Incentives and Impediments: Navigating Colorado’s Business Landscape

Meredith: 00:00:34

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. In the second half of our episode with Ed Sealover, the conversation shifts to the tools and tensions shaping Colorado's economic future.

Intro: 00:00:54

Ed explores targeted tax credits aimed at boosting innovation and tourism, the persistent caused by TABOR in reforming business personal friction property taxes, and the state's slip business climate rankings. With thoughtful analysis, he highlights how Colorado's policy choices are influencing where companies invest, grow or hesitate.

Meredith: 00:01:16

As a tax podcast, are there any kind of tax policy that came out of this session that were kind of business friendly or kind of some that maybe not so much. Do you have any comments maybe specifically on what happened this session related to tax?

Ed: 00:01:37

I think there are three tax bills that came out of the session that are considered business friendly. To them were expansions of existing taxes. One of them was a new tax credit, the expansion of existing taxes.

One of them expands the taxes or the tax breaks for businesses that convert to employee ownership.

This has been a pet project of Governor Polis really wants to see more retiring business owners sell their businesses to employees to kind of keep that ownership in.

h two separate laws passed in: 2021

We're going to actually allow nonprofit and for profit businesses that help you go through this conversion to get tax breaks as well. I think that kind of lowers their prices and what they're going to charge you and inspires more people to do that.

And we're also going to grow from 50% to 75% the tax credit for your cost in doing this. Now they didn't get they wanted to grow the full pot, which is now going to be up to $3 million year of these tax credits available.

They wanted to grow a little further than 3 million. Couldn't get there because of the tax or because of the budget crunch. But but that was a pro business tax bill.

They also expanded the advanced industries tax credit. And this is a tax credit that goes to folks who invest in seven particular industries.

These are industries like aerospace, bioscience, advanced manufacturing, energy, things that pay higher wages that are kind of considered to be on the cutting edge.

And these folks who are investing, you know, not in giant aerospace companies, not that anybody's out there, you know, saying, you're Lockheed Martin, here's a $5 contribution.

But these are folks who are investing in kind of startup companies, companies within the first five years of their existence that are not making a huge amount of money. And, and the advanced industries tax credit is said to have been really powerful for the companies that use it.

hat was supposed to end after: 2026

e able to extend that through: 2031

It is a tax credit that was passed this year specifically to attract the Sundance Film Festival. Now that's going to benefit one company, Sundance. It will also benefit smaller film festivals too.

But the pro business angle there, and the reason you saw a lot of chambers of commerce support that one, is because the idea of stealing Sundance from Park City, Utah to bring to Boulder, which they announced they are coming, is going to be a boom for restaurants and retail shops and hotels and others in not just the Boulder area, but probably up and down the Front Range.

And even, frankly, they think a lot of people who will come out to Sundance from other states will say, well, as long as I'm out here in January when the film festival happens, I'm going to stay, I'm going to ski, I'm going to do this, I'm going to do that. So they think it's going to be a big boost to the economy overall during one of the down seasons of the year.

And they were able to do that with, with, with a tax credit. And so that was, you know, that was not the sole reason Sundance is coming here, but that very likely sealed the deal for them coming here.

Sundance announced after that tax credit passed on second reading in its second chamber that it was coming here. So, so yes, there were. This was not the session when you saw a giant plethora of tax credit ideas come forward.

And in fact, the biggest tax credit idea that came forward forward died.

And that was special tax credit, a 30 year zeroing out of sales and use tax for the materials that would go to data centers as there's been a real push to try to get data centers which are not high employment but are capital intensive and really spur on a lot of buying in a community to come to Colorado. They're not looking at Colorado right now because we don't have a tax policy that incents them to come here, whereas about 20 other states do.

Yeah, but, but that one was going to cost a little bit more in terms of the budget and that did not make it through largely for budgetary reasons, although environmentalists are not fans of data centers and they push back on it as well.

Intro: 00:06:37

You know, it's interesting because remember when Boeing was wanting to come here and was trying to pitch us and we wouldn't give him a credit?

Ed: 00:06:42

Right, right. And.

Intro: 00:06:43

And very anti credit many years ago. And now we're like, oh, we'll give these things. I'm like, what has happened?

Ed: 00:06:50

And there's still some pushback in tax credit.

