There’s a wrinkle developing in the way pharmaceuticals are taxed. A bill was introduced Tuesday that would make sure those Botox, insulin, allergy or any other injections administered outside a doctor’s office aren’t subject to sales tax, The Denver Post reports.

Stay ahead by signing up for State Bill E-News! >

Sen. Rollie Heath’s proposal to create a super commission empowered to recommend sweeping changes to the state constitution appears to be going nowhere this year, The Denver Post reports.

The Boulder Democrat’s idea was to ask voters to create a 19-member commission to recommend changes to the constitution. The commission would have been composed of six Democrats, six Republicans and seven unaffiliated members.

Stay ahead by signing up for State Bill E-News! >

Gov. Bill Ritter on Thursday signed House Bill 1197, which sets a statewide limit of $26 million on conservation easement tax credits, The Durango Herald reports.

The Department of Revenue estimates the bill will save $37 million in the popular tax credit program. Land trusts have used the program to put more than 2 million acres of farm and ranch land off limits to development.

Stay ahead by signing up for State Bill E-News! >

It’s official, business lobbyists throughout the state Capitol say: Tax incentives officially have become the whipping boy of the 2010 Colorado Legislature, The Denver Business Journal reports.

One day after Rep. Joel Judd, D-Denver, reluctantly killed his bill to eliminate enterprise zones and their $77 million in annual tax breaks, he is the cosponsor of a bill by House Majority Leader Paul Weissmann, D-Louisville, that essentially revisits the issue.

Stay ahead by signing up for State Bill E-News! >

By Debi Brazzale, COLORADO NEWS AGENCY
After a brief hiatus, the elimination of tax credits has once again stirred up controversy at the capitol.
During House debate Monday, it was a bit of déjà vu with Republicans pushing back against a Democratic measure seeking more revenue for a cash-starved state.
House Bill 1200, sponsored by Rep. Dickie Hullinghorst, D-Longmont, is part of Governor Bill Ritter’s 2010-11 budget-balancing package, eliminating certain tax credits and tax exemptions. The credit addressed in HB1200 is currently offered through the Colorado Enterprise Zone Program, specifically the Investment Tax Credit (ITC). The credit equals 3 percent of a qualified investment. HB1200 places a cap on the credit in 2011, and defers the credit in subsequent years. Estimates suggest passage of HB1200 would generate around $11.8 million in FY2010-11 and $24.6 million in FY2011-12.
Hullinghorst told House members that the passage of HB1200 is necessary to balance the budget—the budget already approved by lawmakers and sent to the Governor earlier this month, known as the “Long Bill.”
“If we don’t find that $11.million we need to find another spot to balance that. If we don’t pass this, it’ll be difficult for the governor to sign the long bill,” said Hullinghorst.
GOP members questioned Hullinghorst on the necessity of eliminating a portion of the ITC credit to balance a budget that has already been submitted to the governor. Hullinghorst said that the budget is not based on actual spending and revenue, but rather on anticipated future spending and revenue, and that the $36.4 million will ensure that the budget is balanced.
“We balance the long bill based on projections,” replied Hullinghorst. ”The long bill is a dynamic document.”
Republican Rep. Brian Del Grosso of Loveland pointed out to Hullinghorst that there is also a dynamic at play in business that he believes would be harmed if the measure were to become law.
“Based on a hypothetical, we’re going to ask businesses once again to pony up–almost 12 million dollars–increas[ing] the cost of doing business, and cost jobs,” said Del Grosso.
Democratic Joint Budget Committee Chairman Jack Pommer of Boulder, who oversaw this year’s budget process, said that the nexus between the tax exemptions and jobs just isn’t there and supports the measure as the prudent thing to do to ensure a balanced budget.
“The idea that this is going to throw anybody out of work is just plain goofy,” said Pommer, “There’s been this tendency to make this false equation between these special tax breaks and jobs, and there’s no connection between them whatsoever.”
Pommer believes that the extra $36.4 million (over two fiscal years) will help provide a “margin of error” in the budget if projections are wrong considering that the governor’s projections are slightly underbalanced, and the legislatures projections are slightly over balanced.
Yet Rep. Cory Gardner, a Republican of Yuma, believes that tinkering with the ITC will do more harm than good for Colorado’s overall economic health, regardless of how well the budget is balanced, saying elimination of the ITC could be the straw that breaks the camel’s back.
“Taxes have been increased on businesses by over $100 million this year. Enterprise zones do create jobs,” said Gardner. “If this bill passes we’re simply pushing a boulder down a mountain that’s already falling.”
The bill passed a voice-vote Monday, and is now on the calendar for a full roll-call vote on Tuesday.

