Grassroots Effort to Simplify Colorado Sales Tax with Paul Archer: Part 2

Meredith: 00:01:02

Welcome to SALTovation.

The SALTovation show is a podcast series featuring the leading voices in SALT where we talk about the issues and strategies to help you make sense of state and Local Tax.

Paul: 00:01:15

I went to a national political convention. I was a delegate at a national political convention.

And at those political conventions, which, for people who are politically interested, they're like Disneyland for a politically interested person. And you have state meetings every morning.

So the state of Colorado delegation would have a breakfast every morning, and we'd have a guest speaker at all of those meetings. And like, I was sitting at one of those breakfasts next to the.

I was sitting next to the ambassador from Hungary to the United States, and our speaker was Condoleezza Rice. At that one of those breakfast meetings, I met Tim Jackson, who is the executive director of cata, the Colorado Automobile Dealer association.

And he was with. Oh, his last name's Carlson. I want to say Mike, but I don't think it's Mike.

He was a car dealer in Aspen and Glenwood, and he was the chairman of cada, and Tim was the president. And so I thought, here's an opportunity. So I said to them, what do you guys think of sales tax?

And Tim said, biggest headache that a car dealer has to deal with in Colorado. And I said, so how does it rank with other states? He said, it's by far the worst sales tax system in the country. And our car dealers are constantly.

Our member dealers are constantly complaining to us about it. And I said, well, Jake Jabs and his team and I and a state representative were trying to get a coalition going to fix it. Why don't you join us?

And Tim and Mr. Carlson said, we're in.

So we got back from the convention, I called Tim, went down and saw him, and he gave us their vice president of regulatory affairs. And she and I and American Furniture Warehouse started going all over. And when it's.

Now you have the car dealers, which are the largest source of sales tax in the state. So car dealers represent the largest source of sales tax in the states. So now we had the car dealers. We had American Furniture Warehouse.

We had a small business. Everybody had to listen to us.

And not only did everybody have to listen to us, but Cata knew people, and Cata started pulling other people to the table. And pretty soon, instead of just three of us sitting at the table, we had a room of 12 to 20 people. You were one, Judy.

You came to those early meetings.

Judy: 00:03:48

Well, and I met Tammy McCoy, who was. What. What was that role? She was.

Paul: 00:03:53

She was their head of Regulatory affairs. Tammy's a lawyer.

Judy: 00:03:57

Yep. And then she sat on the Colorado Chamber with me on the Tax council.

So I knew her through the tax council that's called now the Colorado Chamber of Commerce.

It used to be called Casey Colorado association of Commerce and Industry, and they just renamed themselves, but they're a lobbying group sort of, that lobbies with the state on behalf of business to be business friend friendly legislation and a multiple of disciplines, including tax. Yes, interesting.

Paul: 00:04:25

And so we spent a lot of time with Tammy before she left Catta, and she was great in getting the problem and being able to catalyze around the problem. And so Katta came to the table and said, we need to now legally form a 501C4. So we should legally form a 501C4.

And the auto dealer said, we'll give you the first financial stake to get this started. And so we had money, we had an organization, we started recruiting members, and today all of our board members are also dues paying board members.

And we started to do the things that first bill that I did with Kathleen, I told you it was just Kathleen and me.

But most things that go through the legislature need to have a lobbyist who's championing them, knows the people to talk to, knows who the people of influence are, can get appointments with anybody on either side of the aisle. And so we brought lobbyists to the table, which today we have Jen Penn.

Jen wasn't our original lobbyist, but she's been with us for several years now and has done a great job. And we brought the board together and we said, what is it that we want to accomplish? Well, we want to simplify Colorado sales tax.

How do you simplify it? And we identified the things that needed to be done to simplify it.

Two of the key things to simplify it were simplified licensing so that you didn't have to go through licensing with lots of different home rule cities, and then simplified submissions so that you didn't have to do 40 or 50 or 63 different sales tax submissions.

So in my business, we were licensed in like 45 small businesses and had to do 45 sales tax returns a month, which, you know, going back to my brother and the. What's the problem with sales tax? I knew every month with our head of operations, she would say to me, okay, don't bother me for three days.

I'm doing sales tax.

So a key person in my business who was billing customers, collecting accounts receivable, purchasing things and so on is spending, you know, more than spending about 15% of her time on sales tax. Now afw had like three and a half full time employees doing just sales tax.

