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I_TaxTask_2017A 07/11/2017 10:00 AM Committee Summary

Final

STAFF SUMMARY OF MEETING



SALES AND USE TAX SIMPLIFICATION TASK FORCE

Date: 07/11/2017
ATTENDANCE
Time: 10:06 AM to
Jahn
X
Sias
E
Place: RM 271
Brendon Reese
X
Bruce Nelson
X
This Meeting was called to order by
Bryan Archer
X
Representative Kraft-Tharp
Dianne Criswell
X
Heather Pezzella
X
This Report was prepared by
Judith Birch Vorndran
E
Luisa Altmann
Kristin Baumgartner
X
Neil Pomerantz
X
Paul Archer
E
Steve Ellington
X
Tracy Hines
X
Neville T.
X
Kraft-Tharp
X
X = Present, E = Excused, A = Absent, * = Present after roll call
Bills Addressed: Action Taken:
Opening Remarks

Task Force Member Introductions

Staff Introductions

Overview of House Bill 17-1216 and Bill Request Information

Overview from the Colorado Department of Revenue

Summary of Past Related Legislation

Lunch Break

Overview from Cities

Overview from Counties

Overview from the Business Community

Public Comment

Task Force Discussion
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10:07 AM -- Opening Remarks



Representative Kraft-Tharp, chair, made opening remarks regarding the task force including logistics for task force members. Representative Kraft-Tharp welcomed the partnership between municipalities, the business community, and the legislature that the task force represents. She acknowledged the importance of sales and use tax revenue for municipalities along with the cumbersome nature of sales and use tax collection and remittal for businesses across the state. She thanked everyone who applied to serve on the task force and all of the members of the task force who have been selected to serve.





Senator Neville, vice-chair, made opening remarks regarding the task force. Senator Neville spoke about the difficulties for businesses in navigating the current sales and use tax system, along with the potential loss of revenue to communities and the state due to the current complexity of the system.



10:12 AM -- Task Force Member Introductions



Senator Cheri Jahn, Senate District 20 in Jefferson County, introduced herself and her interest in the area of sales and use taxes. Senator Jahn spoke about her legislative work trying to address the complexity of the state's sales and use tax system since 2001. She also spoke her experience as a small business owner.



Tracy Hines, Sales Tax Administrator for Larimer County, introduced herself. Ms. Hines spoke about her work in the area of sales and use taxes for 16 years.



Brendon Reese, Deputy Director of Tax Policy and Legal Analysis for the Colorado Department of Revenue, introduced himself. Mr. Reese spoke about his prior experience working for the Attorney General's Office representing the Colorado Department of Revenue in sales and income tax litigation.



Neil Pomerantz, Partner at Silverstein & Pomerantz LLP, introduced himself. Mr. Pomerantz spoke about his work as a tax attorney in the area of state and local tax for 20 years and the work of his law firm representing clients in disputes with the state of Colorado or with local taxing jurisdictions.



Dianne Criswell, Legislative and Policy Advocate at the Colorado Municipal League, introduced herself. Ms. Criswell spoke about the importance of sales and use taxes for municipalities. According to Ms. Criswell, approximately 70 percent of municipalities' tax receipts are generated through sales taxes. Ms. Criswell spoke about her background in state and local excise and property taxes.



Kristin Baumgartner, Assistant City Manager and Finance Director for the City of Lone Tree, introduced herself. Ms. Baumgartner is representing the medium sized municipal population category on the task force. Ms. Baumgartner spoke about her experience with taxation issues for municipal governments. Ms. Baumgartner spoke about the importance Lone Tree's business friendly environment along with the importance of maintaining Lone Tree's revenue base and being able to provide services to residents.



Steve Ellington, Treasurer for the City and County of Denver, introduced himself. Mr. Ellington is representing the largest sized municipal category on the task force. Mr. Ellington spoke about his work in state and local taxation issues for 29 years. Mr. Ellington spoke about finding opportunities to partner with the business community to find ways to make the sales and use tax collection process easier for them to administer while safeguarding the city's revenues so needed services can continue to be provided.



