DENVER–In the waning hours of the long-delayed Colorado legislative session, majority House and Senate Democrats pushed through a partisan tax bill that Senator Jerry Sonnenberg, R-Sterling, called “TABOR-busting.”
Sonnenberg told Complete Colorado Wednesday that House Bill 20-1420, is “more like a stick of dynamite under the entire house of TABOR, completely blowing it off of its foundation.”
Colorado’s Taxpayer’s Bill of Rights, or TABOR, requires among other things that voters must approve new taxes or any tax policy change “directly causing a net tax revenue gain.”
Senator Ray Scott, R-Grand Junction agreed.
“It was abundantly clear that the Democrats were not going to stop until they figured out how they were going to tax somebody for something,” Scott told Complete Colorado.
“Democrats came up with as many ways as they possibly could to try to back-fill [a $2.5 billion budget deficit] and to continue to fund their pet programs,” Scott said. “Hence these types of bills came at the last minute when there was just a couple or three days left, and they got jammed through because they can.”
The bill, introduced in the House June 8, was rushed through the legislative process at a remarkable clip; being heard by two committees, amended, and passed out of the House by the 11th. A further amended version then passed out of the the Senate on the 15th, with the House considering, concurring and re-passing the bill on the same day, just prior to the end of the legislative session.
Titled the “Tax Fairness Act” (TFA), the bill wipes out some of the Colorado tax benefits of President Trump’s Coronavirus Aid, Relief, and Economic Security Act (CARES) by requiring taxpayers to add back to their federal taxable income various deductions available under CARES when calculating their state taxable income.
Colorado’s flat 4.63% state income tax rate is based on the taxpayer’s federal adjusted gross income (AGI) with certain state adjustments.
The bill specifically requires taxpayers with an AGI of more than $500,000 for individuals and $1 million for joint filers to add back to their federal AGI “an amount equal to the deduction for qualified business income” when calculating their state taxes.
It also permanently increases Colorado’s earned income tax (EIT) credit from 10% to 15% of taxes owed beginning in 2022 and allows taxpayers who are not currently eligible for the EIT because they, their spouses or dependents “do not have a social security number that is valid for employment” to claim the EIT.
“Quite honestly the earned income tax credit is nothing more than a redistribution of wealth where they give tax dollars to people that that don’t make enough to actually pay income tax,” Sonnenberg said.
The upshot of the changes to state tax law is an increase in net state tax revenues of $94 million in fiscal year 2020-21 and $32 million in fiscal year 2021-22, according to the Legislative Council’s fiscal note accompanying the bill.
Which is why Sonnenberg and Scott say it flatly violates the Taxpayer’s Bill of Rights and will almost certainly be challenged in the state Supreme Court.
“As you know, TABOR requires that we go to the people to ask permission to raise taxes,” said Scott. “I think it does violate TABOR and I think that’s going to be the big fight in court, explaining the tax increase without going to the people. Love it or hate it, that’s what TABOR is.”
“Oh absolutely, TABOR is very clear. You cannot make a policy change that increases taxes without going to a vote of the people. When you remove a tax credit, especially one that’s been in place, or a tax incentive that has been in place, and it results in an increase in taxes, that is a TABOR issue.”
The Colorado Springs Gazette editorial board agrees as well, calling HB 1420 a “blatant violation” of TABOR. “The legislature and governor cannot eliminate tax exemptions — for the express purpose of growing tax revenues — without enacting a ‘tax policy change.’ To obey the law, they need to ask voters,” said the Gazette in a June 16 editorial urging Governor Polis to veto the bill.
But Sonnenberg isn’t convinced that the Colorado Supreme Court will rule according what the law says.
“The Governor knew it was a violation of TABOR, he knew it was bad for business. He said two weeks ago ‘I see no path forward for 1420 becoming law,’ and now all of a sudden it looks like he may sign it,” Sonnenberg said. “I hope that we are able to muster up enough money to put a legal challenge in front of the Supreme Court, although you know as well as I do the Supreme Court is made up of judges that have been appointed mostly by Democratic governors. We saw how they ruled on the Constitution with regard to a 120-day legislative session [during the Coronavirus pandemic]. I’m not sure I have much faith in the Colorado Supreme Court, but that’s where we’re going to have to have the battle now.”
Governor Polis has three options: he can sign the bill, veto it, or allow it to pass into law without his signature.
Attempts to reach the House sponsors of the bill for comment were unsuccessful as of press time.