Court of Appeals Revives NFIB Suit to Enforce the Colorado Taxpayer Bill of Rights

Date: March 07, 2017

In 2015 a Colorado District Court issued a summary judgment order dismissing NFIB’s lawsuit to enforce the Colorado Taxpayer Bill of Rights. But in a decision last week, the Colorado Court of Appeals reversed—holding that NFIB may ultimately prevail. The suit, NFIB v. Williams, challenges what NFIB believes to be illegally imposed taxes imposed on Colorado businesses each year—all of which fund expanding programs administered by the Colorado Secretary of State.

Since 1983, NFIB members and other Colorado small business owners have filed over 750,000 corporate documents, like articles of incorporation or periodic reports, with the Colorado Department of State (CDOS). For each document filed, a fee ranging from $5- $125 is assessed, which goes to fund the department’s operations. However, only 10% of the fees collected by the State are actually used for the division of the (CDOS) office that concerns business licensing. The rest goes into a cash fund and is used to finance other department expenses, with the largest percentage – 65% — being used to fund statewide elections that benefit all Coloradoans.

In 1992 Colorado amended its state constitution by adding the Taxpayer Bill of Rights (TABOR), which requires voter pre-approval of any new tax, tax increase, or tax policy change that results in a net revenue increase for any district in the state. Looking at the gross disparity in the amount of revenues CDOS collects from business filers and where the department spends that money, NFIB argued the Colorado business licensing fee was a tax and unconstitutional under TABOR. As a result, we sued the Secretary of State in December 2014.

Previously, the District Court ruled against us—basically punting on the legal question of whether or not the business licensing fee was a tax. On appeal, NFIB had hoped to secure a decision on this point. We argued that the District Court was wrong to have categorically concluded the Secretary of State’s conduct to be beyond the scope of TABOR. Specifically, we pressed that any change in the rates charged for business licensing fees since TABOR was ratified in 1992 required voter approval. And on that point the Court of Appeals agreed with us.

But unfortunately, the Court of Appeals also balked when called upon to determine whether the Secretary of State had violated TABOR. Instead, the case has been remanded back to the district court with orders for the Secretary to essentially show his work as to how precisely these fees have been calculated year-by-year because—as the Court of Appeals emphasized—any change in that calculation must be deemed a change in tax policy or tax rate. Accordingly, we expect to ultimately prevail in this case if we choose to proceed in district court.

But NFIB is likewise weighing its options. For that matter, we believe that the facts already set forth clearly demonstrate a TABOR violation. Sixty-five percent of the “fees” collected for business licensing activities are used to fund an activity that benefits all Coloradoans – elections. And the “fees” have increased over time, with small business carrying more and more of the burden of financing public programs. So really, the Colorado Supreme Court may still have the final say.

While NFIB was heartened that the Court of Appeals reversed the District Court dismissal of our case, it is sad that the Colorado taxpayer is being asked to fund more litigation when none is needed. NFIB will continue to fight and expose these business licensing “fees” for what they truly are – unconstitutional taxes on Colorado’s small businesses. At the end of the day, we just want to ensure that small business owners are treated fairly.

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