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Fee or tax? Future Colorado elections could depend on answer

March 2, 2017 Updated: March 2, 2017 at 5:35 pm
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The Colorado Court of Appeals on Thursday sent a case back to a lower court that could leave future funding for state and local elections in jeopardy.

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

The appellate decision is not immediate cause for concern for state officials, as the court is only requiring the lower court to gather more information before making a decision.

"We reverse the summary judgment and remand to the district court with directions to hold further proceedings to determine whether the Business and Licensing charges have been adjusted or increased since the passage of TABOR in 1992, so as to require voter approval for the adjustments," the Court of Appeals wrote in its decision.

"Depending on the court's determination, it may need to reach the issue as to whether the Business and Licensing charges constitute a tax or a fee."

That last statement by the court represents the heart of the case and what could cast uncertainty over elections in Colorado. More broadly, it could throw a curveball to all state departments that are funded by fees.

The question is whether business filings collected by the department qualify as a "fee" or a "tax."

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 the Taxpayer's Bill of Rights, 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.

Also, 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.

The Secretary of State's office says it will compile information about any fee increases the office implemented since TABOR passed. The office pointed out that since Republican Secretary of State Wayne Williams took office in 2015, fees have either been lowered or stayed the same.

"My office will work to provide the court with the necessary information," Williams said in a statement. "But researching 25 years of data is expected to take time."

When the case was presented to the Court of Appeals in January, the three-judge panel at times appeared worried about setting a precedent that could cripple funding behind core government services. But at times the judges were also sympathetic to business interests, hinting that the "fee" could be construed as a "tax."

The lower court in November 2015 tossed NFIB's lawsuit, which brought the case to the Court of Appeals after attorneys for NFIB filed a challenge. The case started under former Secretary of State Scott Gessler, a Republican.

Attorneys for NFIB are weighing whether to appeal the appellate court decision, as they believe there is currently enough evidence to make a decision on whether the collections constitute a "fee" or a "tax."

"While we're happy the court recognized that the district court got it wrong, we're disappointed that the Court of Appeals did not say that it was an outright violation of TABOR," said Jason Dunn, an attorney for NFIB. "We strongly believe it is."

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