Colorado Capitol Report

House Finance Committee OKs Tax-Haven Bill

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State Policy News

House Finance Committee OKs Tax-Haven Bill

On Wednesday evening, the Democratic-controlled House Finance Committee approved HB-1275 on a party-line 6-5 vote.

Having prominently highlighted this issue in her session-opening-day speech, House Speaker Dickey Lee Hullinghorst (D-Boulder) has “fast-tracked” the measure, which was introduced in the House on February 17th.

In other words, this bill is a priority for the Progressive House Democrats in this critical election year, hitting two major themes: being part of a basket of anti-business bills under the guise of promoting “income equality” and benefiting the education community because any new revenue would go to K-12 education.

If the bill is passed by the legislature, the voters would have to approve the measure on the November ballot because of TABOR since it would raise new tax revenue.  The introduced measure is projected by nonpartisan legislative staff to raise $140 million in the state’s next three fiscal years beginning this July 1st.

Last year, a similar House bill, HB-1346, which CACI opposed, died when it reached the Senate.

The bill requires a company’s Colorado “combined tax return” to include any foreign affiliates that are incorporated in tax haven jurisdictions for the purposes of determining tax avoidance.  The bill allows the Department of Revenue (DOR) to develop a “black list” of countries they believe are “tax havens”

“This bill sends a terrible economic development message for Colorado corporations that do international business and bring us thousands of jobs,” said Loren Furman, CACI Senior Vice President, State and Federal Relations, “This bill also gives unlimited discretion to the Colorado Department of Revenue to decide whether a company is conducting a legitimate business activity as well as giving the Department the authority to black list countries.”

Here’s how the bill’s fiscal note summarizes the introduced proposal:

Summary of Legislation

Conditional on voter approval, this bill requires corporations filing a Colorado combined income tax return on or after January 1, 2017 to add income from affiliated corporations incorporated in tax haven jurisdictions. The bill identifies criteria for which jurisdictions are considered tax havens. The Department of Revenue (DOR) will use these criteria to determine tax havens through administrative rule. The director of the DOR may allow corporations with subsidiaries incorporated in tax havens to not report tax haven income if the subsidiary is incorporated in the tax haven for legitimate business purposes.

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, the increase in corporate income tax revenue will be transferred from the General Fund to the State Education Fund. The voter approved revenue increase is exempt from TABOR.

Background

Combined report. 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. Requiring corporations incorporated in tax haven jurisdictions to be included in the combined report increases Colorado corporate income.

Apportionment factor. Corporate income is apportioned to Colorado based on the percent of sales that occur in Colorado relative to total sales of the combined corporation. This factor is the apportionment factor, which is applied to federal taxable income to determine income for Colorado corporate income taxes.

Tax havens. There is no precise definition of a tax haven. Five factors are listed in the bill for the DOR to use when determining which countries are tax havens.

The Committee adopted two amendments, which had not been distributed to the business community for review prior to the hearing:

L001 – Clarifying the amount of revenue expected to be raised based on the estimated $75 million projected in the Legislative Council’s fiscal note;

L002 – Clarifying how the Colorado Department of Revenue would determine a “legitimate business activity” by requiring it to use the Federal Code to make that determination.

The measure next goes to the House Finance Committee.

CACI has assembled a large coalition of 35 businesses and business organizations to fight the bill.

Testifying for CACI against the bill was Rhonda Sparlin, Chair, CACI Tax Council; Member, CACI Board of Directors; and Partner, RubinBrown LLP.  Here is an edited version of Rhonda’s prepared testimony:

Testimony on HB 1275 – Tax Havens

As a statewide organization that represents businesses of every size, CACI echoes the economic development concerns shared in other testimony presented today.  In addition, CACI is opposed to HB 1275 for three reasons:

  1. The bill creates uncertainty for corporate taxpayers with legitimate business activities in foreign jurisdictions by changing laws that the Department and taxpayers have relied upon for the past 30 years;
  1. The bill grants broad discretion to the Colorado Department of Revenue to “legislate through regulation” without legislative guidance, for the Department or Taxpayers regarding the determination of legitimate business activities; and
  1. The bill creates potential duplicative taxation of foreign source income reported for federal income tax purposes.