Bryan Archer, Finance Director for the City of Arvada, introduced himself. Mr. Archer is representing the large sized municipal category on the task force. Mr. Archer spoke about his experience in local government for 20 years.



Heather Pezzella, Revenue Services Administrator for the Town of Breckenridge, introduced herself. Ms. Pezzella is representing the small sized municipal category on the task force. Ms. Pezzella spoke about her experience in accounting, including internal audits and taxation. Ms. Pezzella spoke about the work in Breckenridge to participate in the standard definition project.



Bruce Nelson, certified public accountant and head of the state and local tax group at EKS&H, introduced himself. Mr. Nelson spoke about his work in state and local tax for over 30 years, including past work as an auditor for the Colorado Department of Revenue. Mr. Nelson spoke about the difficulties with the current sales and use tax system for both the business community and the cities.





10:19 AM -- Staff Introductions



Representative Kraft-Tharp spoke about additional logistics, including the fact that the meetings are recorded and broadcast.



Luisa Altmann, research analyst, Larson Silbaugh, senior economist, and Greg Sobetski, economist, Legislative Council Staff, introduced themselves. The staff asked members of the public who are interested in being alerted of task force activities to email TaxTaskForce.ga@state.co.us and sign up for the interested persons email distribution list. Additionally, information related to the task force can be found on the website at: https://leg.colorado.gov/committees/sales-and-use-tax-simplification-task-force/2017-regular-session.



Esther van Mourik, senior attorney with the Office of Legislative Legal Services, introduced herself. Ms. van Mourik spoke about her work drafting past legislation related to sales and use taxes.



All staff indicated their availability to members of the task force for any research needs.



Representative Kraft-Tharp spoke about other groups with available resources to help the task force, including the National Conference of State Legislatures.



10:25 AM -- Overview of House Bill 17-1216 and Bill Request Information




Esther van Mourik discussed House Bill 17-1216 and the charge of the task force. House Bill 17-1216 created the Sales and Use Tax Simplification Task Force. The 15-member task force is required to meet at least eight times before its repeal on July 1, 2020, in order to study the necessary components of a simplified sales and use tax system for both the state and local governments. It is required to consider the feasibility of potential changes to administration of state and local sales and use taxes and to make annual reports to the Legislative Council by November 1 of each year that may or may not include recommendations for legislation.



The task force is charged with studying the following policy issues:

  • the necessary components of a simplified sales and use tax system for both state and local governments, including home rule municipalities and counties;
  • opportunities and challenges within existing fiscal frameworks to adopt innovative revenue-neutral solutions that do not require constitutional amendments or voter approval;
  • the feasibility of having a third-party entity responsible for state or local sales and use tax administration, return processing, and audits;
  • the feasibility of making audits of retailers more uniform for all state and local taxing jurisdictions in the state;
  • the feasibility of utilizing certified software for sales and use tax administration and collection of state and local sales and use tax; and
  • the feasibility of utilizing a single sales and use tax return for state and local taxing jurisdictions.



Ms. van Mourik discussed the bill request process and applicable deadlines, including the need to hold the meeting to request draft legislation by September 22, 2017, and the meeting to approve draft legislation by November 3, 2017.



10:36 AM



Ms. van Mourik responded to questions from task force members related to the bill request process, the bill introduction process, the task force’s scope of work, and details related to the annual report.





10:40 AM



Ms. van Mourik discussed national groups working in the area of sales and use taxes, including:

  • the National Conference of State Legislatures Sales Tax Task Force, which started to look at issues surrounding marketplace fairness and national sales tax collection issues and national simplification issues;
  • the Streamlined Sales Tax Governing Board, which consists of states that have signed on to simplify their sales tax system;
  • the Council on State Taxation; and
  • the Multistate Tax Commission, which Colorado is a member.