And I think we just saw that actually in the last couple of years from some Republicans of the legislature who are not well about tax credits because when you give a tax credit, it lowers the amount of money coming in and therefore lowers typically the overage of tax revenues that causes TABOR refunds. So there are some people that now say, well, I don't like tax credits because it's just taking away your TABOR refund.

But I kind of struggle with them.

Intro: 00:07:23

Too, because it silos out a certain industry. Right. It doesn't broadly apply and it's very narrowly applied.

So is it really the best thing to do in that way to hit, you know, is it harm our citizenry? And then it kind of creates this like you here and not looking at the other reasons to come here.

Beautiful place, lots of great places to, you know, I mean, Park City is a beautiful place, but so is Boulder, you know, and it just changes it up. So it just sort of adds a little metric to the decision making that's like, is that really the way you're going to come is to get a credit?

I don't know.

Ed: 00:07:55

the aforementioned House Bill: 1296

It's not to roll back a number of credits is the sponsors, Representatives Yara Zokai and Lorena Garcia came out and said, look, we offer tax credits to push our chosen policy. These are not just handouts that we want to give to businesses. We have tax credits because we want something to happen.

For example, they argued the regional home office Tax credit is there to specifically to boost the employment in the insurance industry in Colorado. And they were presenting numbers showing it's not doing that. So therefore, it's time we roll this back.

And so when you're saying, yeah, tax credits are picking winners and losers, common line at the Capitol. They are. I mean, well, they may not be picking losers, but they're sure picking winners.

I mean, yeah, the Sundance Film Vessel tax credit technically benefits one organization, Sundance, but the idea is we can direct this tax policy in order for a different aim, which is to spur more spending and out of state visitation during one of their down seasons along the.

Intro: 00:09:10

Front Range, which is kind of interesting with the commercial property and the Airbnb and the VRBOs. And we want to reclassify personal homes to commercial property and up their taxes because they're Airbnb versus used as a personal rent.

So we have a lot of policy conflicts in terms of that, especially in our mountain communities and certainly Denver. And they have very oppressive laws about renting out your home if you don't live in it.

You can't just buy up housing and then just rent it out as an Airbnb as an investment. So that is in conflict with some of the. Bringing more tourists to the space. Yeah.

Ed: 00:09:45

And I'll tell you, I was very surprised in some ways that we did not see, especially with the budget deficit, more efforts this year to revive that debate over should we charge people who own Airbnbs and other such homes, should we charge them property. Commercial property tax rates. But I think it was because there was such a push back against that last year that you, how do you.

Intro: 00:10:07

Manage, how do you even supervise it? I mean, I don't even know if I manage the, the short term rental licensure in Denver. How do they really oversee that? You can't just buy.

Ed: 00:10:16

You kind of have to trust people on that one there. I mean, unless you're gonna knock on the door every day. Excuse me, do you live here really? How long do you live here for?

I mean, it's, it's awful hard to do. So.

Intro: 00:10:26

Yeah. And the mountain communities have done all this legislation and then kind of a pretty depression about who can, who can't.

And I'm like, that is taking away your property rights. It's got to be unconstitutional. So it's a really interesting issue.

And what they have learned, there's a short term rental industry, I guess, that I've sort of paid attention to.

And they've learned that bringing all that transitory guests creates so much economy, like Most of these homes in our mountain communities are not lived in full time. They never were. They were always a second home, mostly vacant.

And if you bring in a local, you got way too much housing inventory for the infrastructure to support all those cars and drivers. They can't live, and they can't live there and get through town.

So you want that transitory commerce coming in, getting a little use and then leaving, spending all their money, having a great time and leaving. So it's actually lowering the economic benefit of the Airbnb VRBO type owners.

And then you're going to oppress them even more by, you know, putting a bigger property tax on them or which I think is like kind of unfair to regular old people who bought a first home, want to rent it out, you know, maybe leverage their asset that they loved and now they bought another one and it allows the human to make a little more money as opposed to corporate entities. So I don't know. It's kind of interesting, isn't it? Like the gig economy.

Ed: 00:11:44

It's a debate that, I mean, you kind of hit on it. I mean, minus the part that supporters of raising those, those taxes say, well, you know, you're also, you know, hitting our infrastructure.

You know, park county is the example I always point to where the sheriff says, look, you have no idea how much more I have to go out to these rental houses than I do to the people who live here year round. You know, you're, you're, you're adding to the burden on wastewater, you're adding to the burden on trash.

