Colorado’s state legislature, as awfully ambitious as it is, has paradoxically been making a habit of late of letting others do its work. The most poignant example of course is letting the governor make free with the federal COVID funds — distribution of which is quite clearly a legislative function — with nary a whisper, save from the likes of the estimable guru of the Joint Budget Committee, Sen. Bob Rankin.
Now, simili modo, the legislature is on the sidelines while the Department of Revenue unilaterally changes tax policy for them.
The DoR is proposing a rule, Tax Rule 39-26-102(15), which would extend Colorado’s definition of “tangible personal property” to the access and streaming of electronic services — think streaming services like Hulu, or Spotify, or whatever it is you kids use these days (I still watch PBS if there is something worthwhile on “Masterpiece,” and videos of “The Sopranos”).
Anyway, what the DoR is proposing is to basically redefine the meaning of the word “tangible.” Historically, linguistically, and in statute, “tangible” means corporeal — i.e. tangible personal property is that which can be physically delivered, received, and possessed. Under the new rule, “tangible” will mean — well, whatever it needs to mean to able to tax it.
This, as an aside, is an increasingly common public policy tactic — if the definition of a particular word proves inconvenient to the adoption of the desired policy, simply change the definition of the offending word and poof, the problem goes away. The Supreme Court has been aware of this for years. In due course, the English language will become ambiguous and flexible enough to serve as a complete barrier to communication and understanding.
Back to the rule at issue. There are reasons that unilateral actions by state (or federal) agencies without legislative sanction are problematic. In the first place, of course, it is an insult to the process. Fealty to process may seem nothing more than archaic adherence to procedure, but these procedures were developed, often over the course of centuries, for a reason. They provide legitimacy, oversight, and protection from arbitrary and capricious governance. This isn’t abstract partisan rhetoric. A good test of whether something is a good idea or not is to apply it in reverse: How many of those who are happy with this proposed rule would be equally comfortable with a revenue department under the administration of, say, Gov. Tom Tancredo or, per impossible, Gov. Doug Bruce, having similar flexibility? See?
There are also more practical considerations alongside the philosophical ones for ensuring the legislature jealously maintains its lawmaking ability over tax policy. It has been said over and over, because it is true, that business and the economy require certainty and predictability. The rule of law, by definition, provides a degree of certainty and predictability. A.V. Dicey’s definition provided in his 1885 tract “Introduction to the Study of the Law of the Constitution” is generally considered the standard: “We mean, in the first place, that no man is punishable or can be lawfully made to suffer in body or goods except for a distinct breach of law established in the ordinary legal manner before the ordinary courts of the land. In this sense the rule of law is contrasted with every system of government based on the exercise by persons in authority of wide, arbitrary, or discretionary powers of constraint.” A state agency cooking up a major change in tax law in their policy kitchen is probably not what Dicey meant by “the ordinary legal manner.”
And there is no question that this would constitute a major change. Back to the definitions, property for tax purposes is divided into three categories — real, tangible personal, and intangible personal. By definition in state law, the explicit targets of this rule, i.e. streaming services, are intangible. You do not physically possess whatever it is Hulu provides you any more than you physically possess the brilliant advice a consultant provides you.
Once we get past the procedural concerns, there remains the fact that the rule is bad economic policy, however it is promulgated. We are in the middle of what amounts to an entirely government-created recession (most recessions are government created to one extent or another). Adding to the burden by putting additional costs on a particular segment of the economy will not be helpful. Nor will muddying the legal waters in the course of doing so.