And we told the city that one time and they said, well, that's job creation. I said to them, well, no, it's parasitical. And they said, what do you mean?

And I said, well, if Jake and his team had a choice of putting two more trucks and drivers on the road, they'd way more rather have two more trucks with three and a half employees delivering furniture, then they would want three and a half people doing sales tax compliance. And that would actually not be parasitical. That would be constructive and customer facing and customer serving and so on.

So that's how it all got started. And now we've been together for several years and have monthly meetings and formal structure and key objectives and key purposes.

One of the early bills that we got passed was what we call audit fairness. So having been audited multiple times, and Judy, you've worked alongside people who've been audited hundreds and hundreds of times.

And the way the system used to work, it didn't matter what the facts of the case were or your claim were, you lost before you even started. Correct. Because the process was so stacked against you. And so if you got an adverse audit, you had to appeal within the same organization.

And then if they kept the adverse audit, then you appealed to the state Department of Revenue and they would always back up the city. And so your only place to go after that was to bring a lawsuit.

And meanwhile, if you brought a lawsuit, you have all the expense of the lawsuit, but you also have to either pay the disputed tax or you had to post a bond in the amount of the disputed tax. So it was like, you may be right, but you're still going to pay us.

And if you prevail on being right through a lawsuit, we'll refund the money to you at the end of the process. And so most taxpayers would just say, I hate this. I'm not going to throw good money after bad. This is already bad money.

I'm not spending more money on a court case and so I'm going to surrender. Well, that was incredibly unfair. And so we passed a bill that we call audit fairness.

And that audit fairness made it so that you could appeal without having to pay your sales tax that's in dispute, without having to post a bond that's in dispute. And it leveled the playing field.

So at that point in time, the taxing entities would no longer treat you as a person who really had no recourse except for an ugly legal recourse. And they treated you like somebody who had a reasonable disagreement.

And they had to work through the process and had to work through the process reasonably. And so that was a really significant right out of the gate bill that we got passed.

And everything we've done as a coalition, the bills pass, like nearly 100% Republicans and Democrats. I think we had one bill that like one person voted against. And I asked Jen, who is that person? Why would that one legislator vote no?

So following onto that, we had the sales and use tax simplification task for. So we, we suggested.

We ghost wrote legislation to the state to create a task force that now had the weight of a legislative task force led by legislators. And on the legislative task force, we had lawyers, accountants, small businesses, large businesses, cities, counties, the state.

And so we had a forum where we had to come together regularly and confront the fact that our sales tax system was really, really hard. And the legislature gave us an edict that go find ways to make this simple because it's dumb that it's so complicated.

And so the legislature said, we're going to fund this task force, we're going to empanel the task force, we're going to oversee the task force, and we expect that what comes out of the task force is going to be means to simplify the bill. So that was early in the task force, and then the next year came out of the task force.

And a lot of these things that the coalition is kind of gestating, the things that go to the task force was suds, the sales and use tax system.

And we realized that, yes, we have a constitutional challenge in terms of reforming the system and just kind of through legislative edict saying we're going to have a system like Utah's or Minnesota's or heck, even California's. I had one city say to me one time, oh, our sales tax system's way harder than Californians. California's.

And I said to them, if there's a single thing California does better than us, we are doing it wrong.

So we passed the bill to create suts, which we felt like we can solve the licensing and the remittance challenge through software, maintaining the home rule, city's autonomy in many areas, but having them participate and sign on with Suts. And I don't think we're at 63 at Judy, but we're very close to having all of the cities signed on to suts.

Judy: 00:12:32

Yes.

Paul: 00:12:32

And so now you can go to suts and registration or licensing is way easier than it was before suds Remittance is way easier than it was before suds. And so we got started with suts and I was on. I think you were too, Judy.

We were asked to serve on the selection committee for choosing the software vendor who would create the SUT system. So it was overseen by the State Department of Technology. It wasn't done by the State Department of Technology.

They did an RFP and we got like ten 300 page proposals on this software system to address licensing and remittance. And all of us who were on the selection committee had to wade through those proposals. And then we made a selection.

We chose two vendors to bring the software solution that became suts. And so then once we had some experience with suts, we said we need to continue to enhance suts.

So we have the first iteration, but we have to continue to enhance it. It has these weaknesses and we need some additional funding which frankly, if it doesn't work this way.