Ms. van Mourik responded to questions from task force members related to whether the groups mentioned previously are business-focused or governmentally-focused; other groups that the task force may want to hear from, including the Tax Foundation; and whether representatives from municipalities are represented in any of the previously mentioned groups.



Senator Neville requested information related to which states are members of the Multistate Tax Commission.



Representative Kraft-Tharp asked task force members to makes suggestions for other groups the task force should hear from at future meetings.



10:46 AM



The task force took a brief recess.



11:09 AM



The task force reconvened.

11:09 AM -- Overview from the Colorado Department of Revenue



Brendon Reese and Eric Myers, Colorado Department of Revenue, spoke about the sales and use tax system in Colorado. A copy of their presentation can be found in Attachment A. Two handouts were provided to the task force (Attachments B and C).



Attachment A.pdfAttachment A.pdf Attachment B.pdfAttachment B.pdf Attachment C.pdfAttachment C.pdf



Throughout the presentation, a 2013 report from the Colorado Department of Revenue looking into a uniform sales and use tax base throughout the state was referenced. The report can be found here: https://www.colorado.gov/pacific/sites/default/files/Uniform%20Sales%20and%20Use%20Tax%20Base.pdf



Mr. Reese and Mr. Myers discussed the various taxing jurisdictions in the state.



Task force members requested information related to:

  • how many businesses actually have to remit to multiple jurisdictions (e.g. X% of business have to remit to 10+ jurisdictions) to help understand the impact of the current sales and use tax system on businesses;
  • how many taxing jurisdictions collect their own sales and use taxes versus having it collected by the state; and
  • understanding how Colorado compares to other states in terms of complexity related to the number of and overlapping of taxing jurisdictions.



Mr. Reese and Mr. Myers related several sections of state statute related to the authority to collect sales tax by the state, home rule jurisdictions, and local taxing jurisdictions.



State sales tax. The state sales tax rate is 2.9 percent. State sales tax returns are due on the 20th day of each month for taxes collected on sales during the previous month. Vendors are responsible for the payment of sales tax, and those that file returns on time are authorized to retain 3.33 percent of revenue to offset the administrative costs of collecting the tax.



Home rule jurisdictions. Article XX, Section 6, of the Colorado Constitution grants home rule jurisdictions with autonomy over their own sales taxes. They are allowed to determine their own tax base, tax rate, definition of taxable sales, vendor fees, and audit coverage and frequency.



Local taxing jurisdictions (“statutory” jurisdictions). Most control over sales taxes assessed by these jurisdictions is derived from Title 29 of the Colorado Revised States. Many state sales tax exemptions are extended to these jurisdictions by default, however the General Assembly has excluded many exemptions from the requirement in Section 29-2-105 (1), C.R.S.



Mr. Myers explained that there are 209 local taxing jurisdictions in Colorado, including counties, municipalities, and special districts. The state collects sales taxes for 50 counties; Denver and Broomfield collect their own taxes; and 12 counties (Baca, Cheyenne, Conejos, Dolores, Gilpin, Kiowa, Kit Carson, Las Animas, Montezuma, Morgan, Yuma, and Weld counties) do not collect a sales tax. For cities, the state collects sales taxes for 152 cities; 71 cities collect their own sales taxes; and 48 cities have not enacted a sales tax.



Mr. Myers continued with a discussion of taxation by special districts. Mr. Myers explained that there are 740 tax rate combinations across the state. As an example, Mr. Myers presented different taxes that exist in the City of Lakewood. Taxes in Lakewood are levied by the state, Jefferson County, the City of Lakewood, the Regional Transportation District, the Scientific and Cultural Facilities District, and a local improvement district. For example, zip code 80123, which includes areas of Denver, Lakewood, and unincorporated Jefferson County, has at least eight geographic areas with different total tax rates.



