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State Policy News
Senate Committee Kills CACI-Opposed "Tax Haven" Bill that Would Have Hurt Colorado Companies
Friday evening, the Senate State, Veterans and Military Affairs Committee, which is the Senate GOP leadership’s “kill committee,” ended the journey of HB-1346 on a party-line, 3-2 vote.
Given the fervor of the bill’s sponsors and the organization that backed it, the measure is very likely to be introduced in the 2016 session as a continuing, broad-brush attempt by the anti-business, progressive House Democrats to force business pay its “fair share” of taxes and to find more money for K-12 education.
On Tuesday, the House passed the bill by a party-line, 33-31 vote on final, Third Reading. Democratic Representative John Buckner (Aurora) was excused.
The goal of HB-1346 was to recover income tax due Colorado when multi-national companies, which operate in Colorado, “shelter” profits generated by their “affiliated corporations” by parking funds in 40 so-called, off-shore “tax havens,” such as Liberia, Malta, Monaco and Vanuatu. The revenue, projected to reach $150 million, would then be earmarked for K-12 education.
Specifically, the complex, 11-page proposal sought to add income from “affiliated corporations” incorporated in “tax havens” to the income of corporations filing Colorado combined income tax returns. Corporations indirectly owned by a parent C Corporation would have been included as part of the affiliated group of corporations.
If the bill had been passed by the legislature, voters in November would have been asked to approve the referred measure as an amendment to state law to authorize, under TABOR, the State to collect and spend taxes received from corporate income held in tax havens.
On Monday, the House debated the bill on Second Reading.
On April 22nd, the House Finance Committee on a party-line, 6-5 vote, amended and approved the bill, which sent it to the House Appropriations Committee. The House Appropriations Committee on April 24th approved the bill on a party-line 7-6 vote, which sent the bill to the House Floor for Second Reading.
Loren Furman, CACI Senior Vice President, State and Federal Relations, and Rhonda Sparlin, CACI Tax Council Chair and Partner, RubinBrown, testified against the bill before the House Finance Committee.
The bill’s sponsors and advocates
The bill was co-sponsored by Representatives Mike Foote (D-Lafayette) and Brittany Pettersen (D-Lakewood). The bill also had 18 other House Democrats signed on as sponsors.
One organization supporting the measure was the liberal Colorado Public Interest Research Group, which describes itself as “standing up to powerful interests.” CoPIRG says that small businesses in Colorado “would have to pay up to an extra $3,165 in taxes to make up for the money lost in 2014 due to offshore tax have abuse by large multinational corporations.” CoPIRG asserted that Colorado loses $2.2 billion in tax revenue because of this practice. CoPIRG released a national study on April 14th to bolster its case.
The bill’s sponsors asserted that Colorado could have reaped additional tax revenue in the amount of $150 million yearly over the next two fiscal years, beginning July 1st, according to the bill’s fiscal note. This revenue would have been earmarked for education.
CACI’s objections
CACI opposed HB-1346 for three major reasons. The bill would have:
- Dramatically changed the current tax reporting system under which businesses have operated for three decades;
- Penalized legitimate Colorado businesses; and
- Hurt Colorado’s ability to compete with other states when trying to attract foreign investment.
CACI strongly opposed legislation that changes a tax system that has been working for a long time and could affect thousands of businesses, especially without an exhaustive stakeholder process. Moreover, a late bill that seeks to change long-standing, complicated tax policy should not be the legislative equivalent of a “Hail Mary” pass to find money for K-12 education.
Summary of bill as contained in the fiscal note
The bill’s second fiscal note, issued April 21st, summarized the bill this way:
Summary of Legislation
Conditional on voter approval, HB15-1346 requires corporations filing a Colorado combined income tax return to add income from affiliated corporations incorporated in tax haven jurisdictions. The bill lists jurisdictions that are considered tax havens and requires the Department of Revenue to biennially report to the finance committees in the General Assembly with an update of countries that may be considered tax havens. In addition, the bill allows corporations indirectly owned by a parent C corporation to be included as part of an affiliated group of corporations.
The bill refers a measure to the voters authorizing the state to retain and spend revenue received by the taxation of a corporation’s income that is held in offshore tax havens. If the voters approve this measure, beginning in FY 2016-17 and thereafter, the bill will require the state controller to transfer $150 million from the General Fund to the State Education Fund (SEF).
Background
This bill affects corporations that file a “combined” income tax return. A combined income tax return is a state filing method used by certain groups of affiliated corporations. Colorado law defines an affiliated group as one or more chains of corporations connected through stock ownership with a common parent corporation, where the parent corporation owns more than 50 percent of both the voting and nonvoting stock in each includable corporation.
The combined income tax return is required to report the income of all member corporations that have 20 percent or more of their property and payroll within the United States and that meet three out of six designated tests. By requiring corporations that are incorporated in tax haven jurisdictions to be included in the combined report, HB15-1346 adds income from these corporations to the Colorado corporate income tax base.
