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7A1DA63E914017E88725844000627A41 Hearing Summary


Date Jul 23, 2019      
Location HCR 0112

Tax Expenditures in Colorado and Colorado's State Budget - Committee Discussion Only

11:55:46 AM  

Esther Van Mourik, Office of Legislative Legal Services, introduced herself and set up the discussion for the Legislative Council Staff presentation. She discussed tax structure and noted that the definition of tax expenditures is based on federal definition from 1968 and that is an alternative to direct spending or other programs. She noted that OMB does not include all tax expenditures in their list of tax expenditures like allowing some income rules for interest or trying to adjust for filing status and household makeup as ability to pay. She stated that the federal definition indicates that a tax system is better if there is a broad base and low rate, therefore fewer exemptions or expenditures lead to a better tax system.  She noted that the state auditor included 4 elements: must be a state provision enacted by state law, a expenditure for taxes not fees, must apply to only certain types of people or businesses (preferential tax expenditures), and must reduce revenue from legally collected taxes. Mr. Sobetski then began his presentation on tax expenditures in the state budget (Attachment D).  He noted that tax expenditures for sales and use taxes, income taxes, and cigarette, tobacco, and liquor excise taxes generally impact revenue into the General Fund. He state that other tax expenditures that reduce cash fund revenue include severance taxes and fuel excise. He discussed the budget implications when we are in a TABOR surplus situation and noted that, while a tax expenditure may not impact the budget in all years, a permanent tax expenditure will reduce the revenue available in some future years.

01:51:33 PM  

Mr. Sobetski continued to talk about the impact of tax expenditures on the state budget. He stated that there are some data limitations so that the state does not know precisely how much revenue is at stake. He used the example of sales taxes where taxes are not collected, there is no data so other, non-tax, data sources are used to estimate the value of the exemption. He also discussed the DOR's tax expenditure report and that there was $6.6 billion in foregone revenue because of all of the state's tax expenditures.

02:01:36 PM  

Mr. Sobetski continued and discussed that overwhelmingly the revenue from tax expenditures are structural or are not subject to legislative intent. He noted that revenue is mostly attributable to sales and use tax expenditures, but that includes structural and preferential tax expenditures. Mr. Sobetski discussed the largest structural tax expenditures.

02:08:48 PM  

In response to a committee question, Ms. van Mourik stated that the vendor fee is a fee and like an expenditure in the budget, so it does not need voter approval.

02:18:36 PM  

Mr. Sobetski continued and discussed the largest preferential tax expenditures.

02:21:15 PM  

The committee discussed 529 deductions, as well as the the fuel for home consumption sales tax exemption  The committee also discussed the inclusion of long-term rentals in the "other" sales tax exemptions and taxing services.

02:38:37 PM  

The committee discussed clarifying structural vs. preferential tax treatment in statute.

02:42:33 PM  

Mr. Sobetski noted that the General Assembly spends a lot of time talking about some of the smaller exemptions which are not near the $6.6 billion in total revenue from tax expenditures.

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