Approach to Retain Tax Revenue Has Broader Implications; Attorney General Amps Up Transportation Funding Debate

Tax Haven Measure Opposed by Business Community

The House is considering a measure to change tax policy in such a manner that economic development and business advocates argue will have a chilling effect on retaining and attracting new corporate headquarters to Colorado.

House Bill 16-1275 would place a measure on the November 2016 ballot to allow voters to decide whether to require corporations to pay taxes on income from affiliated corporations incorporated in “tax haven jurisdictions”, unless the affiliated business is operating for “legitimate business purposes.”

The proposal was introduced by Democrat Representatives Brittany Pettersen and Mike Foote. They argue the measure is necessary to “close a tax loophole that allows many of the biggest companies doing business in Colorado to pay no state income taxes.” The proposal is projected to generate an estimated $75M in additional revenue, which would be dedicated to K-12 public school funding.

The broad proposal is drawing equally broad opposition from the Colorado business community, including the NCLA. Opponents argue the measure will make Colorado less competitive, less appealing for relocation and expansion, and creates a risk of double taxation for Colorado companies.

HB 1275 would grant the Department of Revenue (DOR) broad authority and discretion to develop a list of “tax haven countries”, or a blacklist of countries. Blacklisting has been abandoned by all but two states in order to maintain strong trade relations with other countries. DOR would have additional discretion to define “legitimate business purpose.” A company would be required to prove to the “satisfaction of DOR” that they are engaged in a legitimate business.

The bill has been considered in the House and awaits its third reading where it is expected to pass on a party-line vote. With the split majority between the House and Senate, the bill is on a path for defeat in the first Senate committee. Despite the known outcome, the business community has been vocal in their opposition to demonstrate the implications of public policy upon economic development decisions.

Attorney General Opinion Amps Up Transportation Funding Debate

Last week, Attorney General Cynthia Coffman entered into the budget fray by opining that a shift in budget policy to allow the existing hospital provider fee to be statutorily converted to a government enterprise is defensible as constitutional. The opinion provided new energy around the debate that has important implications for the transportation funding and finance that the NCLA is leading.

The opinion provides a path by which the legislature could move the fee to a enterprise which, in turn, would provide more flexibility in the state budget. The flexibility would prompt the flow of some short-term funds for transportation, argue proponents, including the Governor and Democrats. Republican opponents of the move are concerned about the legal implications but are also of the opinion that the suggested move runs contrary to the will of the TABOR amendment unless the voters approve such a change.

NCLA is working with leaders in both houses and the Governor’s office to build a compromise which achieves each parties’ mutual objective of funding and financing transportation in Colorado.