Tax havens. There is no precise definition of a tax haven. In general, a tax haven is a country that offers foreign businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. In addition, they do not require that the foreign business operate within their country to benefit from its tax policies. Tax havens are defined in the bill to include specific countries, such as the Cayman Islands, Liberia, Malta, and Luxembourg.
COST partners with CACI to fight HB-1346
Loren’s work on HB-1346 has been recognized by the Council on State Taxation (COST), a national business-membership organization that focuses on state and local taxes and which has been working with Loren on HB-1346. The following passage was include in COST’s
COST Testimony Update
Following a request from the Colorado Association of Commerce and Industry (CACI), on April 16, COST presented the Colorado House Finance Committee with a letter in opposition to CO H.B. 1346, a bill that would target purported “tax haven” countries for inclusion in the Colorado corporate income tax combined group. The letter notes that tax haven lists are arbitrary and misleading, potentially leading to double taxation of legitimate business activities. The letter also opposes language in the bill that would allow the Department of Revenue to require corporations to submit a domestic disclosure statement upon request.
Through the hard work of Loren Furman from the CACI and letters submitted by COST and the Organization for International Investment (OFII), the bill was held over to work on amendments and attempt to address industry’s concerns. COST is working with CACI on how to best engage in the future should this legislation move forward.
For news media coverage of this bill and other information, read:
“Colorado House passes bill to allow vote on taxing offshore accounts,” by Joey Bunch, The Denver Post, April 28th.
“CACI Opposes ‘Tax Haven” Bill that Could Hurt Colorado Companies,” CACI Colorado Capitol Report, April 21st.
“Colorado eyes ballot question to collect from corporate tax havens,” Joey Bunch, The Denver Post, April 14th.
Opposed by Business Coalition, Bipartisan Bill That Could Expose Confidential Information Dies in Senate
A bipartisan late bill, SB-275, which could potentially have exposed confidential business information to state lawmakers, was killed Friday in the Senate on a voice vote on Second Reading after the bill had been amended with a “strike below” amendment on the Floor.
The bill would have provided cover for state workers who provide confidential information to legislators.
The bill was sponsored by Senate Minority Leader Morgan Carroll (D-Aurora) and Senator Kent Lambert (R-Colorado Springs), who is the chair of the Joint Budget Committee.
The Senate Local Government Committee amended and approved the bill by a unanimous vote on March 28th.
CACI was part of a very large public-private coalition that opposed the bill because it could have set a dangerous precedent by providing impunity to state employees if they disclose the confidential information to legislators. The 50-member coalition included businesses, non-profit organizations, business organizations and six state agencies,
The bills second fiscal note summarized the proposal:
Summary of Legislation
This bill creates a framework for the use by members of the General Assembly of confidential information in the custody of state agencies. Members of the General Assembly are encouraged to use confidential information when it is beneficial and necessary. Members of the General Assembly are required to use any confidential information without compromising confidentiality, and may only use confidential information in their consideration of official legislative actions. To effectuate access to health-related information, the bill declares that the General Assembly is a health oversight agency, entitled to handle personal information under the federal HIPAA (health care information) statutes. The bill also modifies the whistleblower statutes applicable to state employees to prohibit retaliation against an employee who provides confidential information to a member of the General Assembly.
Background
Under current law, the employee of a state agency may be disciplined for disclosing certain information that they believe relates to actions of a state agency or agencies that are not in the public interest. In particular, the whistleblower statutes provide an exemption for retaliation against a state employee if information is disclosed that is confidential under any other provision of law.
The duties of various state agencies involve records with a person’s medical and mental health information. This information is generally confidential, as exemplified in the federal Health Information Portability and Accountability Act (HIPAA). HIPAA restricts disclosure of personal information without the consent of the affected person or persons. However, HIPAA allows the custodian of such personal information to make disclosures to a health oversight agency for designated policy and compliance oversight activities.
Here are the concerns that the business coalition had with the measure:
- The disclosure of confidential, sensitive, proprietary or trade secret information that is currently exempt under CORA raises significant concerns from over 50 private industry and public sector agencies across the State;
- Concerns are that this information could be used against a public or private entity for adverse purposes;
- The intent of this bill as was provided in committee is to protect whistleblowers that have concerns with a state agency’s actions. It is unnecessary to allow the disclosure of confidential and proprietary information as it should have no relationship to the malfeasance of a state agency.
- Many businesses file confidential and/or proprietary information with the state for legitimate regulatory purposes. State agencies have statutory or regulatory obligations (state and federal) to maintain confidentiality of the information once received. Allowing any legislator to access any information is dangerous government overreach.
For more information on the bill, contact Loren Furman, CACI Senior Vice President, State and Federal Relations.
News Media Coverage
Below is recent news-media coverage of state and federal political, policy and governmental issues of interest to CACI:
“Colorado’s divided session leaves a legislative graveyard of bills,” by Lynn Bartels and John Frank, The Denver Post, May 4th.
“Construction-defects reform: Democrats in Legislature push last-minute alternative,” by Ed Sealover, The Denver Business Journal, May 4th.
“Personal property tax-cut, ta-haven measures among bills that died Friday in the Legislature,” by Ed Sealover, The Denver Business Journal, May 2nd.