Intro: 00:12:13

But that lodging tax is tax so that you get lodging taxes so you can hire more people because you're getting a bigger cut if they're licensed. Yeah.

Ed: 00:12:22

So it's, and, and there was, I should say that there was a bill that passed this year that allows the county to raise counties to raise their lodging taxes. The unincorporated parts of counties can now raise the lodging taxes. It was 2% before, now they can go up to 6%, assuming the poll assigns this bill.

And they also can put it to more things, including things like public safety, because they believe that that is, that is one of the things you need to do with that money. So, so maybe, maybe that bill in itself is the one that is as little as most of us paid attention to.

It is the one that can stop the fights over raising short term rentals to commercial level property taxes. But I think we'll see in the next couple years how much that brings in and what it does.

Some of these complaints from local governments that their infrastructure is being taxed beyond revenues that they're generating from the short term rental industry.

Intro: 00:13:17

Yeah, that's interesting because I remember Steamboat raised their taxes. I have one of the highest lodging taxes and maybe the nation, I'm not even sure. I don't know that it's made a.

Ed: 00:13:25

I think they compete with Winter park for having the highest tax rate in the state of Colorado. So.

Intro: 00:13:30

Okay, I didn't know the comparison, but I was like, I don't know if it stopped people coming.

Ed: 00:13:36

It's an interesting question.

I mean there is an argument, I think it's a fair argument from some of these owners that like, the more that you raise taxes on these things, the less people are going to be willing to pay it. And I think if it comes down to, I don't know, do you want to go to Park City, do you want to go to Tahoe, do you want to go to Steamboat?

And you look into it and the taxes are pushing the Steamboat prices up above others that could affect. But for the family that's deciding whether or not to take a week to drive up to Steamboat, that may not affect it quite so much.

I mean it may, it may make you stay at, at cheaper lodging.

If you're going to see these, these fees thrown on there, suddenly the, the three bedroom Airbnb becomes a two bedroom Airbnb or becomes the, you know, the suite motel. But again, these are things we're going to have to continue to watch. That'll be the next step in this debate.

Intro: 00:14:27

Yeah, it's just super interesting. And Airbnb out of the gate was like willing to collect the lodging taxes as a marketplace, basically. They were kind of in the original marketplaces.

They're like, we'll collect the taxes on behalf of the homeowner. We'll make it easy for you. Right. And they still got pushed back.

Here they are trying to, you know, do right maybe and they're still like having trouble. So I find it, I just, it's all very complicated. Isn't. And there's just been so many different jurisdictions. Like we don't like all these people here.

Right. So but it doesn't. If you don't have people, you don't have infrastructure.

Ed: 00:14:54

You're not where to eat well beyond tax, but not in my backyard, my front yard or anywhere around my yard. Movement has its own separate logic. Yes.

Meredith: 00:15:07

So do you think there were any bills maybe that were proposed this year, this year, maybe potentially in the past that would have been good for business that didn't go anywhere. And do you think maybe they'll come back up?

Intro: 00:15:20

Right.

Meredith: 00:15:20

We've got HB: 1296

Ed: 00:15:37

You know, and I'm looking over at a list of tax bills that our tax council, which Judy sits on, you know, weighed in on this year. I don't think there was a lot that was coming before the legislature that were good bills that didn't go anywhere.

I think there are ideas percolating out there that, that we will see if they will go somewhere, but frankly have to wait until we're in a different budgetary situation. And that may not be for a couple of years.

You know, you start with something as supposed, the data center tax break bill that is going to have to wait until they find a different source of paying for it or to come back. You know, we can argue about what the repeal of any of the fees that were out there would have done for business.

But, but those aren't even going to be considered. I mean, frankly, they're not going to be considered while the Democrats are in power, period. They are, they're very wed to a lot of those.

And one of the reasons is you speak about tax policy, pushing tax bills, pushing policy aims. A lot of those go to help, say, electrification, the transportation system, and they don't want to take that money away.

As far, I will tell you, the panacea bill that has been talked about for so long and that is how do we get rid of the business personal property tax even more?

d covering the legislature in: 2007

It basically says, oh, you bought that piece of equipment, we are forever going to charge you property tax on it until there's no value left in that equipment and stands as a roadblock to companies investing in new equipment.

I mean, why would I spend this much more when I'm also going to be paying this much more in taxes every year for this new equipment while my old equipment is still working. It disincentivizes expansion.

