Colorado tax hikes would undo fraction of tax breaks
The Associated Press
Aspen, CO Colorado
DENVER – Tax hikes that Colorado lawmakers are rushing to pass to balance the budget would undo about 6 percent of the $2.2 billion in tax credits and exemptions on Colorado’s books.
They would affect a range of industries, from manufacturing to information technology to agriculture, as well as consumers.
Buyers of candy and soda, as well as some energy bars and sweetened fruit juices, would have to pay 2.9 percent state sales tax. Downloaded software would also be subject to sales tax just as software purchased in a box is now. And the state would also try to nudge out-of-state online retailers to start collecting state sales tax.
The taxes, proposed by Democratic Gov. Bill Ritter, have passed the Senate and must now be voted on again by the House. They’re moving quickly to pass the bills because Ritter wants to be able to start collecting the revenue next month to help balance this year’s budget.
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Yet they are opposed by some powerful interests, such as the Colorado Association of Commerce and Industry, and it’s not just big business that’s worried.
Steel workers who’ve only recently returned to full employment at Evraz Rocky Mountain Steel fear up to 120 of them could be laid off.
Wheat farmers say taxing the pesticides they depend on could cost them another $6,000 a year and some growers could just avoid it by stocking up before the new taxes are expected to take effect March 1.
Minority Republicans have opposed the tax increases and want more cuts to avoid possible layoffs. Democrats largely have backed them because they don’t think state services should be cut more during a recession. They say cuts that already have been proposed could lead to the layoff of teachers and guards at a private prison which could close.
Ritter is expected to announce further cuts later this month to cover a combined budget shortfall of $1.5 billion because tax revenues have continued to decline.
“I fear we’re faced with the unfortunate choice of who will lose their jobs,” said Sen. Paula Sandoval, D-Denver, a small business owner who opposes some of the tax hikes.
Ritter proposed eliminating or suspending 13 sales tax exemptions and income tax credits which would bring in an estimated $133 million in the first full year. The package was developed by his economic development director Don Elliman after three months of consultation with the industries affected by the hikes with an eye toward spreading the pain.
Elliman said some of the biggest sales tax exemptions were never considered. He said taxing all food and prescription drugs was off limits because they’re essential. He also thought taxing take-out food would be regressive. Instead, he proposed just taxing the napkins and plastic forks used in takeout orders.
Also never considered was taxing materials used in manufacturing – worth $595 million annually – which Elliman said would have devastated manufacturing. He thought taxing just the energy used in manufacturing – the tax Evraz opposes – was fair because he said Colorado has relatively low-cost energy. The energy tax will bring in about $38 million a year.
Elliman said it’s impossible to say for sure whether the taxes will cause layoffs but he said he tried to make spread their impact and protect the future of the state’s economy.
“Have we done that? I don’t know. I know we’ve tried,” he said.
This is new territory for the Legislature which hasn’t been able to raise taxes since voters passed the Taxpayers Bill of Rights in 1992. The constitutional amendment requires that all tax increases go to the voters but Democrats say a Colorado Supreme Court ruling last year gives them the ability to change existing tax policies.
Over the objections of the GOP, Democrats started using that new authority last year when they voted to start charging sales tax on cigarettes and get rid of a deduction for capital gains earned on Colorado assets.
Some activists and Democratic lawmakers want to go even further than package proposed by Ritter and limit some more tax deductions.
For example, corporations are allowed to deduct salaries and employee benefits as a business expense on their federal income tax. One proposal that’s already been introduced would only allow them to deduct the compensation up to $250,000 on their Colorado forms, a change which could bring in another $25 million a year.
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