Location: RM 271
Colorado Tax Auditors Coalition
SALES AND USE TAX SIMPLIFICATION TASK FORCE
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09:08 AM -- Colorado Tax Auditors Coalition
Brandy Zink, representing the Colorado Tax Auditors Coalition, introduced the coalition and its mission.
A copy of their presentation is provided in Attachment A.
Ms. Zink discussed how training sessions occur multiple times per year and focus on issues of importance to the business community, but also include trainings for auditors. A special course is offered for construction use tax issues.
Sophia Hassman, representing the City and County of Denver, continued the presentation with a discussion of local tax compliance and collection. She posited that people have voted for services that are funded through sales tax revenue, which is collected on a different tax base according to the relevant jurisdiction. She explained that voters can allow jurisdictions to retain revenue in excess of their spending limit through a de-Brucing process that precludes refunds that would otherwise be required in Article X, Section 20 (7) of the Colorado Constitution.
Ms. Hassman explained that audits are required to ensure that revenue is received and local bond payments are made. This allows the jurisdiction to achieve low delinquency rates, which is especially important in light of disparate zoning, construction, and liquor licensing requirements. Home rule cities are thereby able to serve residents and voters and ensure that businesses are responsive to the tax code. Auditors participate in education programs so that businesses are aware of their tax requirements. Ms. Hassman explained that, in Denver, businesses are able to pay in person or online and that these systems allow for increased compliance at the local level.
Ms. Hassman explained that most home rule jurisdictions include provisions in their tax codes to provide a “coordinated auditing procedure,” but taxpayers do not often request this. An example is in Section 53-5 of the Denver Revised Municipal Code. Another option afforded to the city is to make limited compliance efforts in lieu of a full-scale audit. For example, a restaurant that is remitting at the non-food rate may warrant a visit from an auditor to ensure that they remit taxes at the correct rate in the future.
In response to the 2015 audit of the Department of Revenue, Ms. Hassman acknowledged that Denver could improve the administration of its sales tax through improvements in local coding via the use of GIS tools. Home rule municipalities that self-collect try to ensure that businesses are licensed in the correct jurisdictions. She also discussed the auditors’ role in ensuring compliance with other taxes, including lodging taxes and special excise taxes.
Ms. Hassman addressed the hold harmless address database. The purpose of the database is to ensure that businesses relying on a government-provided database are not penalized for errors originating with faulty coding by the jurisdiction. While Ms. Hassman explained that the database is a good idea, she argued that the database does not always provide accurate information to taxpayers, which can result in incorrect remittance by taxpayers and damage local revenues. There is also a limit on the number of addresses that can be checked per day, which means that large retailers may have to pay to check the addresses for all of their business locations. In response to a request from the task force, Ms. Hassman explained that the current software system uses algorithms to estimate the probability that a particular address is in a particular set of jurisdictions, which occasionally results in errors. She suggested that it would be preferable to utilize local GIS programming in order to ensure that retailers are informed of their precise jurisdictional tax remittance requirements.
Jeff Cadiz, representing the City of Centennial, discussed auditing by home rule, self-collecting municipalities. Centennial is a relatively young city, and Mr. Cadiz posited that voters approved home rule status for the municipality in part because of the autonomy that the city is able to exercise in the area of sales tax collection and administration. In the area of licensing, Mr. Cadiz explained that he was tasked with visiting every business location in the city. The result of the project was that 194 retailers were discovered that had not been licensed to collect Centennial sales tax, representing 13 percent of all retailers located within the city. Mr. Cadiz explained that in the area of tax return processing, Centennial contacts delinquent taxpayers in order to ensure their prompt compliance, a benefit to the city, and avoidance of penalty and interest, a benefit to the taxpayers. The city had previously received disbursement reports from the Department of Revenue, but found the amount of data to be insufficient to resolve delinquencies.
Mr. Cadiz explained that he’d previously worked in the tax audit and compliance division of the Department of Revenue. In this role, he found that DOR focused its limited resources on income tax issues. During Centennial’s state collection experience, about 2.5 audits were conducted per year. Upon beginning local collection as a home rule jurisdiction, Centennial now conducts about 68 sales tax audits per year. This improves compliance relative to what the city received as a state-collected entity. Mr. Cadiz explained that in 2008, as a state-administered entity, the city collected $18.1 million in tax revenue. In 2016, as a locally-collected entity, Centennial collected $38.7 million in tax revenue. Mr. Cadiz acknowledged that part of the discrepancy is attributable to economic changes, but posited that a significant portion of the difference is attributable to increased compliance that came about as a result of Centennial becoming a self-collected jurisdiction.
In response to a question from the task force, Mr. Cadiz stated that Centennial intends to adopt standard sales tax definitions by the end of calendar year 2017. Ms. Hassman stated that Denver has already adopted these definitions. Later, Ms. Quade stated that Parker did so in April. The task force continued with a discussion of the resources needed to self-administer. Mr. Cadiz explained that there are 2 FTE that administer sales tax in Centennial, though the city also contracts for additional taxpayer compliance services from the private sector. Mr. Cadiz also suggested that jurisdictional idiosyncrasies, in his view, make city administration preferable even if the state compliance division were better staffed. The task force also discussed the option businesses have for a coordinated auditing procedure and how coordinated audits might disadvantage businesses because individual jurisdictions administer similar ordinances differently, even if the ordinance in different jurisdictions have the same text. In response, Mr. Ellington and Ms. Hassman explained that, in Denver specifically, auditors look to the totality of the situation for a given taxpayer and coordinates with different municipalities in order to ensure equal application of ordinances across jurisdictions.
Linda Quade, representing the Town of Parker, discussed the cost of self collection for the Town of Parker. She also explained that Senate Bill 16-050 holds retailers harmless if they utilize the state’s location database and the database inaccurately advises them vis-à-vis their taxing jurisdiction(s). The bill does not apply to home rule, self collecting jurisdictions.
Ms. Quade responded to task force questions concerning what Parker would do in order to ease compliance for businesses while also preserving revenue neutrality for the town. She explained that the system is complicated, but that because municipalities receive relatively little from the state government (compared with municipalities in other states), pressure is placed on municipalities to carefully preserve their own revenue streams.