Jim Flynn

Jim Flynn, Money & the Law

Whether the Taxpayer’s Bill of Rights is good for Colorado (lower taxes) or bad for Colorado (sagging bridges) remains a source of controversy. Not in dispute, however, is the fact that TABOR has provided ample income opportunities for lawyers.

The latest TABOR case to make it to the Colorado Supreme Court, after a trip through a trial court and the Court of Appeals, was decided Sept. 23 and deals with the manner in which the Colorado Department of State pays its bills. (Although I’m sure you know this, the Department of State is one of 19 departments in the executive branch of our government.) The Department of State’s functions include supervising elections and registering and licensing legal entities conducting business in Colorado. The Colorado Secretary of State, an elected official, runs the department.

The Department of State depends on fees to cover costs, and it has been collecting fees of one kind or another since 1877, with the Colorado Legislature occasionally sticking its toe in the water to adjust the system. In 1983, the Legislature set in place a rule that, through its budgeting process, the Department of State must adjust its fees to cover its “direct and indirect costs.” Thus, as costs go up or down (mostly up, like everything else …), the Department of State’s fees go up or down.

The plaintiff in this case was the National Federation of Independent Business. Based in Nashville, Tenn., The National Federation of Independent Business is the largest trade association representing small businesses in the U.S., with offices in Washington, D.C., and each state capital. Its members have apparently been unhappy with the fees they must pay to conduct business in Colorado, leading National Federation of Independent Business to sue the Department of State on the theory that these fees violate TABOR.

TABOR is a constitutional amendment approved by voters in 1992. To quote the Supreme Court, it requires voter approval for any “new tax, tax rate increase or tax policy change directly causing a net tax revenue gain in any district.” The National Federation of Independent Business’ argument was that, since the Department of State’s fees, and occasional increases in those fees, have never been approved by the voters, they are, under TABOR, unconstitutional.

The trial court found in favor of the Department of State on a motion for summary judgment (meaning no issues of fact, just issues of law) and the National Federation of Independent Business appealed. The court of appeals sent the case back to the trial court, with the usual duck and weave that summary judgment was improper because, running around on this stage, there must be unresolved issues of fact (even though the parties had stipulated to the facts). The Department of State appealed from the court of appeals ruling and the Supreme Court’s decision has reinstated the trial court’s decision. That is, there is no TABOR violation and summary judgment in favor of the Department of State was proper.

The Supreme Court’s reasoning started with the proposition that whatever went on before TABOR doesn’t count and any analysis under TABOR must be prospective only. The court concluded that, subsequent to the enactment of TABOR and assuming the Department of State’s fees are a tax, its practices have not resulted in any new tax, tax rate increase or change in tax policy causing a net tax revenue gain. Therefore, TABOR has not been violated.

Carrying on a longstanding appellate court tradition of never deciding anything that doesn’t have to be decided to end a case, the court declined to rule whether the Department of State’s fees constitute a tax.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. You can contact him at moneylaw@jtflynn.com.

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