Tax refund ideas and tax return preparation

With just two days, maybe three, in the 2020 legislative session, House Republicans ate up the House’s Thursday morning agenda with a three-hour filibuster on the Tax Fairness Act, House Bill 1420.

If the General Assembly adjourns Friday, the bill must run through Senate introduction, committees and second reading debate Thursday for a final vote on Friday.

If they adjourn Saturday, the bill has an extra day's time. 

But the bill has a bigger problem than timing: a threatened veto by Gov. Jared Polis. This is the first time the second-year governor has publicly telegraphed a veto threat.

Known as the "Tax Fairness Act," HB1420 would generate $248 million in general fund dollars in its first year. That's a big help to schools that face a doubling of the debt to K-12 known as the budget stabilization factor. Of that $248 million, $150 million would go into the state education fund on July 1, 2021.

The bill passed on a 39-to-26 vote, with two Democrats joining the Republicans in voting against.

To pay for it, the bill changes the state’s tax laws.

  • Net operating losses for "C" corporation businesses would be capped at $400,000 annually.
  • A deduction for "qualified net capital gains" would be repealed, effective at the end of the 2020 tax year.
  • A tax exemption for the sale or use of electricity, coal, gas, fuel oil, steam, coke or nuclear fuel used for industrial purposes would be repealed, effective August 1.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 went through the House Finance Committee Tuesday on a party-line vote; in House Appropriations, Democratic Rep. Tracy Kraft-Tharp of Arvada, who has chaired the House Business Affairs & Labor Committee the past four sessions, joined with Republicans in opposing it, but it passed on a 6-5 vote. She was also one of the two Democrats, along with Rep. Bri Buentello of Pueblo, to vote against the bill Thursday.

Republicans did win one concession from Democrats, with an amendment to exempt those who must file a federal Schedule F with their tax returns. That’s farmers, ranchers and others engaged in agriculture, such as greenhouses, nurseries and orchards, including those for whom farms are only part of their income.

While filibusters in the past week — vaccinations, for example — have been dominated by the Republican caucus’s urban lawmakers, it was rural Republicans who took the lead Thursday

Republican Rep. Rod Pelton of Cheyenne Wells, who is a farmer, advocated for that change, and praised Democratic Rep. Mike Weissman of Aurora for his work on that amendment.

Ag producers go through quite a bit of diesel fuel every month. That would have added to their operating costs, he said.

During the pandemic recess, Rep. Marc Catlin of Delta said he was home, watching corn grow. “I live where corn grows,” he said, as do others. “Agriculture is the base, the foundation for most of the communities we represent.”

Democratic Rep. Daneya Esgar of Pueblo said the bill sponsors have heard the concerns of agriculture. “We know we have to protect the lifeblood of Colorado,” she said.

But that change means a change in the bill’s costs, and lawmakers are being asked to vote on a bill for which its fiscal impact is unknown, said Assistant Minority Leader Kevin Van Winkle of Highlands Ranch. He called the bill a “knee jerk reaction” to raise taxes and take more money from Coloradans, even at a time of high unemployment.

Business groups and others continued to advocate for its defeat Thursday. Action 22, which advocates for economic development in southern and southeastern Colorado; and Pro 15, which does the same for northeastern Colorado, both came out against the bill. So did the Rocky Mountain Insurance Association, which warned the changes to insurance could result in higher premiums.

Lyn Elliott of the American Property Casualty Insurers Association of America added that HB 1420 “is an expensive band-aid to cover an overall budget shortfall with no stakeholder process, deeper financial analysis and consideration of the potential cost to employment and investment in the state provided by the long-standing regional home office insurance tax credit.” Elliott also noted Colorado insurance companies “already pay nearly $300 million annually in insurance premium taxes-the third largest tax revenue generator behind income and sales tax."

Democrats, with the votes in hand to pass the bill, spoke little.

Rep. Shannon Bird, a Westminster Democrat, said the tax incentives and breaks “do net a great return...when we have the money, I’m fully in support of having a tax code that incentivizes private behavior for action in the public interest. But right now, we don’t have the money.”

Given that lawmakers have just cut $3.3 billion in general fund from the 2020-21 budget, “we can’t be spending money we don’t have,” Bird said. “Tax credits and tax breaks costs our general fund money." There is something “fundamentally wrong with our tax codes if only our private sector recovers and our state never did.”

Weissman, whose undergraduate degree is in economics, said he rejects the dichotomy between “a sane tax policy and what’s good for business.”

He pointed out that one provision in the bill only applies if a business earns more than seven times the state’s median income (currently $71,953 for households). Another affects those with more than 362 times the state’s median income, Weissman said.

The time has come for a critical look at the tax code, make it more reasonable and not give short shrift to public education. “Maybe folks can contribute just a little more,” he said. “Small answers are not the answers to big problems.”

Polis said Thursday that negotiations with the bill's sponsors are stalled. In a statement to Colorado Politics, Rep. Matt Gray, a Broomfield Democrat who is one of HB 1420's prime sponsors, that "I look forward to continuing productive conversations with the Governor. These aren’t easy times for anyone, but if we don’t act to protect our schools we’ll see our teachers suffer and a generation of students face a lower quality education because we lacked the courage to do something about it. Automatically adopting the tax ideas from Washington that favor wealthier people is a lower priority to me than our teachers and students."

The 17-page bill was also read at length.

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