We believe this bill creates future uncertainty compared to the current tax structure that Colorado taxpayers have been operating under since 1986!   The Colorado combined reporting structure for corporations was passed in 1985 after many months of intense stakeholder meetings involving Colorado businesses, the Department of Revenue, legislators and other interest groups.  The process involved stakeholders specifically defining the affiliations required to be considered for combined reporting and the criteria those affiliates need to meet in order to be included in a corporate combined report.  In addition, the process legislatively preserved certain Department of Revenue discretion “to avoid abuse, on a fair and impartial basis.”

For the past 30 years, Colorado has seen longstanding success in these definitions and the discretion allowed the Department.  This is evidenced by the fact that very few disputes between taxpayers and the Department of Revenue have required the Colorado court system to resolve the disputes.

We strongly question and oppose the current legislation that erodes the effectiveness of definitions that have a history of creating certainty for both taxpayers and the Department with regard to administration of the corporate income tax.

To the second point:

This bill defines five criteria that can be applied by the Department to determine a tax avoidance jurisdiction but it does not provide any legislative guidance for either the Department or taxpayers regarding what can qualify as a legitimate business purpose.  As expressed in other testimony today, there can be a number of legitimate business purposes for operating in these foreign jurisdictions.  CACI members encourage a more robust stakeholder process and thoughtful legislative guidance upon which both taxpayers and the Department can rely in order to avoid unintended consequences, unnecessary conflicts and uncertainty in administration of this proposed legislation with respect to legitimate business activities by taxpayers.

To the third point:

Our final concern with this legislation is that it creates potential duplicative taxation of foreign source income reported for federal income tax purposes.  Just for clarity, Colorado’s income tax calculation begins with taxable income reported to and determined by the federal government.  Thus, when foreign source income is required to be reported to the federal government, it is also usually reported and taxed by Colorado.

This legislation creates a potential situation where Colorado would annually tax the foreign source income earned in a foreign jurisdiction determined by the Department to be for purposes of tax avoidance and to tax that same income again when it is included in federal taxable income.  This duplicate taxation is likely an unintended consequence of this proposed legislation, but one that requires additional thought and potential additional action on behalf of the legislature.

In summary:

As a statewide organization that represents businesses of every size, CACI echoes the economic development concerns shared in other testimony presented today.  In addition, our Tax Council and members in general are concerned that this legislation does not do enough to protect legitimate business activities of Colorado taxpayers.  For the reasons we outlined in our testimony, we oppose HB 1275 and encourage this committee to vote “no” on this bill.

CACI member TerumoBCT sent two people, Scott Larson, general counsel, and Scott Froehlich, global tax directors, to speak against the bill.

Tyler Rauert spoke on behalf of the World Trade Center Denver, which works with CACI on various international trade issues.

Also speaking against the bill was Nikki Dobay, West Coast Tax Counsel for the national Council on State Taxation, which often works with CACI on Colorado tax issues.  A number of CACI members are also COST members.

For more information on the bill, contact Loren Furman, CACI Senior Vice President, State and Federal Relations at 303.866.9642.

For news media coverage of this bill, read:

“Bill targeting Colorado businesses’ offshore tax havens gets initial OK,” by Ed Sealover, The Denver Business Journal, February 25th.

“Corporate tax-haven bill critics warn it will hurt Colorado’s recruiting ability,” by Ed Sealover, The Denver Business Journal, February 23rd.

“CACI Tax Council Discusses ‘Tax Haven’ Legislation with House Sponsor,” CACI Colorado Capitol Report, February 12th.

Bill to Revive Pay-Equity Commission Dies in Senate Committee

On Wednesday, the Senate Business, Labor and Technology Committee on a party-line 5-4 vote killed SB-96, which would have revived the Colorado Pay Equity Commission that “sunset” last year.  CACI opposed continuation of the Commission at that time.

The sponsor of SB-96 was Senator Rollie Heath (D-Boulder).

That Commission was housed in the Colorado Department of Labor and Employment (CDLE) but was never funded by the legislature.  SB-96 also sought not public funds based on their ability to buy Ethereum in UK, depending on “gifts, grants and donations.”  To CACI’s knowledge, there were no gifts, grants and donations ever made to the CDLE to support the Commission when it existed, which indicated that even its proponents were unwilling to financially support its work.

The CACI Labor and Employment Council opposed SB-96.

Here’s how the SB-96’s fiscal note summarized the proposal:

Summary of Legislation

This bill reestablishes the Pay Equity Commission within the Colorado Department of Labor and Employment (CDLE).