Mr. Myers and task force members discussed a 2015 audit of the Colorado Department of Revenue’s administration of local sales tax, which can be found here: https://leg.colorado.gov/sites/default/files/1422p_local_sales_taxes_performance_audit_november_2015.pdf



Mr. Myers explained that as a result of the audit, the department developed several tools to help businesses understand the various taxing jurisdiction boundaries. Mr. Myers and task force members also discussed past efforts by the legislature to address issues related to business liability for incorrect sales tax collection, including the hold harmless bill from 2016 (Senate Bill 16-050).



Task force members requested to hear from someone representing special districts at a future meeting.



Mr. Myers continued the presentation with a discussion of additional variances between state and local sales taxes, including different exemptions from the tax rate, multiple tax rates, the vendor discount/allowance, and jurisdictional boundary changes, including annexations.



Mr. Myers discussed a pilot project that was started with the City and County of Denver and difficulties the project ran into. The project was paused due to the creation of the task force. Mr. Myers also discussed other past simplification efforts at the state and federal level.



Mr. Reese discussed the two handouts that were provided to the task force: the DR 0099 and the DR 1002.



11:52 AM -- Summary of Past Related Legislation



Esther van Mourik returned to the table to discuss past legislation related to sales and use tax simplification, including:

  • House Bill 13-1295, concerning the implementation of the minimum simplification requirements of the proposed federal Marketplace Fairness Act of 2013. This would need to be updated if Congress passes the Remote Transactions Parity Act, including stronger requirements for audits;
  • House Bill 13-1288, concerning the development of recommendations to the General Assembly to establish a uniform sales and use tax base throughout the state. This tasked the Colorado Department of Revenue, in consultation with the Colorado Municipal League and Colorado Counties, Inc., to develop revenue-neutral recommendations for the General Assembly to consider;
  • Senate Joint Resolution 14-038, concerning uniform sales and use tax definitions for home rule municipalities that locally collect their sales and use taxes. The resolution requested municipalities to develop among themselves a mechanism for maintaining standardization of uniform definitions over time;
  • Senate Concurrent Resolution 14-004, which was postponed indefinitely in the first committee of reference. The goal of the resolution was to amend the state constitution related to uniform sales and use tax definitions and to create a commission on uniform sales and use tax definitions to provide guidance and certification of the definitions;
  • House Concurrent Resolution 15-1004, which was postponed indefinitely in the first committee of reference. This mirrored the 2014 concurrent resolution; and
  • Senate Bill 16-050, concerning a hold harmless provision for retailers liable for any money payable as a result of an incorrect location code assigned by the Department of Revenue.



Additional legislation related to the dispute resolution process was also passed.



Task force members requested information related to legislation related to additional exemptions from the state sales tax base that have been adopted since 2013.



12:06 PM -- Lunch Break



The task force took a break for lunch.



01:33 PM -- Overview from Cities



The task force came back to order following lunch.



Municipal representatives from the task force, including Steve Ellington, Kristin Baumgartner, Dianne Criswell, Bryan Archer, and Heather Pezzella, presented the task force with information related to the sales and use tax system from a municipal perspective. A copy of their presentation can be found in Attachment D.



Attachment D.pdfAttachment D.pdf



Part one of the presentation included a discussion of the basis of authority for the self-collection of sales taxes; revenue sources for municipalities including sales and property taxes and the impact of the Gallagher Amendment and TABOR on municipalities; the reliance of Colorado municipalities on sales tax revenues as compared to property taxes;



Part two of the presentation included a discussion of the proliferation of exemptions from the state sales tax base; the 2015 audit that was discussed previously and the benefits of local tax administration versus being administered by the Colorado Department of Revenue; and the impact of changing the sales tax base on current bond covenants.



Finally, part three of the presentation included a discussion of past simplification efforts, including an update on the extensive process involved in the standard definitions project initiated by Senate Joint Resolution 14-038. In response to the joint resolution, the Colorado Municipal League established a 23-member steering committee and subcommittees to address definitions in the tax code. Definition drafts were compared with earlier and similar standard definition efforts, and were reviewed by attorneys, the business community, and municipalities collecting their own taxes.



