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Bills would improve the state’s ability to evaluate tax expenditures for effectiveness, make changes to some existing provisions
DENVER, CO– The Tax Expenditure Evaluation Interim Study Committee today advanced five bills to better evaluate tax expenditures and refine existing tax provisions in order to improve the state’s tax code.
“Today, we advanced proposals to modify certain tax expenditures and improve how our state evaluates and enacts tax expenditures to ensure these policies achieve their intended outcomes,” said Tax Expenditure Evaluation Interim Study Committee Chair Rep. Adrienne Benavidez (D-Adams County).
“The state is facing challenges when evaluating the effectiveness of all of our tax expenditures, which makes it difficult for lawmakers to consider changes to exemptions, deductions and other tax provisions,” said Rep. Marc Snyder (D-Colorado Springs). “The proposals we moved forward today will improve this process significantly by ensuring each new tax expenditure includes clear metrics we can use to evaluate its effectiveness and by creating a committee that can continue this work.”
The committee has been hearing presentations and drafting legislation this interim to study changes to tax expenditures recommended by the Office of the State Auditor in its ongoing review of the state’s various tax expenditures. Given the large number of expenditures, this review is expected to take five to six years, and current estimates show the state loses over $6.5 billion in revenue each year through tax expenditures.
1) Creating a Tax Oversight Committee: The committee passed legislation that would create both a legislative oversight committee concerning tax policy to make changes to the state’s tax code, and a task force to study and recommend potential changes to the current system of state and local taxation. The committee would be required to consider the policy changes recommended by the Office of the State Auditor and would be responsible for oversight of the task force. It can also recommend legislative changes that would be treated as bills recommended by an interim legislative committee.
Sponsors: Sen. Court, Sen. Tate, Rep. Snyder, Rep. Benavidez
2) Improving Evaluations of Tax Expenditures: Currently, it can be challenging for the state auditor to evaluate the effectiveness of all the state’s tax expenditures, leading to inefficiencies in tax policy and outcomes that are difficult to monitor. To help address this issue, the committee advanced a proposal that would require the bill sponsors of all future tax expenditure legislation to include additional information on their proposals. Under the bill advanced today, future tax expenditure legislation will have to include a repeal of the expenditure after a specified period. They will also have to include a statement of the intended purpose of the tax preference that contains clear, relevant, and ascertainable metrics and data requirements that allow the expenditure to be measured for effectiveness in achieving its purpose.
Sponsors: Sen. Court, Sen. Tate, Rep. Snyder, Rep. Benavidez
3) Changes to Net Operating Loss Deduction: Under current law, taxpayers can claim a deduction for net operating losses on their state tax returns. The deduction is allowed in the same manner that a similar deduction is allowed under federal tax law, meaning taxpayers can carry forward their net operating loss deduction for the same number of years allowed under the Internal Revenue Service code. However, in recent years, that was limited to 20 years, but the federal Tax Cuts and Jobs Act enacted in 2017 allowed taxpayers unlimited years to carry forward the net operating loss. The legislation advanced today returns the state’s net operating loss deduction carryforward period to 20 years, maintains that net operating losses cannot be carried back, matches the federal law to allow a net operating loss to offset 80 percent of taxable income, and it would also treat financial institutions the same as other businesses.
Sponsors: Rep. Benavidez, Rep. Snyder, Sen. Moreno
4) Modifications to Energy Used for Industrial and Manufacturing Purposes Exemption: Under current law, there is a sales tax exemption for the purchase of energy products used for industrial purposes. The legislation would modify the exemption so that it only applies when the energy is used by a metered machine.
Sponsors: Rep. Benavidez, Rep. Snyder, Sen. Tate, Sen. Court
5) Repeal of Long Term Lodging Exemption: There is currently a sales tax exemption for long-term lodging stays for 30 days or more at hotels, apartment hotels, lodging houses, motor hotels, etc. This exemption has remained largely unchanged since 1959, and was meant to provide equal tax treatment for people who sign residential leases of 30 days or more and people who stay for more than 30 days at lodgings typically used for short-term stays. The Department of Revenue has allowed the exemption to be claimed when multiple people stay at the same place, each for less than 30 days, but when one person pays for at least 30 days. This application expands the use of the exemption beyond its presumed original purposes of providing equal tax treatment. With an amendment, the committee voted to have the sales tax exemption apply only to natural persons to ensure people who are in need of housing who stay in these types of facilities for longer than 30 days are not adversely impacted..
Sponsors: Rep. Benavidez, Rep. Snyder, Sen. Moreno