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i_taxtask_2017a_2017-08-15t09:03:58z7 Hearing Summary

Date: 08/15/2017

Location: RM 271

Final

Discussion of Benefits and Costs of State/Local Sales Tax Administration



SALES AND USE TAX SIMPLIFICATION TASK FORCE


Votes: View--> Action Taken:
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03:50 PM -- Discussion of Benefits and Costs of State/Local Sales Tax Administration



Scott Peterson, representing Avalara, a company providing tax management software, provided testimony to the task force. Mr. Peterson explained that using Avalara, businesses remitted twice as much tax to the state government and state-administered local governments in Colorado than to locally-administered home rule governments, but that businesses were required to file three times as many tax returns to home rule governments as to state-administered local governments. He posited that some portion of Colorado sales tax remittance simply cannot be automated because the administrative responsibilities are complicated and complex. Comparing the time required to remit Colorado sales tax versus other states, Mr. Peterson suggested that Colorado returns require approximately twice as long to file as for a state-administered, streamlined state like South Dakota.



Eric Myers, representing the Department of Revenue, testified on the costs of collecting sales taxes administered at the state level. Mr. Myers explained that the department has approximately 120 auditors on staff and that the state allocates approximately $3.7 million annually for this audit presence. On the front end of the process, the department has about 30 people who are dedicated to reviewing returns as they come in and prepping these returns for disbursement to local governments. For this, and to handle any protests the department receives, and process any refunds, the department spends approximately $1.6 million annually. Mr. Myers discussed how the department partners with various software companies and how about 84 percent of returns are filed electronically, which has rapidly increased over the past several years. During FY 2016-2017, the department processed 2.6 million tax returns for the state and local jurisdictions. The state has allowed the department to recoup certain costs for the collection of sales taxes for special districts.



Mr. Myers discussed areas where economies of scale could be achieved if the state began administering sales taxes for all jurisdictions, including in the upfront process. Areas like auditing and other backend processes would see less economies of scale.



Task force discussion ensued concerning the impact of the recaptured DOR costs on TABOR, the interaction DOR has with various software companies, and the cost to implement a new system for state collection.