Stay ahead by signing up for State Bill E-News! >

By Jake Grovum, STATELINE.ORG

Every consumer knows that shopping online can be a handy way to avoid paying sales tax on books, CDs and electronics. But not nearly as many know that they’re still supposed to pay tax on these purchases. That’s something Colorado, North Carolina and other states, desperate for revenue, want to change.

But by taking steps to collect what many have simply begun calling the “Amazon tax,” the states have ignited a tax war with the huge online retailer that is the primary target of their efforts. In February, Colorado passed a law requiring Amazon.com and other Internet retailers to mail notices to customers reminding them of their tax liabilities. Amazon responded by shutting down its affiliate program in Colorado, effectively closing thousands of small businesses that were marketing Amazon’s products over the Web.

Then, last week, Amazon sued North Carolina after the state’s department of revenue asked the company to turn over the names and addresses of its North Carolina customers — information the state would need if it were to try to collect unpaid taxes. With as many as 15 more cash-strapped states weighing whether to pass Amazon taxes of their own, there’s a lot of interest in seeing how that case, as well as a related case in New York State, turn out.

The disputes in Colorado and North Carolina are only the latest twists in the fight over Internet sales taxes. Opponents of taxing the sales of Amazon and other Web-based retailers say such measures are a misguided attempt at recouping additional revenue without having to raise taxes. Further, a Tax Foundation report released last month questioned how much money it would actually bring in. Still, the states say it’s not just money they’re after but fairness: Main Street retailers have to collect sales taxes, and leaving the Internet as a tax-free shopping zone puts them at a disadvantage.

The ‘physical presence’ test

While this has been an especially hot issue in the past few years, the debate goes back to 1992. That’s when the U.S. Supreme Court said that states could not force retailers to collect taxes for them unless the retailers had a physical presence, or “nexus,” in the state. The court’s reasoning was simple. There are just too many states, counties and cities using too many different tax rates and rules to expect retailers to keep track of it all.

The case, called Quill v. North Dakota, involved a company that engaged in mail-order sales. But it underpins the taxation of e-commerce, as well. As online retail sales — and all the lost revenues associated with them — became too big for states to ignore, dozens of states set out to simplify their sales tax rules. By making it easier for companies to collect the tax, the states hoped, more retailers would be willing to do it for them. Some retailers, especially ones with a lot of physical outlets, such as Barnes & Noble and Target, agreed. Amazon did not. The company collects taxes only for Washington State and a few others where it has offices or some other physical presence.

In 2008, New York State tried a new approach. Amazon was doing a growing amount of business through its affiliates program, which pays people across the country to market Amazon goods on their own Web sites. The Legislature figured that because some of those affiliates are based in New York, the state could make a case that Amazon and other sites using the same business model, such as Overstock.com, had nexus there. The bill that Governor David Paterson signed into law was the first to be called an Amazon tax, although technically, it wasn’t a new tax so much as an attempt to wring more revenue out of existing sales and use taxes. It worked: New York estimates that its law yielded $70 million in the 2009-10 fiscal year, from 30 Internet companies.

But Amazon also sued New York over its law, disputing that its affiliates amounted to a real physical presence in the state. A court ruled against the company, but it has appealed that decision.

In the meantime, Rhode Island and North Carolina followed New York’s lead, passing similar laws saying that operating an Amazon-style affiliate program creates nexus in their states. This time, Amazon struck back in a different way: It simply shut down its affiliate programs there. While residents in both states still can buy goods from Amazon, Rhode Island has acknowledged that its Amazon tax has not produced any revenue. Frank T. Caprio, Rhode Island’s treasurer and a candidate for governor, has called for repealing the law on the grounds that it’s hurting the small businesses that used to rely on Amazon for their livelihoods.

By the time Colorado took up the issue in February, officials there had come to see New York’s nexus approach as a dead end. Initially, they sought to mirror New York. But a House Finance Committee hearing in Denver saw an outpouring of protest by in-state affiliates. At the hearing, at least 20 participants in the Amazon program waited until almost midnight to voice their opposition, saying such a move — particularly if it caused Amazon to sever ties — would devastate their businesses. Lawmakers responded by trying something new.

The bill’s in the mail

Rather than go after Amazon directly, they decided to educate consumers about their tax obligations when they shop online. The law, signed by Governor Bill Ritter, requires Amazon and others to mail yearly notices to their Colorado customers, telling them the total amount of purchases on which they still owe tax. (The same information is to be reported to the state department of revenue.) The notices are to be mailed by January 31, when taxpayers receive other important tax forms in the mail, and are to be sent in envelopes that say “Important Tax Document Enclosed.”

“We just threw out the whole [New York] approach and said, ‘What can we do to encourage compliance on the purchaser side?’” says Phil Horowitz, director of the state revenue department’s office of tax policy analysis. We “were trying to figure out how to make it effective but still protect the affiliates.”

