Colorado Supreme Court asked to weigh what constitutes a ‘tax’ or a ‘fee’

The Colorado Supreme Court is being asked to review what constitutes a “fee” or a “tax,” which could leave funding for elections in jeopardy.

The case, initially filed by the National Federation of Independent Business, claims that businesses carry an unfair burden of the cost of funding state and county elections through business filings. The group hopes to reclaim the revenue, which would potentially throw elections into flux.

NFIB and the Secretary of State’s Office – which administers elections in Colorado – is asking the Supreme Court for clarity. The request stems from a March Colorado Court of Appeals decision, in which the appellate court required more information before making a decision.

Prior to the appellate order, a lower court in November 2015 tossed NFIB’s lawsuit, which brought the case to the Court of Appeals. The case started under former Secretary of State Scott Gessler, a Republican.

The question at the heart of the case is whether business filings collected by the department qualify as a “fee” or a “tax.”

“NFIB’s petition asks the Supreme Court to take the case to make clear that the secretary’s statutory authorization to unilaterally raise business filing ‘fees’ is facially unconstitutional and urges the court to issue a definitive ruling that all of the secretary’s increased business filing charges, post-1992, have amounted to illegal taxes under Colorado’s Taxpayer’s Bill of Rights,” read a news release from NFIB.

NFIB contends that the business filings are no different than a “tax” since the filings fund general operations rather than a particular service. Assuming the filings amount to a “tax,” then the revenue would have to be approved by voters under TABOR, attorneys argue.

The state, however, points out that a charge is a “fee” under TABOR when it funds a particular function or service. Because the fees charged by the secretary of state are placed in a segregated account and may be used only to fund the department’s operations, it is defined as a “fee,” the state argues.

The charges were enacted in 1983 — well before TABOR  — and the legislature required the department to set and adjust fees for all department work.

Business filings range from $5 to $125, and make up nearly the entirety of the Department of State’s approximate $20 million-plus annual budget. Only about 10 percent of the charges pay for business-related services, according to attorneys for NFIB.

The other 90 percent of the charges collected each year pay for general government expenses overseen by the department. The largest portion goes to the department’s elections division, which accounts for approximately 65 percent of the department’s total annual budget.

If the Supreme Court sides with business interests and the secretary of state’s office is no longer allowed to use business filings to fund elections, then the legislature would have to come up with about $20 million from the general fund to pay for operations.

In its request to the Supreme Court, NFIB argues that, “The unquestionable primary use of the business charges is to pay for functions and activities unrelated to business services. NFIB contends that this arrangement makes the business charges a tax rather than a valid fee. As a tax, the business charges are subject to TABOR.”

“Because a significant portion of the business licensing charges are appropriated to defray the Secretary of State’s general expenses, the business licensing charges are a tax and not a ‘fee,’” said Karen Harned, executive director for NFIB’s Small Business Legal Center. “Thus, the state is imposing an illegal tax on small businesses to fund obligations; that should be a cost shared by everyone rather than just Colorado’s entrepreneurs.”

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