During the presentation, Ezequiel Vasquez, Revenue Manager for the City of Arvada, spoke about his experience working on the standard definitions committee and the process involved in drafting the standard definitions, including making sure that the net effect of the changes was revenue neutral.




The panel provided a progress report on the adoption of the standard definitions. Currently, 13 home rule municipalities have adopted the standardized definition ordinances. The panel discussed strategies for getting the remaining home rule municipalities to adopt the standard definitions. The panel also encouraged the state to adopt the standardized definitions as well. The task force discussed the potential for standardized matrix across all municipalities using the standardized definitions where the municipalities identify whether the item is taxed or not in a standardized form. The task force also discussed the potential for legislator involvement in working with the municipalities in adopting the standardized definition ordinances.



The task force requested a presentation on bond covenants at a future meeting.



The “Sales Tax Simplification Model Ordinance” definitions can be found here: https://www.cml.org/issues.aspx?taxid=11113.



02:20 PM -- Overview from Counties



Gini Pingenot, Colorado Counties, Incorporated, discussed the task force from the counties' perspective. Ms. Pingenot spoke about counties’ reliance on property taxes and less so on sales taxes. 50 of Colorado’s 64 counties do have a sales tax. Ms. Pingenot also spoke about counties’ use of the state’s sales tax base and their reliance on the state to collect, administer, and enforce the counties’ sales taxes.



Tracy Hines, Larimer County, talked about several issues related to the administration of counties’ sales taxes by the Colorado Department of Revenue. Ms. Hines discussed issues related to “zero-filers” and the information included in revenue downloads provided by the department. Ms. Hines also discussed issues related to audits, including the lack of updates from the department. Ms. Hines spoke about the benefits of local control over the administration of sales taxes compared to administration by a third party.



Ms. Hines discussed a handout to the task force (Attachment E). The handout includes a sample of the revenue download that the county receives from the department. The handout also includes a sample of a letter that is provided by the department to the county at the conclusion of an audit. The task force members discussed what data the county has access to from the department.



Attachment E.pdfAttachment E.pdf





Mr. Reese from the Colorado Department of Revenue spoke about the difficulties for the department in having to collect sales taxes for 50 counties and numerous municipalities.



02:47 PM -- Overview from the Business Community



Tony Gagliardi, National Federation of Independent Business and representing the Coalition to Simplify Colorado Sales Tax, discussed the effort to simplify Colorado's sales tax system and the difficulties of sales tax reporting and compliance for businesses. Mr. Gagliardi provided a handout to the task force (Attachment F).



Attachment F.pdfAttachment F.pdf



Mr. Gagliardi spoke about the goals of the coalition being fairness, simplicity, and predictability, including in the continuation of stable revenue for local governments. Mr. Gagliardi credited the passage of Senate Bill 16-036, which amended surety bond requirements for businesses involved in sales tax disputes, as a major step forward in building trust between the state government, local governments, and businesses.



Loren Furman, Colorado Association of Commerce and Industry, continued the discussion. Ms. Furman spoke about the difficulty for businesses in complying with Colorado’s complex sales tax system. She also spoke about the cost for business in terms of penalties for noncompliance. Ms. Furman spoke about the work of the Colorado Association of Commerce and Industry Tax Council on tax legislation in the past and about the participation with the Colorado Municipal League in the standardized definitions project that was discussed previously.



Ms. Furman discussed the finding during the Colorado Blueprint process of the desire for a uniform tax and fee process and the resulting working group within the Colorado Department of Revenue. The working group identified several recommendations, including:

  • the standardized definitions project;
  • a state-run database where taxpayers could submit their tax returns and pay their payments in one location;
  • having standardized tax returns by all cities; and
  • having access to the state’s address location database.



