neighboring states. Committee members discussed the challenge in making the distinction between what is being used for agricultural and growing crops for market rather than for non-agricultural purposes.

11:57:49 AM  

The committee recessed.

01:15:45 PM  

The committee came back to order.  Ms. Colin proceeded to discuss the Employee Retirement Plan Insurance Premium Tax Deduction. This deduction is claimed by insurance providers, but OSA inferred that the tax expenditure was likely intended to improve access to retirement plans and reduce costs of participating for employees. OSA suggests that the legislature may want to clarify whether coverage purchased by pass-through entities qualifies for the deduction, as opposed to only insurance coverage purchased by C corporations. The exclusion of pass-through entities is consistent with administration of the tax expenditure by the Division of Insurance in the Department of Regulatory Agencies. OSA also suggests that the legislature may want to reevaluate whether life insurance connected to a defined contribution retirement plan qualifies for the deduction. Colorado's deduction currently does not apply in these cases, but every other state with a similar tax expenditure makes it available to for life insurance provided through defined contribution plans as well.

01:33:13 PM  
Committee discussion ensued regarding the Employee Retirement Plan Insurance Premium Tax Deduction, including whether the deduction as presently constituted is meeting the policy objectives that OSA has inferred.
01:43:36 PM  
Ms. Colin proceeded to discuss the Excise Tax Credit for Unsalable Alcoholic Beverages. The credit is allowed to distributors of alcoholic beverages in an amount equal to the tax paid on alcoholic beverages later became unsalable due to their damage or destruction. OSA suggested that the General Assembly may wish to clarify whether or not the credit applies for alcohol that has become unsalable due to spoilage.
02:07:35 PM  
Ms. Colin proceeded to discuss the Colorado Net Operating Loss (NOL) Deduction for C Corporations. The NOL deduction allows C corporations to carry forward their net operating loss to future tax years when computing taxable income. The federal NOL deduction now allows an indefinite carry forward of a net operating loss, replacing the earlier 20 year limitation. Since Colorado's deduction is tied to the federal deduction, this change likely applies in Colorado as well. Additionally, there had been no limitation on the amount of the loss that could be deducted, but federal tax law changes limit the deduction to 80 percent of taxable income.

OSA suggested that the state legislature may want to consider either retaining the indefinite federal carry forward or establishing its own carry forward limitation. OSA also suggested that the state legislature may want to consider whether the state NOL deduction is capped, as the 80 percent cap in federal law may now apply in Colorado depending on how the law is interpreted.