March 8, 2010

Wrangling over raising taxes and cutting expenditures continues as the legislative session approaches the half-way mark, but Governor Ritter’s broken ribs garnered some of the print space, as he used the accident to emphasize the importance of wearing a helmet – little bikers take note.

House Bill 10-1196: Titled “Concerning the Disqualification of Category 7 Motor Vehicles From the State Income Tax Credit for the Purchase of Vehicles Using Alternative Fuels,” HB 1196 impacts “Category 7” vehicles (Ford Escape, Ford Fusion and Toyota Camry hybrids, with fuel economy of at least 30 mpg but less than 40 mpg, and that meet certain EPA emissions standards).

Current state law provides that “taxpayers are eligible for a state income tax credit for the purchase of alternative fuel vehicles” for the 2010 and 2011 tax years, but HB 1196 eliminates tax year 2011. The cap on the tax credit is $6,000.00 which figures out to be “50 percent of the difference between the cost of the vehicle and the cost of the same or most similar vehicles (the incremental cost) that use a traditional fuel.” Note: Only vehicles titled and registered in Colorado are eligible.

The projected number of vehicle sales in 2011 that would qualify for the tax credit is 2,850, for an average state tax credit of $1,900.00, or $5.4 million. Half of that amount ($2.7 million) would accrue each year to the state in Fiscal Year 2010-11 and Fiscal Year 2011-12.

HB 1196 was signed by Governor Ritter on February 24, 1010, and became effective upon his signature. Lead sponsors were Representative Mark Ferrandino, D-Denver, and Senator Rollie Heath, D-Boulder.

House Bill 10-1199: In this economy, perhaps it is appropriate to point out that nothing is sacred to legislators in this session, not even a net operating loss. HB 1199, “Concerning a Temporary Limit on the State Income Tax Deduction for a Net Operating Loss,” places a temporary limit on how much of a net operating loss (NOLs) a corporation may carry forward. Under current law there is no limit, but for tax years 2011, 2012 and 2013, the amount is limited to $250,000.00 for corporations. The limit does not apply to individuals, estates and trusts.

While the Colorado Legislative Council (the Council) estimates the Stated General Fund will increase $8.2 million in Fiscal year 2010-111 and $16.5 million in Fiscal Year 2011-12, the bill was amended by the Senate Finance Committee to provide that any portion of NOLs deferred to 2014 and afterwards will “increase by an amount equal to interest at the rate reported by the Wall Street Journal, plus one point, rounded to the nearest full percent for a period equal to the deferral period for which the NOL is deferred.”

HB 1199 was signed by Governor Ritter on February 24, 1010, and becomes effective August 11, 2010, assuming the General assembly adjourns May 11, 2010 as scheduled and no referendum petition is filed. Lead sponsors were Representative Mark Ferrandino, D-Denver, and Senator Rollie Heath, D-Boulder.

House Bill 10-1200: This bill is awaiting its first committee hearing, so the reader still has an opportunity to offer input on this one. HB 1200 would require a taxpayer to temporarily defer claiming any amount of an enterprise zone investment income tax credit that exceeds $250,000.00, for tax years 2011, 2012 and 2013, and defers any portion of the credit that exceeds $250,000.00 to tax year 2014. If passed, the bill also “allows taxpayers that defer claiming any credit in excess of $250,000.000 to carry forward the credit for 12 income tax years after the year the credit was initially allowed, plus one additional year for each year the taxpayer defers claiming the credit in excess of $250,000.00

To encourage private enterprise to expand and for new businesses to locate in economically distressed areas of the state, an enterprise zone program was established by the Colorado Urban and Rural Enterprise Zone Act of 1986. The three percent investment tax credit accounted for 78 percent of the total corporate enterprise zone tax credits claimed in Fiscal Year 2008-09 ($38.00 million of the total $48.8 million in tax credits claimed). The tax credit applies to “any qualified investment in tangible personal property used in a taxpayer’s trade or business such as machinery, furniture, appliances, law books, or vehicles.”

