The ‘Dirty Dozen’ Tax Increases: How the 2010 Colorado Legislature exploited a Colorado Supreme Court ruling to (unconstitutionally) take more of your money without asking

The following article was written for, and originally appears in, The Constitutionalist Today (February edition).

No man’s life, liberty, or property is safe while the legislature is in session.” – Mark Twain (1866)

As another legislative session begins, the Colorado General Assembly once again faces a hefty budget shortfall; the projected gap between expected revenue and planned spending is $1.2B (yes, that’s $1,200,000,000) this fiscal year.  Last year at this time, the projected revenue shortfall was a mere $660M (about half of this year’s shortfall) which the legislature “fixed” with a combination of one-time subsidies, funds transfers and raids, other budgetary gimmicks – and the “Dirty Dozen” tax increases.

The “Dirty Dozen” was the name given to a package of twelve legislative bills which sought to increase tax revenues collected by eliminating existing tax credits or exemptions – an end-run around the constitutional requirement (in Article X, Section 20 – colloquially known as the Taxpayer’s Bill of Rights, or TABOR) requiring “voter approval in advance for… any new tax, tax rate increase, or… tax policy change directly causing a net tax revenue gain to any district.”

Last year’s legislative majorities (Democrats dominated both chambers of the Colorado General Assembly) were emboldened in their assault on the constitutional rights of Colorado citizens (and the grab into their wallets) by an interpretation of the Colorado Supreme Court’s ruling in the notorious “Mill Levy Tax Freeze” case (another unconstitutional tax increase, sanctioned by the court under the pretense that a rate “freeze” which collects more revenue doesn’t count as a tax increase for triggering that pesky constitutional requirement to receive “voter approval in advance”).  Solid legislative majorities, a compliant governor, and a complicit supreme court allowed them to take a bigger bite of your money without first (or ever) asking for permission.

Since the 2010 elections resulted in a shift of control of one legislative chamber (the state House of Representatives) and many members of the new majority campaigned on a promise to seek the repeal of these unconstitutional tax increases, it’s worth re-visiting the “Dirty Dozen” tax laws to provide an overview of what’s at stake.

Originally, twelve bills were introduced to repeal a total of thirteen existing tax credits or exemptions; one of the bills was not passed, resulting in eleven bills increasing twelve taxes (either way, the term “Dirty Dozen” remains an appropriate and accurate description).

In order of introduction, the bills were:

HB10-1189, Eliminate Sales Tax Exemption for Direct Mail (Pommer/Heath), signed 2/24/10. This bill increased the sales tax on direct mail advertising, impacting both the actual advertising companies and the predominantly small-business market (especially local small businesses) that rely on direct-mail advertising as a cost-effective and less expensive alternative to radio/TV ads.  This tax increase was projected to raise $1.5M, but has actually generated less revenue.

HB10-1190, Suspend Industrial Fuel Sales & Use Tax Exemption (Pommer/Heath), signed 2/24/10.  Also known as the “Energy Tax”, this bill effectively raised the cost of every product and service produced in Colorado (since every business using energy – i.e. all businesses – now must pay a higher price for energy, directly or indirectly, sometimes both – used ‘on the job.’) This new tax hits manufacturing industries, already pinched by increasing fuel prices, especially hard; the state’s largest manufacturing industry (Pueblo’s Evraz Rocky Mountain Steel) expected to pay $2M/yr in additional costs.  Projected state revenue gains of $48M have not been realized.

HB10-1191, Eliminate Candy & Soda Sales Tax Exemption (Pommer/Heath), signed 2/24/10.  The notoriously capricious Candy Tax not only angered Colorado kids, it also burdened stores with checking ingredients for each item to see if it was subject to taxation. (Ironically, some “energy bars” are considered “candy” while “Twix” or “KitKat” bars are not, based on the ingredient list).  Again, small businesses were disproportionately impacted and, predictably, revenue projections of $17.9M have not been achieved.

HB10-1192, Sales & Use Tax of Standardized Software (Pommer/Heath), signed 2/24/10.  Software downloads – particularly upgrades or updates to previously purchased programs such as antivirus or antispam software – were most impacted; previously, direct online purchases were not taxed.  Projected revenue gains of $15M have not been realized.

HB10-1193, Sales Tax Out-of-State Retailers (Pommer/Heath), signed 2/24/10.  Also known as the Amazon Tax, this tax increase prompted Amazon.com to terminate its local affiliate program (reducing income for some 5,000 Coloradans) and led to a (predicted) court challenge, since the bill sought to collect personal purchase data from online retailers (violating the 4th Amendment). Taxpayers are funding the state’s defense (filed in Federal court, due to lack of confidence in Colorado courts) and needless to say, the projected $5M revenue has not been achieved.

HB10-1194, Eliminate Nonessential Articles Sales Tax Exemption (Ferrandino/Heath), signed 2/24/10.  Otherwise known as the Doggy Bag Tax – since legislators consider take-home food containers “non-essential” items for restaurants and thus subject to higher taxes (raising the cost of dining out, since the restaurants have to factor the increased cost into their prices).

HB10-1195, Suspend Ag Sales & Use Tax Exemption (Ferrandino/Heath), signed 2/24/10.  Increasing taxes on a wide range of agricultural products (including animal feed, vaccines, drugs, pesticides, etc.) has indirectly raised the price of all food grown, raised, or otherwise produced in Colorado.  Notice your grocery bill creeping up?  This tax increase might be to blame; projected revenue gains of $1.5M have not been realized (and higher costs are shifted to consumers).

HB10-1196, Eliminate Certain Cars Qualified for Tax Credits (Ferrandino/Heath), signed 2/24/10.  Removed several vehicles previously qualifying for tax credits from the list.

HB10-1197, Reduce Conservation Easement Cap Amount (Ferrandino/Heath), signed 4/29/10. Reduced the maximum state income tax credit allowed for conservation tax easements (expect Governor Hickenlooper to be willing to sign off on repeal, for obvious personal tax reasons).

HB10-1198, Suspend Credit Alternative Minimum Tax (Ferrandino/Heath), postponed.

HB10-1199, Net Operation Loss Deduction Temp Limit (Ferrandino/Heath), signed 2/24/10. Reducing the ability of businesses to write off losses just when they might be recovering delays their ability to invest, create jobs and generate revenue.  Penny wise, pound foolish?

HB10-1200, Enterprise Zone Investment Tax Credit Deferral (Hullinghorst/Heath), 5/7/2010.  Deferring income tax credits on enterprise zone investments has, unsurprisingly, reduced the willingness of potential investors to… well, invest – further slowing economic recovery.

The preceding list was a short summary of the “Dirty Dozen” tax bills; space precludes more detail, but interested readers can learn more at http://www.clearthebenchcolorado.org/ (search on keywords “Dirty Dozen”, “Amazon Tax”, “Candy Tax”, “Doggy Bag Tax” and others).

Matt Arnold is currently the executive director and primary spokesman for the grassroots effort to restore accountability to Colorado’s judiciary, Clear The Bench Colorado.  Matt launched the effort following the Colorado Supreme Court’s violation of the Colorado Constitution, citizen’s rights under the Taxpayer’s Bill of Rights (TABOR), and their duty to uphold the rule of law in the infamous “Mill Levy Tax Freeze” case.  Since April 2009, Matt has tirelessly sought to educate Colorado voters of their right to demand accountability of our Supreme Court justices in the November 2010 retention elections, which (although falling short of removing the three anti-constitutional incumbents on the ballot, achieved the highest percentage of “NO” votes for sitting “Supremes” in the history of the state- on a shoestring budget and no organized support).

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