E0EF08C7D1E0BD848725845B005BC428 Hearing Summary

Mr. Josh Pens and Mr. Brendon Reese from the Department of Revenue. Mr. Reese discussed how if the committee wants more data, that requires the taxpayer to provide detailed information on each expenditure. He stated that this adds some burden to taxpayers.

Mr. Pens discussed the crop and hail exemptions. He mentioned that some of the expenses are reported for federal taxes and that would flow to Colorado returns so that Colorado doesn't have data on the exemption. Mr. Pens said that the data was reported on the "other exemptions" line so there is not further data on the number of taxpayers or the amount or revenue and that it will be included with other agricultural deductions starting with the 2020 returns. In response to a committee question on how the state knows if the exemption is meeting its purpose if the state does not have the data., Mr. Pens responded that there is a balance between getting more detailed reporting and simplifying the return that taxpayers provide.

In response to a question about the interplay between the farm close-out exemption and the machinery exemption and on-road vehicles, Mr. Pens mentioned that the two exemptions may overlap, but they are largely on 2 different transactions. He stated that when the property is sold it is exempt as production equipment and then the farm-close out sale is also exempt. The sale may be exempt for more than one reason, but that a sale can only be exempted once.

The committee moved onto the long-term lodging exemption. DOR stated that guidance that the exemption applies to businesses was extended in 2000, likely to harmonize between natural persons and corporations and businesses. In DOR's view, there was not a tax-policy reason why there should be a distinction between the 2. They looked at some home-rule cities and they all have a similar rule.  The committee discussed the long-term lodging exemption. Mr. Pens responded that the rule would allow a corporation to rent a block of rooms and one example is airlines that rent a block of rooms for crews. He mentioned that it is a policy decision if the General Assembly thinks that is appropriate. Mr. Pens also brought up apartment complexes that rent to corporations and that they would not pay the lodging tax. Mr. Pens clarified that hotels know who is in the rooms, but that it is a step farther to provide that information to the DOR.

In response to a question about biogas sales tax exemption, Mr. Pens clarified that biogas produced at a landfill may qualify for the exemption, but that it depends on the equipment purchased.  DOR doe not have a list of goods exempt for the agricultural exemption. For example, DOR has a rule for breakage of alcoholic beverages, but not spoilage that is due to age or other reasons.

The committee moved onto asking about NOL deduction. Mr. Pens responded that since the state is tied to federal tax law, the NOL deduction applies unless the General Assembly affirmatively de-couples. The standard NOLs for financial corporations apply, even though they are for 15 years rather than 20 for C-corps. Mr. Pens explained that the federal level only allowed NOLs of less than 15 years for financial corporations so Colorado's statute was a way to expand the NOL. Mr. Pens mentioned that the state law is permissive, that financial firms may take the exemption but are not required to.

In response to a question about the childcare contribution credit, Mr. Pens talked about how many people have childcare expenses which leads to higher utilization and that it is similar to the federal childcare credit.

Mr. Pens addressed the concern if that retailers have discretion to allow exemptions. He stated that, in the case of dispute, DOR wants retailers to collect the tax and let it determine if it was taxable. In response to a committee question about if that provided a disincentive for retailers to disallow exemptions, Mr. Pens said he did not know of any retailers with a blanket policy of not allowing the exemptions. He noted that some retailers may be more conservative than others, but that there is a customer service aspect where the retailer doesn't want to send their customers to the state for refunds. Mr. Reese continued and said that there is a backlog in refund claims for sales tax refunds in the department. They have reassigned some resources and staff to try and work through the backlog. Jean Robinson, representing DOR, recommended reaching out to municipalities to see if home-rule cities accept the state's exemption certificate. Ms. Robinson also shared that the RFP for the simplified sales tax system are expected by September 13 and the department will have more information then.

There was some discussion about the rural healthcare preceptor credit and if DOR plans to do any paper audits since they have been identified by the state auditor as not being in compliance. In response to a question about the revenue impact of the energy sales tax exemption, Mr. Pens explained that it was complicated because of how the department tracks the data and that the exemption can be claimed several ways. In response to a question about if the department had any ideas about how to capture any more information to get better data on the exemption. Mr. Pens said the department is looking into how to provide more information on sales tax returns, but ultimately that will reduce errors rather than provide more information on the amount of the exemption.

In response to questions about the energy exemption, Mr. Pens responded that the department does not look at prices of goods. The committee asked for additional information and committee staff will try and provide a response.

In response to a committee question about some of the data deficiencies in the exemptions, Mr. Reese discussed that there are some issues with getting data from taxpayers, but there is also additional Gen Tax resources that were provided this past session and they are getting put on board. In response to a question about additional audit costs for new programs, Mr. Reese responded that they try and put some additional resources in fiscal notes, and also said that if reporting is required in statute then they will provide it, but that may increase the costs in the fiscal note. He stated that the reporting costs are often the first item cut to lower the costs, because the Department of Revenue still needs to administer the tax. Ms. Robinson mentioned that there is a constant balance between reporting and getting data and taxpayer compliance and that additional lines add additional complexity and can introduce errors.  The committee recessed.