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Tax Expenditures Reviewed by Interim Committee

Sep 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 resultts 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 preferental 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 have 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The committee proposed repealing the following laws primarily because they are used minimally, outdated, or obsolete:

  • Occasional Sales of Liquor by Public Auction- excise tax exemption for liquor sold by public auction (including liquor donated to charities). 
  • Fraternal Society Exemption - exempts fraternal benefit societies that offer insurance products to their members from insurance premium tax.
  • Crop and Livestock Contribution Corporate Income Tax Credit- allows agricultural C-Corporations to claim an income tax credit of 25% of food donations up to $1,000 per year.
  • Nonprofit Transit Agency Fuel Tax Exemption- exempts nonprofit transit agencies from paying the excise tax on liquified petroleum and natural gas used in transit vehicles.
  • Farm Close-Out Sales Tax Exemption- exempts sales of property used for farming or ranching by agricultural producers who are abandoning operations.
  • Crop Hail Insurance Premium Tax Exemption- exempts part of the premiums received on crop hail insurance sold by small-scale, member, owned insurers
  • Sacramental Wines Excise Tax Exemption- excludes sacramental wines used for religious purposes from the liquor excise tax.

The committee proposed modifying the Child Care Expense Credit, which allows taxpayers with annual incomes up to $60,000 to receive a credit worth 50 percent of their federal Child and Dependent Care Tax Credit. The goal of the proposed change seems to be expanding the benefit of the credits for families with incomes too low to file federal income tax returns. 

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. 

This page will be updated with any developments prior to and after the committee's October 30 meeting.

Region: 
Statewide