Are business license fees a tax subject to TABOR? Denver District Judge will decide

Denver District Court Judge Bruce Jones will decide if the money collected from business owners is a fee or a tax, an answer that “will affect policy for years to come,” said Tony Gagliardi, Denver director of the National Federation of Independent Business.

The Colorado Secretary of State’s office since 1983 has collected fees from businesses and used the money to pay for all of the activities run by the office, including elections. The funding structure of the office, which is unique in the state, was set up long before the first utterance of Colorado’s Taxpayer’s Bill of Rights, which was voter-approved in 1992 and says voters get to decide on new taxes and tax increases.

NFIB, on behalf of its members, filed a lawsuit in 2014 against Colorado Secretary of State Scott Gessler. The office is now held by Wayne Williams, who was in court Friday for a hearing where Judge Jones heard arguments of the fee/tax issue.

At the heart of NFIB’s argument is that fees, which are not subject to TABOR, are intended to defray the costs of a particular government service like processing business licenses. A tax is designed to raise revenues to defray the general expense of government.

The Secretary of State’s office collects about $20 million a year in fees from businesses that are filing required forms, but only about 11 percent of that is needed to oversee the business-licensing program. The rest of the money pays for elections, bingo and raffle regulation and other functions that aren’t related to business, said Jason Dunn, attorney with Brownstein Hyatt Farber Schreck who represents NFIB.

Judge Jones put it this way: “At what point did you wake up and realize this was not a fee?” directing his questions to Dunn. “What was the clarion call?”

It’s been an evolution. Current business licensing fees range from $1 to $125, but the charges have increased every year. Dunn said there was considerable debate in recent years between Colorado lawmakers and Gessler over whether it was proper to fund elections on the backs of business. NFIB is asking that the state only collect the amount it needs to run the business licensing program.

“This is not how government should be funding government services,” Dunn said.

But it’s been like this for years, meaning the precedent has been set, said LeeAnn Morrill, an assistant Attorney General representing the state. The amount collected has increased over the years, she said, but so has the amount of business filings.

When the funding structure was set up by the Legislature, it’s intent was for the fees collected to fund all activities of the Secretary of State’s office, which includes elections. There is no evidence, she said, that any of the fees collected have gone into the general fund or been used to pay for anything other that services provided by the Secretary of State.

Further, the funding structure for the Secretary of State’s office predatesTABOR – a significant fact, she said.

Jones said he would have a decision within 60 days and any decision will not affect the November election.

Williams said that it’s his job to administer the office as set by the General Assembly.

“I think there are important issues raised by this litigation,” he said Friday. “I’m grateful that the plaintiff has agreed it doesn’t impact this election year because we definitely want to provide election support.”

Williams said that no matter what the outcome, the state would find a way to pay for elections.

“I’m confident that the General Assembly would fund elections,” he said. “When I was County Clerk I had to go in front of the commissioners every year and ask for funding for elections. They always funded elections.

“Elections are a fundamental part of government.

Monica Mendoza covers banking and financial services, legal services, the economy and economic development, and sports business and contributes to the “Finance & Law” blog. Phone: 303-803-9230.

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