Membership. The commission consists of 11 members, including representatives from CDLE, the Civil Rights Division in the Department of Regulatory Agencies (DORA), higher education, various business and labor groups, a statewide association of attorneys, and a national association that serves minority communities. Appointments to the commission are required to be in place on or before September 1, 2016.  Members of the commission serve  up  to two consecutive, two-year terms and without compensation or reimbursement.

Duties. The commission is to hold its first meeting on or before November 1, 2016, and at least quarterly thereafter. The commission is charged with the following duties:

  • educating employers about issues or practices that contribute to pay inequities;
  • working with business groups and educational institutions to develop and maintain an inventory of best practices for encouraging equal pay;
  • encouraging employers to implement these best practices and developing a program to recognize employers that pursue pay equity practices;
  • conducting outreach and education to employees and employers regarding pay equity; and
  • studying other state models of pay equity and working to establish Colorado as a model employer with regards to pay

Funding and operations. The commission and the CDLE are authorized to solicit and accept gifts, grants, or donations to fund commission costs. Moneys received are deposited into the continuously appropriated Pay Equity Commission Cash Fund. If sufficient gifts, grants, and donations are received, the commission may employ or contract with up to one full-time employee or contractor to support its work.

Reporting. Beginning June 30, 2018, the commission is required by law to submit an annual report to the executive director of the CDLE and the business committees of the General Assembly, and to post the report on the commission’s website by June 30 of each year. Upon at least a two-thirds vote, the commission may submit policy or administrative recommendations to the executive director of the CDLE at any time.

CACI-Opposed Sick-Leave Bill Dies in Senate Committee

On Monday, SB-114 died in the Senate State, Veterans and Military Affairs Committee on a party-line 3-2 vote.

The bill was co-sponsored by Senator Morgan Carroll (D-Aurora) and Senator Jessie Ulibarri (D-Commerce City).  Senator Carroll, who is term-limited, is running against U.S. Representative Mike Coffman (R) for Colorado’s Sixth Congressional District seat.

Here’s how the bill’s fiscal note summarizes the measure:

This bill creates the Healthy Families and Workplace Act and requires that all employers in Colorado provide paid sick leave to each employee as follows:

  • at least one hour for every 30 hours worked, up to 72 hours per 12-month period if the employer has more than 10 employees; or
  • at least one hour for every 30 hours worked, up to 40 hours per 12-month period if the employer has fewer than 10

The bill applies to all statutorily-defined employees, which includes any person, including a migratory laborer, performing labor or services for the benefit of an employer in which the employee is subject to an employer’s control and direction. It does not apply to independent contractors.

Use of leave. Employees are permitted to carry accrued sick leave forward to use in the future, but the employer is not required to allow the employee to take more than it is required to grant in a given 12-month period.

Paid sick leave may be used for:

  • the employee’s own health care or that of a member of the employee’s family (which is expanded to include another person related by blood, marriage, adoption, foster or legal guardianship; a domestic partner; the spouse of an employees’ child, parent, sibling, or grandparent; or any other person living within the same household of the employee for at least six months or who has a close relationship equivalent to that of a family member);
  • absences related to specified incidences of domestic abuse, sexual assault, or harassment; or
  • when a public official has ordered the closure of the employee’s workplace, or the school or child care facility of the employee’s child, due to a public health

Employers are not required to pay out unused sick leave balances. However, if a terminated employee returns to work with the same employer within a 12-month period, that employer is required to reinstate any uncompensated, accrued sick leave balances for that employee.

Notice. Employers are required to notify employees of the amount of paid sick leave to which they are entitled and the terms of its use. The Colorado Department of Labor and Employment (CDLE) is required to create and make available posters outlining the paid sick leave policy for use by employers.

Employee rights and civil actions. Employees are not required to disclose the details of medical conditions or absences related to abuse. An employer is prohibited from retaliating against any attempt by an employee to exercise his or her rights under the bill or from counting paid sick leave used by an employee as an absence that may to lead to or result in disciplinary action. An employer who willfully violates these requirements is subject to a civil fine not to exceed $100 per separate violation.  Fines are credited to the General Fund.

Enforcement. Employers are required to retain records documenting hours worked, paid sick leave accrued and paid sick leave used, for each employee for a five-year period. Employers are to provide reasonable access to records for monitoring by the CDLE. CDLE is provided with rulemaking authority and is given jurisdiction over enforcement of the bill’s requirements. Any findings, awards, or orders issued by the CDLE are subject to judicial review.