Especially if you are in, in an interstate company, you're going to look to other states that don't have aggressive business personal property tax policies like this. There was discussion in an interim committee last year, two things.

One, there is a business personal property tax credit that very few people were taking. And so why don't we get rid of that? And a bill actually did get rid of that this year.

But the discussion in the interim committee on tax policy went hand in hand with. But what we should do while we get rid of that credit that nobody uses is we should raise the exemption on the business personal property tax.

And what that is is right now, if you own $52,000 worth of business personal property, that could be machine equipment, it could be desks in your office, it could be cars your company drives, anything like that. If you own $52,000 or less of it now, you do not have to pay any business person practice tax.

If you own $52,000 and $0.01 of that property, you do have to pay it and you have to pay at the same rate that say, an oil field giant who has tons of businessperson property pays at. There was talk about raising that exemption to 75,000 that did not come about very strictly because of the budget crisis this year.

Not very strictly because it just didn't catch on largely because of that. And, and there's always been talk of can we get rid of the damn thing?

I mean, why don't we just, you know, find some other way to, to, to reap our money. Now the problem is with tabor.

And, and before everybody jumps on me, I'm just going to say this is a very specific problem with TABOR, not the TABOR's a problem is that if you're going to get rid of a tax and you want a tax policy to be tax neutral, like say, hey, let's get rid of the business personal property tax, but maybe raise tax elsewhere in a more fair way. You have to go to the vote of the people for that. And that is much harder to pass.

So I think what holds back discussion of getting rid of the business personal property tax is where do we make that money up in a way that people would be willing to give us that money as a state government? And there's just no successful solutions forward on that.

I don't think we're done talking about getting rid of or lowering the business personal property tax. I mean, it is, you know, Governor Polis hates that thing too.

He's the one that, that raised the exemption from about 18,000 a year to 50,000 a year as part of a tax deal a couple years ago. But, but I, I, I don't, I think that's going to stew For a while.

Intro: 00:20:16

Yeah. It's just. Yeah, it's the whole, you know. So I don't know if you've heard of the Freakonomics. There's a.

They wrote a book called Freakonomics and they have a podcast. And Steven Dubner kind of got me through Covid because he talked about turkeys are basted and chickens. I don't know, it was a thing.

But it was said that the pandemic was like a stop. Right. And it's a reset because everything's kind of moving along a way that's not very good, actually.

But when you stop, you have a chance to go, maybe we could do it better, you know. But one of the podcasts he did that I just listened to recently is about sleeping sludge. And I think government.

Government and legislators think they need to make laws. And instead of simplifying, they don't simplify, they make more laws.

Which, you know, one of the women was basically the predecessors to doge, which has existed to simplify government administration. And she said the intention was to kind of look at all the different systems and streamline all the things. And that was a.

You know, the federal government was trying to do that, but it's such a huge list of all things they can't do. What can they do? Because there's so many rules. So I don't know, it's kind of interesting that we don't have that mentality of like, simplification.

You know, we just keep adding more complexity to everything. Like I was saying, I thought, I'm going to retire. I'm done. I cannot work. When the delivery fee got enacted, I mean, I was whipsawed by that.

I should have known that was going to happen. Not that.

Ed: 00:21:34

How am I going to tell my.

Intro: 00:21:35

Clients to handle it? Fortunately, a few years have passed and people have figured it out and it's okay so far, but.

And it probably is immaterial to a lot of our clients, in the end, they don't have a ton of business in Colorado right. Relative to America. But I just. I just. Some of that stuff just doesn't seem very smart to put on the business community.

I think that's a forgetful thing of like, what it really takes to manage doing business in America.

Ed: 00:22:01

And how. If you. If you put so many rules on business, when do you make it obtrusive for small business to operate?

Intro: 00:22:09

I mean, they don't know.

Ed: 00:22:10

They just don't.

Intro: 00:22:11

They violate the roles right and left. Cause they don't even know they exist.

Ed: 00:22:14

Exactly. Exactly. If you don't have an entire, you know, department looking over your accounting. It gets a lot harder.

Intro: 00:22:22

Yeah.

Meredith: 00:22:23

Well.

And as we wrap, is there anything that you think that was kind of really important that happened in this session that we should know about that we maybe haven't touched on?

Ed: 00:22:38

Oh, there's a ton. But I know that we're focused on, on tax policy here.