But if you look at the financial value of what we've done and said just spend that, we've increased sales tax revenue more than sufficiently to, to pay for everything we've done. But you know, our sales tax revenue goes into the general fund and there's lots of competition for the general fund.

So we enhanced, we passed the SUTS enhancement bill, which was important. So that continues to be worked on. And we've, we've had a number of other things. Geo locating common, common definitions.

So that original bill, that common definitions bill, we then came out and said all cities should sign on to the common definitions. In other words, software should be defined the same way in all 63 home rule cities in the state.

And so most home rule cities have signed on now to that common definitions. We have continually other things coming into scope.

I ought to say that one thing that really helped us was the Wayfair Supreme Court ruling which changed the definition of nexus. So there was this notion that Internet sales weren't taxable. And that was a myth. Internet sales have always been taxable. The issue is enforcement.

And so what the courts had said was no individual state can impose its business regulations on a business domiciled in another state. And that violated the commerce clause unless that business has nexus within the state that wants to regulate it.

And in this case, we're talking about regulating it around the sales tax, licensing, collection and remittance. And so for years, for example, Amazon would say the largest, second largest retailer on the planet.

Amazon for years would say we don't have to pay sales tax. And they would say we don't have nexus. You know, we have a few warehouses, but we don't have warehouses in all 50 states.

And so where we don't have a warehouse, we don't have nexus. And where we don't have nexus, you can't come and enforce your sales tax laws on us.

So what should have happened is the obligatory for paying sales tax is actually not the business who sells you something, it's the individual who buys it.

And so legally, anytime you bought something online that wasn't sales tax, you should have then gone to the state and filed a use tax return, which zero people would do.

Judy: 00:16:33

Right.

Paul: 00:16:35

And I even debated this with members of Congress because at Congress we had the marketplace fairness bill, which had significant Senate support but couldn't get House support. I talked to members of the House and said, why don't you support marketplace fairness? Which marketplace fairness just said this.

Why should a local business in any state have to collect and remit sales tax but an out of state seller doesn't have to? How's that fair?

Judy: 00:16:59

Yep.

Paul: 00:17:00

Right. And I would have these members of Congress say to me, it's a new tax. No, it isn't a new tax. It's not at all a new tax.

Well, Wayfair comes along and basically says, we're going to redefine nexus and you can now have virtual nexus. So if you have an Internet presence in any state, you have nexus, you have a presence, you have a business presence in that state.

And we're going to define that as nexus. And so sales tax is now enforceable by every state provided that that state has a simplified sales tax system.

And Colorado did not have a simplified sales tax system.

And so we didn't, we couldn't participate in the Wayfare outcome because businesses could say, I don't have to comply with Colorado, you don't have a simplified sales tax system. Well, we represented the coalition, we represented the pathway to the simplified sales tax system.

And we could go to the state and cities and say there are billions of dollars of out of state sales done in Colorado every year that aren't being taxed and you're not getting sales tax revenue for. And if you want the sales tax revenue for those transactions, you need to have insist on the state of Colorado having a simplified sales tax system.

And so that helped a lot in getting everybody to the table to say, how do we get this done?

So that's kind of the, the history we keep working on things we've brought into scope, things like construction use tax, which is the craziest system in the Country. And it would take another hour. Podcast.

You should have Mike Michael from the Associated General Contractors come on and talk about how fun construction use tax is.

It's like with construction use tax, if you said to a committee, go create the most complicated system you can possibly imagine and bring it to us and we'll implement that. That's our construction use tax system.

And we had out of state people come to the task force at the Capitol that meets all through the summer and through October, and they all said the same thing. Yeah, this is the craziest thing we've ever seen. And so that's in scope. We don't have the fix for it articulated, but that's in scope.

Lodging tax is also in scope. And we've done the first small bill on lodging tax.

But we have members of our board from the lodging industry who also say the same thing we said in the earlier days. Colorado has the most complicated lodging tax in the country. And there's lots of things we want to be number one at as a state.

Those things are not one of the things that you want to be number one at.

Judy: 00:20:09

It is interesting. Or we're only a state of 5, less than 5 million humans. I mean, yeah, Ireland is, you know, a country and I don't know, we can't figure this out.

Well, Texas, Illinois, New York, California, Florida are all easier to deal with in Colorado. And there are 30 million humans.