Amazon didn’t see it that way, and shut down its affiliate program in Colorado. “The regulations are burdensome,” Amazon explained in an e-mail to the affiliates. Colorado’s move is “clearly intended to increase the compliance burden to a point where online retailers will be induced to ‘voluntarily’ collect Colorado sales tax — a course we won’t take.”

North Carolina is the one state that is mixing both the New York and Colorado approaches to the Amazon tax. So far, it hasn’t had much luck. Its law claiming that Amazon has nexus in North Carolina only resulted in Amazon shutting down the affiliates program there. More recently, the state’s department of revenue asked Amazon to produce the names and addresses of North Carolina customers and the amount they’ve spent with Amazon going back to 2003. On April 20, Amazon sued the state, saying that the request would violate its customers’ privacy. The case is to be heard in a federal court in Seattle, where Amazon is based.

Despite the legal squabbles in the states that have sought to recoup revenue from online sales and the strategies they’ve sought to employ, the varying types of laws and enforcement could have the unintended effect of forcing states and retailers to come together, says Harley Duncan, state and local tax managing director with KPMG’s Washington National Tax practice.
Retailers will have to consider possible effects on their businesses from either turning over customer information or the burden of collecting tax dollars for the government. Meanwhile, states will have to weigh whether calculating and collecting specific tax bills from citizens is a worthwhile venture. “Maybe that loosens the gears a bit,” Duncan says of discussions between two parties that have yet to see eye to eye on much of anything.
Indeed, Sujit CanagaRetna, senior fiscal analyst with the Southern Office of the Council of State Governments says with states’ current budget crises, it’s likely more will take aim at these largely untaxed transactions. Still, he says, the issue points to a larger flaw in the country’s tax system — one that’s still based on agriculture and manufacturing rather than services. “This is an issue that has to be dealt with,” he says. “Basically, to avoid running a 20th-century tax system in a 21st-century economy.”

Contact Jake Grovum at jgrovum-temp@pewtrusts.org

Stay ahead by signing up for State Bill E-News! >

Senior citizens would again lose their property tax exemption under a bill the state Senate passed Friday. The Legislature has relied on the property tax break to balance the budget the last three lean years, and sponsors said this year’s Senate Bill 190 is necessary to keep the state in balance, The Durango Herald reports.

The Senate passed the bill 19-14 Friday. Most Republicans voted no. The bill now goes to the House.

Stay ahead by signing up for State Bill E-News! >

Editor’s Note: State Bill premium users may listen to the entire House Floor hearing by pressing on the audio player published here:

The Colorado Legislature’s one attempt to roll back late fees established by the “FASTER” transportation-funding bill is on the brink of dying in a dispute over exactly how many trailer owners should get those breaks, The Denver Business Journal reports. House members voted Friday to reject the Senate’s attempt to limit the fines paid by owners of trailers of any size who turn in their vehicle-registration fees late. The Senate is now in the position of acceding to the House’s more limited fee-break proposal or killing the bill altogether, likely finishing the session without any substantial changes to one of the biggest bills of 2009.

Stay ahead by signing up for State Bill E-News! >

In the furor over Colorado’s “Amazon tax,” senators might have stumbled on the Holy Grail of state governments: a legal way to tax the Internet. It began Feb. 4 during a late-night hearing for the Amazon bill, formally known as House Bill 1193, The Durango Herald reports. Dozens of local partners of Amazon.com and other Web retailers arrived to protest because similar bills in other states had led to the mass firings of people like them. A Republican senator, Greg Brophy, convinced Democrats to rewrite the bill, and what emerged four days later made Amazon and tax officials across the country snap to attention.

Stay ahead by signing up for State Bill E-News! >

Farmers and ranchers who are thinking about a conservation easement on their land might want to think fast.
The Legislature got moving again Tuesday on an almost-forgotten 10th bill in its tax package. Nine other Democratic tax bills on items ranging from soda to Internet sales were signed into law two weeks ago, The Durango Herald reports. But two more – on conservation easements and enterprise zones – got waylaid. The enterprise zone bill is still on hold, but the conservation easement bill, House Bill 1197, regained its footing Tuesday, passing the Senate Finance Committee 4-3.

In other coverage:

The Grand Junction Daily Sentinel: The Pueblo Chieftain: Land trusts on the Western Slope and around the state that help property owners get conservation easements aren’t thrilled with a bill in the Colorado Legislature, but they’re not opposing it anymore, either. That’s because state lawmakers reached a compromise with them. House Bill 1197 initially was intended to permanently lower by nearly two-thirds a cap on the tax credit allowed for each easement. Instead, the bill would cut by more than half the amount the state would pay, in the way of tax credits, for all easements over the next three years. And instead of having the measure go into effect March 1, which would have affected easements approved this year, it would become effective Jan. 1.

Stay ahead by signing up for State Bill E-News! >