Loren Furman, CACI Senior Vice President, State and Federal Relations, testified against the bill.  Here’s an edited version of Loren’s prepared testimony:

I’m here to convey CACI’s opposition to SB-114, which is the same position CACI took when an earlier version of this bill was introduced in 2010.

General reasons CACI opposes

First, this is yet another proposed mandate by State Government on employers, telling them how to run their businesses.  Colorado employers are diverse: agriculture industry, restaurants, manufacturing, banking, information technology and beer producers.  Large, medium and small: they are all different!

Setting uniform standards for diverse employers doesn’t work

One hundred present of 500 Colorado employers surveyed paid time-off benefits that were used for sick leave, vacation, alternative-work arrangements and parental leave.  Employers like to work with their employees and give them flexibility where it’s needed.

This bill, however, seems to create more restrictions on employers and workers.

Specific problems in the bill

The bill requires employers to roll-over leave not used in a current calendar year.  The problem with this provision is that it is really expensive for employers and many do not have this policy.

The bill also includes very specific reasons for which a worker can use take sick leave.  The problem with this provision is that many employers want to give workers flexibility with “paid time off” to use for other reasons.  This same concern was shared in the fiscal note because state agencies would have to change how their workers are offered paid time off.

The bill requires employers to keep personnel records for five years and record specific details about the leave.  And, those records may be investigated by the Colorado Department of Labor and Employment (CDLE).

The problem with this provision is that most employers keep personnel records for an average of seven years, but this bill once again mandates how the records are to be maintained, which means employers will have to change existing leave records and recalculate leave schedules–all of which imposes new costs on employers.

In addition, the bill lacks any confidentiality protections if an employer hands personnel records over to the CDLE.

Finally, the bill says that, if an employer already has a sick leave policy, the employer is exempt from the provisions of the bill–but only if it meets the requirements in the bill.

A problem with this provision is that, even if an employer is currently complying with the Federal FMLA mandate, it will then have two different State and Federal mandates with which to.

FMLA provisions

  • Private sector employers: 50 or more employees and for at least 20 workweeks in the current or preceding calendar year–including joint employers (i.e. seasonal employers don’t count if only kept on payroll for less than 4 months to 5 months).
  • Employees must have worked 1,250 hours in year prior to taking FMLA, and work at location with at least 50 employees (or within 75 miles of location with 50 employees).

Summary

It appears both government agencies and private employers would have a tough time complying with SB-114.  Finally, employers and workers are not the homogenous across Colorado–nor should they be treated that way under SB-114.

For more information on SB-114, contact Loren Furman, CACI Senior Vice President, State and Federal Relations at 303.866.9642.

News Media Coverage

Below is recent news-media coverage of state and federal political, policy and governmental issues of interest to CACI:

“Colorado House committee rejects ‘Homeless Bill of Rights,’” by Tom McGhee, The Denver Post, February 24th.

“Rep. Lori Saine: Separate facts from theatrics on oil and gas,” by Joey Bunch, The Denver Post, February 24th.

“Sharp shift in Colorado union membership numbers,” The Denver Business Journal, February 23rd.

“Ballot initiatives would hike Colorado’s minimum wage,” by Ed Sealover, The Denver Business Journal, February 18th.

“Most small businesses down on Obamacare, see health care as big election issue,” by Ken Hoover, The Denver Business Journal, February 18th.

“Big drop in Colorado coal production,” by Cathy Proctor, The Denver Business Journal, February 18th.

“Colorado road builders to seek sales-tax hike for transportation upgrades,” by Ed Sealover, The Denver Business Journal, February 17th.

“Colorado Senate president rebuffs legal opinion on hospital fee, road funding,” by Ed Sealover, The Denver Business Journal, February 17th.

“Colorado legislators divided in hospital provider fee debate,” by Megan Schrader, The Gazette, February 17th.

Contribute to Campaign to Defeat Amendment 69, the $25 billion, Single-Payer, Health-Care Plan

A public-private coalition is working to defeat Amendment 69, the November ballot initiative that would create a quasi-public, single-payer health-care plan that would impose a $25 billion tax on employers, workers, and taxpayers.

