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Tax Expenditures Reviewed by Interim Committee

Dec 3, 2019

Background

In late October, an interim legislative committee will propose legislation to change numerous tax policies, including some affecting nonprofits and the people they serve.

The Tax Expenditure Interim Study Committee spent three meetings over the summer perusing the Tax Expenditure Evaluation Reports for 2018 and 2019 from the Office of the State Auditor (OSA). A required by state law, OSA must review all tax expenditures in Colorado every five years.

Per 39-21-302(2) Colorado Revised Statutes, tax expenditure means "a tax provision that provides a gross or taxable income definition, deduction, exemption, credit, or rate for certain persons, types of income, transaction, or property that results in reduced tax revenue." In other words, tax expenditures refers to broad range of tax policies that potentially reduce state revenues and appear to confer preferential treatment to specific types of individuals, organizations, or businesses.

Examples of tax expenditures affecting nonprofits includes:

  • Tax incentives to encourage charitable giving in general or based on types of missions or subsectors (e.g. Colorado's charitable deduction, Child Care Contribution Credit, etc.)
  • Policies that reduce operating costs for organizations or encourage economic activity (exemption for sales to charitable organizations, business personal property tax credit, etc.)
  • Policies that support populations served by nonprofits (e.g. Earned Income Tax Credit, Child Care Expenses Credit)

What the Committee has done so far

The committee has discussed 28 policies and policy considerations made by OSA and has taken comments from the public. OSA grouped its policy considerations into four categories: (1) repeal, (2) clarify statutes, (3) review effectiveness of the policy, and (4) address administrative issues.

Legislators requested the drafting of 18 bills. The interim committee may vote for up to 5 bills to be introduced during the 2020 legislative session. If a bill is not approved by the committee, then an individual legislator may still introduce that bill during the legislative session but it counts against the 5 bill limit for each legislator.

The committee proposed five bills for consideration during the 2020 legislative session:

1. Tax Expenditure Bill Requirements - requires new or renewed tax expenditures to include performance measures and a repeal date.  

2. Tax Policy Oversight Committee - creates a legislative committee to review and propose changes to tax policy and a task force to study the effectiveness of existing policy. 

3. Long-Term Lodging Sales Tax Exemption - clarifies that only individuals may benefit from the sales and use tax exemption for purchases of lodging for 30 days or more.

4. Modification to the Net Operating Loss Deduction for C Corporations- limits the carryforward period for the deduction to 20 years and applies this period to financial institutions

5. Sales Tax Exemption for Industrial & Manufacturing Energy Use - requires energy sources used for industrial and manufacturing purposes to be metered to qualify for this exemption.

In addition to these bills, the committee did the following:

  • Sent a letter asking the Statutory Revision Committee to introduce legislation repealing the following obsolete or unused policies:
    • the nonprofit transit agency fuel tax exemption;
    • the crop hail insurance premium tax exemption;
    • the sales tax exemption for residents of bordering states;
    • the pre-1987 net operating loss deduction for individuals, estates, and trusts; and
    • the corporate income tax deduction for previously taxed income or gain.
  • Sent a letter to the Joint Agriculture Committee asking that committee to review current sales and use tax exemptions for agricultural inputs, particularly definitional issues

The committee did not propose any changes to the Exemption for Sales to Charitable Organizations, the Insurance Premium Tax Deduction for Policies Purchased by Tax-Exempt Organizations, or the Newspapers Sales Tax Exemption, or the Child Care Expense Credit. 

Region: 
Statewide