Deferment of the tax credit means state revenue will increase by “up to $11.8 million in Fiscal Year 2010-11 and up to $24.6 million in Fiscal Year 2011- 12.”

Sponsors of House Bill 10-1200:

Representative Dickey Lee Hullinghorst, D-Boulder, 866-3925

Senator Rollie Heath, D-Boulder (866-4872

Senate Bill 10-081: This bill creates the “Farm-to-School Healthy Kids Act,” and establishes an “interagency task force to develop farm-to-school program policies,” and is in acknowledgment of the growing obesity problem in school-age children. Such a farm-to-school program encourages school districts to use local agriculture products to provide healthy food to students.

The task force is to consider the following in developing and recommending farm-to-school program concepts:

• Farm-to-school pilot programs;
• Funding sources and grants to offset any increased costs of using locally raised products;
• Training for farms and ranchers to enable them to sell their products to schools; and
• Assistance to school districts and school food services to integrate locally raised products into school meals.

Sponsors of Senate Bill 10-081:

Senator Paula Sandoval, D-Denver, (866-4862)

Representative Judy Solano, D-Denver, (866-2918)

House Bill 10-1198: For years, Colorado has imposed an alternative minimum tax (AMT) on the federal AMT, a tax that was put in place during the 1987 session by House Bill 1331. At that time, reform of Colorado’s individual tax system took place to coincide with federal tax reform that took place during the mid-1980s. Colorado’s AMT applies only to individual filers and not to corporations.

Originally, the federal AMT was meant to “impose taxes on high-income individuals who have no tax liability under the regular system. The purpose of the AMT was to keep taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the federal tax code.”

HB 1198 would have suspended Colorado’s AMT beginning tax year 2010, and “the credit against the state income tax equal to 12 percent of the federal prior year minimum tax credit claimed on the federal income tax form.”

The Colorado AMT is “equal to the amount by which 3.47 percent of the Colorado AMT income exceeds the standard Colorado income tax.” In Fiscal Year 2008-09, $5.5 million was paid by Colorado taxpayers who had state AMT liability.

The Colorado Legislative Council (the Council) notes that “the AMT is not indexed for inflation,” meaning possibly one-fifth of all taxpayers by 2010 could be affected without significant changes in federal law. A “patch” was enacted through the American Recovery and Reinvestment Act (ARRA) increasing the exemption amounts and certain credits, for a one-year fix in 2009.

According to the analysis by the Council, state revenue could have been affected by a greater amount should Colorado’s economy expand and AMT liability grown. Perhaps that possibility was the impetus to get the bill postponed indefinitely (killed) on January 29th.

Lead sponsors of House Bill 1198 were Representative Mark Ferrandino, D-Denver, and Senator Rollie Heath, D-Boulder.

Senate Bill 10-168: With SB 10-168, Senate Republicans took a little different tact. Titled “Concerning a Reduction in State Expenditures, and, in connection Therewith, Enacting the ‘Taxpayer Protection Act of 2010,’” the bill was described when it was introduced by Republicans as a “proposal to reduce government spending as an alternative to the Democrats’ plan to raise taxes on the businesses and citizens of Colorado.” Republicans have complained throughout the session that cuts should also apply to government spending, not just businesses and citizens, and have vehemently disputed Governor Ritter’s figures on cuts in state government expenditures.

SB 168 suffered a swift death in its first hearing before the Senate State, Veterans and Military Affairs Committee, postponed indefinitely on a party-line vote of 3-2. Analysis by the Legislative Council showed state spending would have been reduced by $18.4 million in Fiscal Year 2009-10 and $322.9 million in Fiscal Year 2010-11.

SB 168 did address one tax exemption that has pretty much been ignored in all the rhetoric – that of the homestead property tax exemption for qualifying senior citizens. A provision in the bill would have restored that tax exemption “for property tax years beginning on January 1, 2010.”

Lead sponsors of Senate Bill 10-168 were Senator Josh Penry, R-Garfield-Mesa, and Representative Kent Lambert, R-El Paso.

The reader’s comments or questions are always welcome. E-mail me at doris@dorisbeaver.com.

Doris Beaver