Called “Coloradans for Coloradans,” the campaign organization’s co-chairs include Colorado State Treasurer Walker Stapleton and former Democratic Governor Bill Ritter.  The organization is backed by a coalition of business organizations, public officials, and community and civic leaders.

In November, the CACI Board of Directors voted to oppose Amendment 69 just days after Secretary of State Wayne Williams qualified the ballot initiative for the November ballot.

CACI urges its members to contribute to Coloradans for Coloradans. Contributions can be mailed to:

Coloradans for Coloradans
1660 Lincoln Street
Suite 1800
Denver CO 80624

Contribution can also be wired electronically to Coloradans for Coloradans.

CACI members who have questions about contributing to Coloradans for Coloradans may email Katie Behnke or call her at 303.807.4583.

Coloradans for Coloradans is an issue committee, #20165030100, registered with the Colorado Secretary of State’s Office.  An issue committee may receive unlimited contributions.

Federal Policy News

CACI Signs Letters of Support For Safe Food Coalition, Voluntary GMO Labels

The Coalition for Safe Affordable Food is an alliance of American farmers, concerned parents, food producers and consumers who support a national, science-based labeling standard for all products containing genetically modified ingredients (GMOs).  This Coalition believes that only uniform, federal standards can provide the public with the accurate, consistent information they need, particularly to:

  • Eliminate confusion and provide consistency, without a patchwork on 50 state regulations
  • Advance food safety by codifying a review process for new GMO products before they enter the marketplace
  • Inform consumers by establishing standards for voluntary labeling

As part of this coalition’s efforts, CACI and Coalition members have been actively educating our congressional delegation about the need for a voluntary, but nationwide labeling system, as well as a science-based review standard.  Click to read the Coalition’s letter to U.S. Senator Michael Bennet (D-CO), who serves on the Senate Agriculture Committee, as well as our letter to Ag Committee Chairman Roberts (R-KS).

Want to know more?  Check out Western Sugar’s FAQs on the facts vs. myths of GMOs…

SBA Requests Business Comments on Proposed Wage Reporting, High Tech Visas

The Small Business Administration (SBA) is increasingly looking to CACI for feedback on policy issues important to CACI member companies.  CACI hosted Regional SBA Representative John Hart at a 2015 Federal Affairs Council, and we will continue to partner with the SBA to ensure business voices are heard in this and future administrations.

Below are two areas worth reviewing and considering for public comment:

  • EEOC to Require Employers with 100 or More Employees to Disclose Pay Data

In accordance with the Paperwork Reduction Act, the U. S. Equal Employment Opportunity Commission (EEOC) proposes a revision to an employer form to include collecting pay data from employers. The current Employer Information Report (EEO-1) collects data about employees’ ethnicity, race, and sex, by job category for employers with 100 or more employees, or federal contractors with 50 or more employees and a federal contract of $50,000 or more.  Starting in 2017, filers with 100 or more employees (both private industry and Federal contractor) would submit new data on employees’ aggregate W-2 earnings and hours worked.  In this notice, the EEOC solicits public comment on the utility and burden of collecting pay and hours-worked data through the EEO-1 data collection process.

Comments are due here by April 1, 2016.  

Advocacy Contact: Janis Reyes or call 202-205-6533.

  • USCIS Proposes Amendments to High-Skilled Visa Regulations for Permanent and Temporary Workers

The United States Citizenship and Immigration Services (USCIS) is amending regulations related to certain employment-based high-skilled permanent (EB-1, EB-2, and EB-3) and temporary (H-1B) visa programs.  The proposed amendments codify provisions of the American Competitiveness in the Twenty-first Century Act of 2000 (AC21), the American Competitiveness and Workforce Improvement Act of 1998 (ACWIA), and related guidance documents.  Many of these changes are aimed at improving the ability of U.S. employers seeking to sponsor or retain workers on visas, such as allowing extensions of immigration status.  This proposal would also codify worker portability, or the ability of visa holders to seek promotions or change employers.   USCIS seeks feedback from small businesses sponsoring the employment of these visa holders regarding potential increased turnover costs (or employee replacement costs) and paperwork costs of this rulemaking.

Comments are due here by this coming Monday, February 29, 2016.

Advocacy contact: Janis Reyes at 202-205-6533

If you have any questions or would like CACI to engage with the SBA on these issues, please contact Leah Curtsinger, CACI Federal Policy Director at (303) 866-9641.