A Tax By Any Other Name: NFIB Asks Colorado Supreme Court to Take-Up Business Tax Question

Date: July 28, 2017

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According to the NFIB Research Foundation’s 2016 Problems and Priorities Report, tax issues remains a top-concern for small business owners. This is why NFIB has been such a proponent of strong tax payer protections—including constitutional rules applicable in numerous states that require strict compliance with special procedures for enacting new taxes. For example, many states prohibit municipalities from imposing certain forms of taxes, or require that new taxes imposed at the state level must be approved by a super majority vote. But, Colorado is perhaps the gold standard.

In 1992, Colorado voters adopted a Taxpayer Bill of Rights (TABOR) through the initiative process. This prohibits imposition of new taxes without voter approval. But opponents have tried relentlessly to invalidate TABOR in the courts. For example, in Kerr v. Hickenlooper, NFIB Small Business Legal Center weighed-in before the Tenth Circuit to defend the Taxpayer Bill of Rights against an absurd constitutional challenge. But while opponents have failed in their efforts to strike-down TABOR, they’ve continued to work to undermine the principle that new taxes require voter approval.

From the perspective of a government agency hungry for greater revenues, the easiest way to get around TABOR’s taxpayer protections is simply to dub true taxes as “fees.” For example, Colorado’s Secretary of State imposes supposed “fees” on all sorts of required business filings, which are used to fund the Secretary’s budgetary needs. But as we argue the charges are not true fees because the revenue raised is used to fund all sorts of things entirely unrelated to any services that the Secretary’s office may provide the business community. For example, the Secretary has raised these “fees” to cover added expenses of administering state and local elections that benefit the whole public. So, we argue that they should more properly be viewed as improper taxes.

The good news is that the National Federation of Independent Business is speaking-up for small business in a lawsuit challenging these illegal taxes. After a lower court decision initially dismissed the suit, NFIB successfully appealed. The Colorado Court of Appeal concluded that, in fact, the Secretary may have violated TABOR in repeatedly adjusting fee rates since 1992; however, we think that the Court should have gone even further. Rather than remanding this case back to the lower court, we maintain that the Court of Appeals should have ruled that—based on undisputed facts—the Secretary has illegally adjusted “fee” rates to cover expenses unrelated to business services. And now we’re asking the Colorado Supreme Court to take the case, to settle this dispute once and for all.

While the Supreme Court retains discretion to take this case, it seems quite likely that it will choose to hear our arguments. Indeed, the Secretary has likewise filed a petition asking the Supreme Court to take the case. In his petition, the Secretary argues that the assailed business filing “fees” are immune from challenge under TABOR. But of course, that assumes that they are properly viewed as true “fees”—which is the essential question in dispute. To somewhat paraphrase an old Shakespearean adage: A tax by any other name would smell as rotten.

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