Among the late bills introduced on Monday, House Bill 1420 would end tax loopholes in an attempt to put more money into the State Education Fund.
Known as the "Tax Fairness Act," the bill would generate $248 million in general fund in 2020-21 and more in succeeding years. That's a big help to schools that face a doubling of the debt to K-12 known as the budget stabilization factor.
As reflected in the school finance act, that debt would be around $1.18 billion.
But the measure lacks an agreement with the one person outside of the General Assembly who matters: Gov. Jared Polis.
In his Tuesday afternoon news conference, Polis said his administration has not reached an agreement with the General Assembly on the bill.
Polis pointed out he had run on a platform of eliminating tax loopholes, but he also ran on a pledge to lower the state's income tax rate. "We're happy to negotiate on this," Polis said, but added that there is not yet an agreement on fiscal policy.
The changes to tax law under HB 1420 include:
- net operating losses for "C" corporation businesses would be capped at $400,000 annually.
- repeals a deduction for "qualified net capital gains" effective at the end of the 2020 tax year.
- repeals a tax exemption for the sale or use of electricity, coal, gas, fuel oil, steam, coke or nuclear fuel used for industrial purposes, effective August 1. The bill allows for a sales and use tax refund of up to $1,000, and provides exemptions for agriculture, diesel fuel purchased for off-road use, and fuel used to generate electricity. The bill states that repealing the exemption does not affect the sales and use tax base for counties, cities and special districts.
- repeals a provision for insurance companies with regional home offices in Colorado that cut the tax on insurance premiums from 2% to 1%. On March 1, 2021, that goes up to 2%, the provision governing all other insurance companies.
- institutes a tax on insurance policies issued in connection with an annuity plan.
The measure also partially repeals a state small-business deduction allowed under the 2017 federal tax reform law, although it continues to allow the exemption for joint filers with adjusted gross incomes under $150,000.
The bill's fiscal note, which estimates its costs and revenue, predicts the biggest revenue will come from the change in net operating losses, which could generate $62 million in 2020-21.
HB 1420 is sponsored by Democratic Reps. Matt Gray of Broomfield and Emily Sirota of Denver. It is already generating opposition from business groups, such as the Colorado chapter of the National Federation of Independent Business (NFIB).
At the heart of the federal Tax Cuts and Jobs Act, passed in 2017, is the small-business tax deduction of 20% of business income, said NFIB's Tony Gagliardi. "Because state taxes are tied to the final taxable income on an individual’s federal forms, many Colorado small-business owners also had less state taxes to pay. Gray and colleagues, Rep. Emily Sirota, Sen. Julie Gonzales and Sen. Dominick Moreno, want to de-couple state tax calculations from the federal government’s. In short, they want the 20% savings back," he wrote in a statement Monday.
“That 20 percent small-business tax deduction helped produce record highs in hiring, employee compensation, and business expansion. And, it would still be doing so had not the coronavirus pandemic hit. We’re asking small-business owners to re-open and re-hire while we’re threatening them with a tax increase, providing them no liability protection from COVID-19 lawsuits, almost ruining their economy-calming, joint-employer rule, and still asking them to conform to the taxing regulations of more than 700 entities.”
The bill is backed by the left-leaning Colorado Fiscal Institute, which said Monday that the bill "will protect our communities from cuts, close loopholes in our unfair tax code, and even provide relief to Coloradans regardless of their race and immigration status."
The tax loopholes targeted in the bill "benefit a small number of wealthy people. By either ending or means-testing those tax carve-outs, it will lessen the pain created by budget cuts for communities across the state," the Institute said in a statement.
The bill was slated to be heard by the House Finance Committee Tuesday afternoon.
A ballot measure, known as Fair Tax, is being proposed for the November general election, and is also promoted by the Colorado Fiscal Institute.
Polis applauded the work of the General Assembly to get the budget finished and to offer legislation on loan relief and a small business grant program, which he said will be especially helpful for small businesses that could not get into the federal Paycheck Protection Program. He also indicated he supports the paid sick leave bill currently moving through the legislature.
The governor also said his administration is "warily" watching news out of Utah and Arizona on rising cases of COVID-19. That's not the trend being seen in Colorado, but it's a concern given that those states neighbor Colorado, the governor explained. He brought on Lt. Gov. Dianne Primavera, who has been working from home for the past three months to talk about her work during the pandemic. Primavera noted she is in two risk categories: one on age — she's over 65 — and the other as a four-time survivor of cancer. "COVID-19 has been the most daunting challenge of our careers," she said.
The state's death toll from COVID-19 is now nearing 1,300, with an additional 250 who died with the virus but not from it.