I'll make the leap that if we're focused on tax policy, that businesses are, are continuing to be interested in it.

ill in particular, House Bill: 1282

And House Bill: 1282

Credit card companies collect fees from companies that use credit cards based on credit card processing companies, I should say, collect these from companies who use credit cards based on the overall amount of sales they have. And this bill said, but you can't include taxes or tips in those, in those overall numbers that you, you collect fees from.

And it actually rolled out of the gate. And everyone thought, oh, this is wonderful. It's going to help small retail. It's going to help restaurants.

It passes its first committee by about 11 to 2.

And then it ran into banks and credit unions and credit card processing companies saying this is a violation of federal law, that actually banks are regulated federally and you cannot step in and say they can't do these things. Now, the backers of the bill would come back and they would say, well, actually we're not doing anything to banks.

We're doing things to the credit card processing companies. But the banks typically tell the credit card processing companies, here's the fees you are going to charge.

And it became this huge fight over what the state can and can't do and how an effort to kind of cut back on business costs is caught up in 17 other regulations at different levels of government. And that fee, after passing, and I apologize now I can't remember if it's 10 to 2 or, excuse me, 10 to 3 or 11 to 2.

It got through its first committee. It died. It died because there were so many things that were laying on top of that debate.

I think that's the kind of debate we're going to see in the future that businesses are having given up on the state getting rid of business, personal property tax or doing something very sweeping that is going to improve the business atmosphere here. A business atmosphere. I should mention that, you know, four or five years ago we were consistently ranked in the top five states to do business.

We are now down to the mid teens and dropping.

But short of finding the sweeping measures to change the business atmosphere, they're going to go for the little things and you're going to see sectors go for little things. We see more of these fights over pursuit, percentages of fees and how we get them revoked from our tax bills.

And I don't know if that is eventually going to come around full circle.

And in five years we are going to be talking about some sweeping reforms or if in five years we're going to be talking about minutiae that we're not even thinking about that even our friends in accounting aren't thinking about right now. But I think that's the kind of thing businesses need to look out for because even if it seems small, it could have a big effect on how they operate.

Intro: 00:26:12

Well, like the tariffs, we just did research for the entire nation. Tariffs are taxable whether they're separately stated or not. They're considered part of the base of the sale of the property, taxable.

So, you know, the retail delivery fee is a mandatory fee that is in conjunction with the item. Therefore, some of the cities would have imposed sales tax on that delivery fee. We got them to back off on that, but that was a huge stress.

So there's just a lot of things that ripple that I think a lot of legislators don't understand what they've created for the business community. The layering that becomes.

Ed: 00:26:44

Remember, we're only a year out from a debate that happened where the federal government was going to tax paper refunds. They're going to tax your tax refunds. Until the state stepped in and was able to show, no, this, this is not legal.

But so yeah, yeah, watch for more employment legislation.

Intro: 00:27:07

Oh my gosh, is that the truth?

Ed: 00:27:09

And in countenance. But you will never not be needed when the legislature is in session.

Intro: 00:27:15

I know, that's a funny thing. You say that we are pandemic proof. We are what, 911 proof. We are tech crisis proof. Like we. And now we are federal government. Who knows Proof, right?

Like policy, who's sitting in the chair? It's a trip.

Meredith: 00:27:33

Well, and Ed, that's kind of the perfect segue to say, you know, we can't wait to have you back. Hopefully not in four years like last time. Thank you for coming back, you know, for your second trip around the Sun.

Intro: 00:27:49

And then we still exist as a podcast. You know, this was a lark. We did this as a lark. Like Meredith. I wouldn't even know what a podcast was. Meredith's like, I listen to podcast.

Like, we should try that. You know, and now we're just doing.

Ed: 00:28:00

It until the legislature puts out its special podcasting fee next year. But.

Intro: 00:28:06

Well, we don't charge for. There'll be no worries on that.

Meredith: 00:28:12

Well, and to all of our listeners, if you care about Colorado, make sure you follow ed on the sub and substance. And so thank you.

Ed: 00:28:19

Tss colorado.com My boss tells me to always jut that in colorado.com Tss colorado.com Tss as in the sum and substance.

Intro: 00:28:30

Colorado, not colorado chamber. Okay. I was like, yt. Okay, gotcha. Tss colorado.com okay.

Ed: 00:28:38

Thank you.

Meredith: 00:28:39

Thank you so much for being here. And that's 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.