Paul: 00:20:27

Yes.

Judy: 00:20:27

Yeah.

Paul: 00:20:28

Yeah.

Judy: 00:20:28

It's very disheartening, actually.

Paul: 00:20:30

So on a positive side, I think we have had now for years all the people necessary at the table, and we have a process in place. It isn't without friction.

There's still things we, as a coalition would like to have happen, that cities have told us they just adamantly won't go there. And so we're not going there now.

And we have a really positive working relationship with all the parties, business, our professional world, the accountants, the lawyers who do tax, like Judy. And we have cities, towns in the state all at the table.

And the net benefit of what's happened has been simplification for business, more revenue for cities in the state, and frankly, simplification for them. Right?

Judy: 00:21:29

Yeah.

Paul: 00:21:30

And so I guess if there's a kind of a moral to the story, it's, you know, there's lots of big problems in our society.

None of them are going to get knocked down unless somebody and some group of people come together and say, you know, we don't think it needs to be that way. And we're going to. We're going to create A plan for it not to be that way. So it's been a lot of work. It's taken a lot of time.

There's been times where you want to pull your hair out.

But it's also something that I'm really gratified and grateful, really grateful to have been part of this journey, to be part of the journey and to have the really great people who are in that journey with us. I mean, we've got a lot of really, really sharp people who are working towards this end.

Meredith: 00:22:26

It's an incredibly fascinating story. And just thank you for sharing and both being a part of that grassroots effort. Right.

There's a lot of opportunity to just be mad at a system and you just being like, you know what? I'm going to do something about it. I have the capacity, I have the intelligence, I maybe have that one ear. And you took that opportunity.

said that it maybe started in: 2009

Judy: 00:23:05

Yeah.

Meredith: 00:23:06

But I think little by little, the efforts have kind of also gained the trust of the home rules.

Judy: 00:23:14

Right.

Meredith: 00:23:14

Because, yeah, a lot of it is. Well, and you, you said it, you know, the, the home rules don't trust the state.

And so, you know, little by little as those companies come in on sets. And I think Denver was one of the first adopters knowing that. Well, you know, if we do this, we might get others to fall in line.

It's like, well, we're getting our money. We have more people available to us. We still have that autonomy.

Even if we adopt common definitions, we still have the ability to tax software or not tax software. Right. It's, you know, you don't, you're not totally losing that autonomy as a city. So one, thank you. Right.

But do you have any final thoughts or advice that you'd want to leave our listeners with, whether it's about, you know, sales, tax advocacy, entrepreneurship, like something that's like really stuck with you that, you know, you think is, is valuable for those listening to us today?

Paul: 00:24:20

Well, I'm, I'm going to give you a closing kind of what I think is the takeaway. So you, you in any business, any organization has to have a plan. Now, frankly, a lot of them don't.

But any business, any organization has to have a plan. And that plan needs to think what's going to happen next week, next year. But it's also got to think what's going to happen in 10 years.

So I want to kind of talk about that kind of thinking, and I'll come back full circle to where we started with the mission.

So for years, my wife and I have talked about serving a mission, and we own a couple of businesses, and there are people in those businesses who depend on us and we depend on the business to perform and so on. And what we knew we didn't want to do was sell the business so that she and I can go on a mission.

You know, I've been through selling our company once, and we had conceived that we wanted our business to be privately held, locally owned for a long time to come, and that we wanted the people driving the business to be owners in the business.

We wanted to be able to promise our customers that they get an owner's touch all the time from us, our team members, that they get an owner's touch all the time. And so I had to think through how can I get the business to a point where I can leave for 18 months?

m Brigham Young University in: 2006

In the army, anything he wanted to do.

Picked infantry, went to Iraq, did a combat duty in Iraq, deployed to Germany, and really, frankly, loved what he was doing in the army and then developed a health situation that resulted in the army medically retiring him. Went to North Carolina, one of the top business schools in the country. Got an mba, went to work for Microsoft, and spent some time at Microsoft.

And then he and I talked and he came and became part of our team. And that was a key piece where I had a person who was much sharper than his dad and very, you know, just a very capable, very good person. But I knew.

I knew that he also needed a running mate.

And so I found I met this guy who was a competitor, and he had done some things that were so amazing, personally, that I thought, this guy's one of the missing pieces that needs to be part of this.

