Hot Sheet

Small-biz lawsuit: A tax by any other name — still smells like a tax

Author: Dan Njegomir - July 20, 2017 - Updated: July 20, 2017


iStock image / mariusz_prusaczyk’s Peter Marcus reported in March on a legal development that could have big implications for the ability of the Colorado Secretary of State’s Office to fund its wide-ranging operations — including the state’s elections.

At issue is whether the fees the office charges businesses to register and file other paperwork with the state are in fact taxes that should be subject to the provisions of the Taxpayer’s Bill of Rights. The key constitutional clause requires, among other things, a vote on every tax hike. If the courts ultimately side with a lawsuit by the National Federation of Independent Business, which contends the fees are taxes in disguise, it would mean the Secretary of State’s Office was breaking the law any time it had raised its fees since TABOR was enacted by voters in 1992. Theoretically, the office could be forced to forego its main source of the funding it uses to sustain its entire operation — elections, business registration and more.

As noted in Marcus’s report, the Colorado Court of Appeals had sent the small-business advocacy group’s lawsuit back to a lower court for further fact finding. That could eventually lead the courts to determine how many times the secretary of state has raised fees — it hasn’t at all during the tenure of current Secretary of State Wayne Williams — and whether the increases really amounted to tax hikes restricted by TABOR.

This week, the NFIB filed a motion requesting that the Colorado Supreme Court take up the case and settle the matter once and for all. Says an NFIB press statement issued Wednesday:

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 Bill of Rights (TABOR).

Underlying NFIB’s legal argument is a practical concern: that the fees businesses pay to the Secretary of State’s Office overwhelmingly fund other functions unrelated to its business-related services. And NFIB would quite like for its thousands of members statewide to hold onto more of their money, which they feel is being used unfairly to subsidize the entire office. The press release quotes Karen Harned, executive director of NFIB’s Small Business Legal Center:

“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.’ 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.”

Yet, as Marcus reported in March, lawyers for the state contend the fees are just that and nothing more because they are earmarked for the specific functions of the office — and that it’s within the purview of the secretary of state to use the revenue that way.

The suit originally was filed during the tenure of former Secretary of State Scott Gessler.



Dan Njegomir

Dan Njegomir

Dan Njegomir is the opinion editor for Colorado Politics. A longtime journalist and more-than-25-year veteran of the Colorado political scene, Njegomir has been an award-winning newspaper reporter, an editorial page editor, a senior legislative staffer at the State Capitol and a political consultant.