The following is from the Colorado Association of Industry and Commerce regarding the CO Department of revenue’s report on adopting a Uniform Sales and Use Tax Base.
Summary of CO Department of Revenue’s Uniform Sales & Use Tax Report
As you may recall, during the 2013 Legislative Session, House Bill 1288 was adopted that directed the Colorado Department of Revenue to prepare a report that included recommendations on ways to achieve a revenue neutral uniform sales and use tax base in Colorado. A draft of that report has been released, and includes the following:
- A uniform list of items that are exempt from taxation by the State and local taxing jurisdictions;
- Uniform definitions of the tax exempt items;
- Rate changes, including consideration of rates of zero percent that would be necessary to achieve revenue neutrality for the State and local jurisdictions;
- A uniform definition of tangible personal property;
- Other recommendations by the DOR to establish a revenue neutral sales & use tax base.
Summary of the Recommendations*
Uniform Sales & Use Tax Base -DOR was tasked with identifying which items are currently taxed or exempted by home rule cities and assess how the home rule cities and the State’s base differed. Their research determined that food for home consumption and residential power provide a large amount of revenue to home rule cities [See chart – pg. 10]. In order to achieve revenue neutrality without large rate increases, the State would need to adopt a broader base and lower its overall rate.
- Recommendation: Based on TABOR limitations on rate increases, a determination was made that the only way to align the tax bases without rate increases would be to eliminate 35 current sales & use tax exemptions. [See Appendix F – pg. 65].
Rate Changes to Achieve Revenue Neutrality –
Based on the broader rate base recommended above that would increase revenues, DOR determined that rate changes would be needed to achieve revenue neutrality.
- Recommendation: Lower State’s sales and use tax rate to 2.4%. Cities & counties would also have to lower their rates with exemption of a few home rule cities whose tax base would not change with the implementation of the uniform sales & use tax base.
Uniform Definitions of Tax Exempt Items – Based on the political challenges of adopting a uniform base, much of the report is focused on the creation of uniform sales & use tax definitions which is more likely to be adopted in the General Assembly.
- Recommendation: DOR developed a list of streamlined sales & use tax definitions while relying on the Streamlined Sales & Use Tax Agreement. If no Streamline definition existed, the DOR sought uniformity between the State and local tax jurisdictions. [See Streamlined Definitions in Appendix H – pg. 77].
Uniform Set of Exemptions – Based on the requirement to create uniform definitions, it was clear that a uniform set of exemptions was necessary as well.
- Recommendations: A list of revenue neutral, uniform exemptions have been developed and can be applied to any taxing jurisdiction in Colorado. [See Appendix I – pg. 90].
Uniform Definition of Tangible Personal Property – The report includes the definition of Tangible Personal Property as: personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses. It includes electricity, water, gas, steam and prewritten computer software.
Creation of a Sales & Use Tax Advisory Board – The DOR is recommending that in order to ensure uniform interpretation of the definitions and exemptions, that a Sales & Use Tax Advisory Board be established.
- Recommendation: Create a Sales & Use Tax Advisory Board that is a quasi-legislative, quasi-judicial body that will ensure uniformity by promulgating and modifying standard definitions, clarifying language through rules, and issuing tax guidance relating to definitions.