So I bought his business and told both he and Andy that it mattered to me that they were compatible with each other and that they had complementary skills and compatible vision and values and so on. And so Mike came in, and he's been a very key part of the business. And so in leaving, Mike is the CEO of the company, and he's the cfo.

Those two have a great relationship, and they have a great team that we've built, and they've been doing Wonderfully So to be able to do the things that we've done with sales tax and to be able to do things like leaving for 18 months, you've got to build a team that can function well when you're not there. And if the team's completely dependent on you, the entrepreneur, you're not going to get very far as an entrepreneur.

And so that team was such that I was able to take time away from the business to go devote the significant amount of time into sales tax and ultimately leave the business entirely and be 10,000 miles away and 10 hours by time away and know that those guys are doing terrifically. So I have tremendous respect and appreciation for Mike and Andy and for the leadership team and the whole team at automated.

And so I would encourage people to kind of think long term in your life, where do you want things to go? We thought through that and then let the people around.

You know, I told my company, I told the employees years ago, the time will come when I'm going to leave and serve a church mission. And they said, in order to do that, here's what has to happen. And this is what will happen with the church mission, this is what it means.

And then I would tell them the time will come when the ownership of the business transitions to the. The other leaders in the business. And this is what that will look like.

But what it means to all of you is a consistent, predictable, similar values and so on sort of thing. So I've been very open with the company for years about that. And we regularly updated them and regularly let them know we're at.

So when the time came for me to go, it was no surprise to anybody that Paul's leaving. It was completely expected to some degree. It was, when are you going? Let's get this going. So I'd give that as kind of my final thing. Think long term.

Think about the pieces you need to have in place. How are you going to get those pieces in place?

Start intentionally working towards getting them in place and then have the courage to say it's your show and you guys have got this and they've all been terrific.

Judy: 00:30:18

Yeah.

But then even with the coalition that you've kind of seeded that, and I find it so disheartening how many people are not vested in this as much as they should be, because most people are just not compliant. I mean, we are actually working on a million dollars of tax given to the state of Colorado in error for a client. I mean, they just didn't file it.

Right. They didn't know they're an out of state company selling to Coloradans. They're following returns all over the country.

They had no idea that we had home rule cities of such a material amount, statutory cities. They didn't even understand our return. It's so convoluted to them.

And so if you can't have people fill out a perfunctory form when you have software telling you what to collect tax wise, wise, but you can't understand how to remit it, you're not going to get clients. And it's very sad to me that all these cities want to create new home rules. In my career of 30 years, we've had new home rules.

Broomfield city and county, Centennial became a home rule city.

I mean, we're going the wrong direction as, but I appreciate that because they were developing areas and they needed to build a tax base and have some control over their infrastructure. And so they wanted to incorporate. But then they created a tax structure that was different than the states and because of that, nobody follows it.

So it's heartbreaking honestly to me that what I deal with.

Paul: 00:31:42

Yeah, well, to what you said, Judy, I don't think it's so unusual.

I mean, there should be thousands of people who are involved in the coalition to Simplify Colorado sales tax because there are many thousands of businesses who will benefit from the work of the coalition. And so, yeah, certainly I think about the people who ought to be at the table, but I also am grateful for the ones we have at the table.

And at the end of the day, it's going to be terrific for everybody. And hopefully.

Judy: 00:32:14

I just think people don't know though, they just don't understand the perfunctory part of sales tax compliance.

Paul: 00:32:19

No question. They know it's hard. No question. And many of them don't know that there's an opportunity to engage in help.

And so if you're listening to this podcast and this is the first time you've heard of coalition, go look it up. SimplifyCo, Salestax.com, simplifyCoSaleStax.com, reach out and say, hey, I want to be involved with you guys.

I want to get this further down the road. I want to get this completely one of the most simplified sales tax systems in the country.

Judy: 00:32:48

Yeah, that's great. Thanks so much. It was so interesting, your story, Paul.

And you're just a human trying to make a difference and run a business and, and raise a zillion children and have a family and contribute. That's a lot for one human to do on this earth. So thank you for doing that.

Paul: 00:33:05

Thank you.

Judy: 00:33:05

It's great that you said yes and did it.

Paul: 00:33:08

Well, thanks. Thanks for your time, Jen.

Meredith: 00:33:10

Yes, thank you so much. And this has been another episode of SALTovation. Till next time.

This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.