Blog note, Denver, Mike Krause, Taxes

Denver’s proposed disposable bag ‘fee’ obviously a tax

Members of the Denver City Council are proposing an ordinance that would impose a 5-cent charge on disposable (paper and plastic) bags used to carry purchases at point of sale at grocery and convenience stores with “over 1500 square feet” of retail space.

icon_op_edProponents call this bag charge a “fee.”  But with even a little scrutiny, the ordinance is obviously much closer to a tax than it is to a fee.  The difference between the two is hugely significant.  New fees can be passed by the City Council, while under Colorado’s Taxpayer’s Bill of Rights (TABOR), new taxes must be approved by voters through the ballot.

Here’s what the Colorado Supreme Court had to say about the difference between a fee and a tax in the 2008 case Barber v. Ritter:

If the language discloses that the primary purpose for the charge is to finance a particular service utilized by those who must pay the charge, then the charge is a “fee.”  On the other hand, if the language states that a primary purpose for the charge is to raise revenues for general governmental spending, then it is a tax.

The drafters of the Denver ordinance are very careful to include that “No disposable bag fees collected in accordance with this article shall be used for general governmental purposes.”   This is apparently the clumsy justification, based on at least one part of the Supreme Court’s definition, that the bag charge can’t be a tax.

But that alone doesn’t magically make a tax a fee.

The draft ordinance goes on to describe thirteen different, and often vague, city activities that can be funded with the new revenue,  including studies, education campaigns, community cleanups, a website and the hugely ambiguous “Any other activities determined by the manager [of the Department of Environment] to mitigate the effects of trash associated with disposable bags.”

So while the money might not be used for general government spending, it can be used quite broadly, and with significant discretion.  This hardly satisfies the fee requirement that the charge be used to “finance a particular service utilized by those who must pay the charge…”

The disposable bag money is also going to fund the giving away of reusable bags to “food store customers” and (again at the discretion of the manager of the department of environmental health), “to other appropriate locations.”

In other words, among many other things, the city will be using the money paid by people using disposable bags to give away reusable bags to people who aren’t paying the cost; a redistributive give-a-way program on (literally) someone else’s nickel.

How does that possibly satisfy the “particular service utilized by those who must pay the charge” fee definition?  How is that not a tax?

Moreover, what Denver politicians are calling a fee is actually treated the same as a sales tax in both its collection from the consumer and its remittance to the city.  Like with a tax, grocery stores are required to collect the money from customers at the point of purchase.  Like with a tax, stores keep a portion (two cents of each five cents collected up to a defined amount each month) of the money collected to offset the cost of complying with the law.  Like with a tax, there are penalties and interest charges for stores failing to file and remit on time.

To call a charge that so closely resembles a retail sales tax a city government fee depends on a convoluted and insultingly obvious attempt to redefine the traditional understanding of the difference between a fee and a tax.

In fact, a similar disposable bag fee passed in Aspen is currently being challenged in Pitkin County District Court as a violation of TABOR.

The plaintiffs’ attorney, Jim Manley from Mountain States Legal Foundation notes in his motion for summary judgment, “The revenue stream provided by the bag tax may be small, but the legal principle at stake is significant.”

The stakes are indeed significant.  If politicians in Denver or Aspen or anywhere else in Colorado find they can bypass voters by simply calling what is obviously a tax a fee instead, then there are really no longer any meaningful limits on the ability of Colorado governments to reach into their taxpayers’ pockets.

There is a solution to all of this.  Denver City Council could simply err on the side of respecting the Colorado Constitution (which should be their default setting anyway) by recognizing the proposed ordinance for the tax that it is, and referring it to the ballot for Denver voters to decide.

Mike Krause is a Denver resident and Vice-President of Operations at the Independence Institute, a free market think tank.

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