Ms. Furman continued to speak about the work of the standardized definitions project. Ms. Furman responded to questions from the task force related to the state’s adoption of the same standardized definitions. Task force members also asked the department for an update on the state’s location database.



Lee Nelson, Assistant Controller for American Furniture Warehouse, discussed his role. Currently, American Furniture Warehouse files 88 returns each month in Colorado, 12 of which are filed electronically through individual websites and the rest are filed by mail. Mr. Nelson discussed the desire to simplify, including being able to file all returns to one place, get all licenses at one place, and receive information concerning tax rate increases from one place instead of having to work through each local taxing jurisdiction individually. Mr. Nelson spoke about American Furniture Warehouse’s use of a computer system developed by CCH Group, which determines the tax rate to charge a customer based on their address. This system cost $75,000 to integrate the two computer systems and they pay an additional $20,000 a year to keep up it updated.



Mr. Nelson and task force members discussed the cost of compliance for American Furniture Warehouse in terms of the computer systems and man hours. According to Mr. Nelson, the costs are approximately $50,000 per year, which includes 3.5 days to file the returns.









Bruce Nelson, EKS&H, discussed the potential for simplification to bring in additional revenue for cities and other taxing jurisdictions across the state. Mr. Nelson explained how, under the current system, some of his clients elect not to file returns in some places where they should be because of the effort involved. Mr. Nelson spoke about the history of the collection of sales taxes by businesses beginning in the 1930s and how the complexity of the current system prevents small businesses from complying fully.



Mr. Nelson responded to questions from the task force concerning the potential revenue increase for local taxing jurisdictions from simplification.



Neil Pomerantz, Silverstein & Pomerantz LLP, spoke about the audit process and the role of tax attorneys during tax disputes between businesses and local taxing jurisdictions. Mr. Pomerantz discussed several issues on the audit and assessment side that arise from the decentralized sales tax system of many local taxing jurisdictions that perform their own audits, issue their own assessments, and handle their own hearing process. These challenges include:

  • the different tax bases among the home rule cities that creates confusion about what is taxable;
  • the different interpretations by different jurisdictions of identical or nearly-identical language in their tax codes; and
  • inconsistent interpretations within a single jurisdiction from one audit period to the next.



03:18 PM



Task force discussion ensued concerning potential solutions that have been discussed. These have included:

  • the adoption of the standardized definitions by the remaining home rule municipalities;
  • a single database;
  • standardized returns; and
  • the adoption of the standardized definitions by the state.



03:25 PM -- Public Comment



03:25 PM --
Jeff Hansen, Finance Director for the City of Golden, provided testimony to the task force. Mr. Hansen spoke about the impact of adopting the state’s tax base on Golden, and other municipalities, revenue based on previous task force discussion. For example, Golden taxes food for home consumption. Accordingly, if Golden were to adopt the state base, it would lose between 15 and 20 percent of revenue that it receives from the tax on food sales. In order to achieve revenue neutrality and offset this loss, Golden would have to increase its tax rate, which would have to be approved by the voters in a TABOR election, which would be unlikely to pass. Mr. Hansen also spoke about his efforts to reach out to other municipalities working to adopt the standard definitions and provide assistance based on Golden’s experience.



03:28 PM -- Task Force Discussion



Task force discussion ensued concerning future agenda items.



Future task force meeting dates have been set for August 15, September 15, and November 1, from 9:00 AM to 4:30 PM at the Capitol. Any potential legislation must be proposed during the September 15 meeting.



Esther van Mourik discussed future agenda items, including a discussion of the constitutional constraints for simplification; discussion of the streamlined sales and use tax agreement single licensure, remittance, and audit; and further discussion of uniform definitions.





Task force members discussed future agenda items related to public finance and bond covenants, and the costs associated with various software options. Task force members also asked for a discussion of the costs under the current system for home rule and self-collecting jurisdictions.



03:42 PM



The committee adjourned.