Dear Colorado Dealer Member:
With the 2016 legislative session behind us, we can celebrate a major success: unanimous passage of SB 16-036, a bill that returned due process to the way the state conducts sales and use tax audits on dealers and other Colorado businesses. Gov. Hickenlooper signed it into law on June 10.
A barrier to due process came to light as the result of undue tax assessments made on Colorado dealers in 2009 and again in 2012. In each instance Colorado Department of Revenue’s auditors assessed the affected dealers more than $600,000 per store. The dealerships’ attorneys advised them that the audits were incorrect but they discovered that in order to fight an assessment in an independent court, regardless of the underlying merits, they either (1) were required to pay the full amount of the assessment – with penalties and interest, or (2) post a bond for double the assessment. One dealer estimated that the price tag for the bond required under option #2 was almost equal to the full assessment!
It’s not surprising that an independent national taxpayer advocacy organization ranks Colorado among the bottom four states on this issue. A 2013 Council on State Taxation (COST) study, The Best and Worst of State Tax Administration: COST Scorecard on Tax Appeals and Procedural Requirements, gave Colorado an overall grade of “D.” That was even worse than a similar 2010 study that ranked Colorado among the bottom 12 states. COST states:
The ability to reach an independent tribunal, non-judicial or judicial, without prepayment is another key factor of a fair and efficient appeals process. . . . A state’s ability to recognize the potential for error or bias in its tax department determinations and provide taxpayers access to an independent appeals tribunal is the most important indicator of the state’s treatment of its tax customers.
It appears the state’s auditors understood they are dealing from a weak hand. This was reflected in the action against Ed Dobbs of Flatirons Land Rover, one of the unfortunate dealers they hit. He received a settlement offer of less than five percent of his $600,000 assessment. However, he soon discovered that because of the due process issue, he would have to pay the $600,000 (plus interest and penalties) as well as the costs of his legal fight simply to get his case heard. He felt his only choice was to settle and was dismayed and angry about it. “I just felt that I should have been able to have my day in court. Isn’t that supposed to be my right as a taxpayer?”
It was situations like Ed Dobbs’ that prompted the CADA Board to take up the fight. Early last year they approved initial funding to launch the Coalition to Simplify Colorado Sales Tax, an organization to address this taxpayer due process barrier in concert with broader efforts underway to simplify Colorado’s overly complex sales and use tax system for the benefit of all taxpayers and businesses, not just auto dealers. The Coalition’s initial objective was to press for legislation on the unfair due process issue. Working with the Colorado Municipal League and the State Department of Revenue some significant efforts were made to develop a reform agenda in advance of the 2016 legislative session. The process was made easier because even the tax authorities agreed there were some fundamental problems that undermined taxpayers’ rights, although they were concerned that reforms might lead to frivolous appeals and an increase in cases and related legal and administrative expenses. Some modest concessions, and a small appropriation to cover the Department of Revenue’s legal expenses, addressed those concerns.
Not very many bills make it through the legislature without opposition. The fact that this bill – SB 16-036 – passed unanimously represents a big victory earned through an exceptional effort by our coalition’s lobby team. The taxpayer rights restored by the bill cover all local and state taxes with the only key exclusion being property tax. Now taxpayers can appeal their assessments to District Court without prepayment or bond. They will have to continue paying interest during their appeal, although there is a provision to pay a deposit that would halt interest while a challenge is being mounted.
The Coalition to Simplify Colorado Sales Tax, which has 12 board members and now represents more than 8,400 Colorado businesses and the Colorado Society of CPAs, has expanded its mission to achieve further reform of Colorado’s excessively complex sales and use tax system which has a mind-boggling 756 specific geographic areas with differing sales tax rates and definitions created by 294 taxing jurisdictions having overlapping boundaries.
The Coalition has formed a working group to push for uniform, standardized definitions of goods and services subject to sales taxes and those exempted. This would improve the state’s business environment by eliminating confusion and needless audit exposure. The standardized definitions would be available in a central database, along with accurate rates and full hold-harmless provisions for businesses that rely on them. This is hardly a revolutionary idea: standardized definitions were recommended in 2013 by the Department of Revenue in a 2013 report, Uniform Sales and Use Tax Base Throughout the State.
A committee inside the Coalition to Simplify Colorado Sales Tax will spearhead and drive alternatives for centralized licensing and remittance across taxing jurisdictions. This would simplify tax licensing and remittance for businesses that deliver throughout the state, some of which now have dozens of different tax licenses that renew at different times.
These issues are complex but most important for Colorado’s new and used car dealers, due to a high percentage of sales and use tax (up to 22%) generated from the sale and service of new and used cars. I’d encourage you to visit the Coalition’s website, register as a supporter and, when called on, engage with our elected officials to push for further reforms as they are developed and introduced.
I’m proud that CADA’s board of directors voted unanimously, in late December 2014, to fund the effort that created the Coalition to Simplify Colorado Sales Taxes. It was a significant commitment that made this important effort worthwhile and effective. Without it, the successful change we’ve won would have not been possible. Leaders lead, and others follow. In the case of winning this important battle, and doing so unanimously in the legislative process, CADA was the leader that triggered this monumental victory. Yet our substantial investment will now move forward, as stated, to tackle other sales tax related challenges. So the CADA seed money that created and launched the Coalition to Simplify Colorado Sales Tax has become the gift that keeps giving. It can essentially be a longterm endowment toward greater change in the future. And it all started with thoughtful dealers who put our money where our challenges are. As Margaret Mead so famously stated, “Never doubt the ability of a small group of people to get things done. Indeed it’s the only thing that ever has.”
Fletcher Flower, Chairman
Colorado Automobile Dealers Association