Simplifying Sales Tax in Colorado: A Conversation with Legislator Cathy Kipp

Meredith: 00:01:00

Since we recorded this episode, we have an update. Cathy Kipp ran for election to the Colorado State Senate to represent District 14.

,: 2024

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. Cathy, thank you so much for joining us today on the SALTovation podcast. We are honored to have you here today.

Cathy: 00:01:42

Well, thanks so much for having me. I really appreciate it.

Meredith: 00:01:46

So can you tell us a bit about your background and how your career path led you into politics and really what kind of motivated your move to become a representative for for Collins and the in that area of our state?

Cathy: 00:02:01

Well, sure.

So I don't know if it's all career, a lot of it's volunteer stuff, but so I actually graduated from college many, many, many, many years ago, it's a long time ago, with a degree in computer and information science, they called it back in the day.

And I worked at the CSU Colorado State University Veterinary Teaching Hospital for 10 years doing, and then I did a little bit of contract work for, oh, I don't know, a couple of years after that. And then I started having kids. And when I started having kids, let's see, I have twins. They are now 26.

So that means I've been sort of doing the sort of volunteer mom thing for around 26 years or so. And that led me eventually to running for the school board because I was like that volunteer mom, right?

I was the volunteer mom who was always that person who was like, volunteering in the classroom. When you have twins, it's easy because, you know, you don't have one kid at home and one that you have to take care of and one at school.

You can just go into the classroom and do all your volunteer stuff at the same time. And it was great.

Meredith: 00:03:10

Very efficient.

Cathy: 00:03:11

Yeah, I try, I try. I like this efficiency thing. So I did a lot of volunteering for a lot of years. You know, I was like, you know, the PTO president and stuff like that.

And when I was in the, when my kids were in the eighth grade, somebody called and said to me, you ever thought about running for school board? And I said, well, yeah, I thought maybe when my kids are older. But I looked and they were in the eighth grade.

I'm never going to do it. So: 2011

And after serving for seven years on the school board, I decided that I wanted to run for the state house because we need to properly fund public education in Colorado. Really.

and I thought I would run in: 2020

So I have been in this job for the last six years, being in the state house, and now I'm running for the state senate.

Meredith: 00:04:16

And then when you were at school board, was that a paid position?

Cathy: 00:04:20

No. Volunteer position. We have changed the law to allow for school boards to give themselves some small amount of money now if they want.

But basically, it's like if you went to a training thing, you could get reimbursed for mileage. But yeah, it was a lot of work for. For no pay, no benefits, no nothing. I mean, it was. No, I won't say there weren't benefits.

I'm just saying there's no material benefits. Like you didn't get healthcare or anything, which some people wanted. But really it was.

The reward is in trying to do the work to make sure that our kiddos get the best education we can give them.

Meredith: 00:05:02

And you're blessed to be able to afford to do that, to give your time and talent. Right. That's not common for every American, by no sense.

Cathy: 00:05:09

Well, I know, and that's. That's one of the issues. Right.

I mean, even if you look at people in the state house, I mean, we are paid and we can get health insurance, which is awesome. 100%, like, way, way better than when I was on school board.

But still, you know, you have your state representatives making around 40,000 a year, which is fine. I mean, honestly, it's like a whole lot better from school board. So you look at it from somebody from my perspective, and that's great.

But you look at people who are maybe younger, have a family that they're trying to raise, maintain, send kids to college, all that kind of stuff. It can be challenging for people.

Meredith: 00:05:45

Right. People can't do it. People can't give up their time and talent without money because they have to pay their livelihoods.

Cathy: 00:05:51

Yeah, Right.

Meredith: 00:05:52

So it's, it's. It isn't a dichotomy in the system that we would have that as a volunteer when you want to get the best and the brightest to help you. Right.

So not to say you are not, but it doesn't give you this giant opportunity to have anybody apply. Cause they have that. There's constraints to it.

Cathy: 00:06:08

But let me give you the opposite thing.

So when, during my time on the school board for a while, we had an interim superintendent, and she had been our interim before, and she came back and she said, oh, well, down in Florida, where she was currently living, except for the year that she came back here, she said, we pay our school board members $90,000 a year.

And I'm thinking, well, okay, do I really want somebody who's motivated by that kind of salary to have that job, or do I really want them to care more about kids? So, I mean, I think somewhere in the middle, somewhere between like 90,000 a year and, you know, nothing. Nothing.

It's probably a good compromise, but it's hard to say what that is. But I did have one woman I recruited to Renford School board once, and then she learned we didn't make anything, and she said, yeah, sorry. Bye.

Meredith: 00:07:00

Can't do it.

Cathy: 00:07:01

Right?

Meredith: 00:07:02

Yeah. Crazy. Well, thank you.

Cathy: 00:07:06

But it's an honor to. No, but it's a true honor to do it. I mean, how many people.

You know, there's thousands of locally elected officials in the country, and hopefully we're hoping that they're all there because they think they're doing the right thing. And I think for the most part, they are. They're there because they want to serve their community. And that's an important thing to me.

Meredith: 00:07:25

Yeah, agree.

And so for our listeners, it might seem a little out of the ordinary that we have a kind of politician, you know, kind of within our realm, as we are kind of an apolitical podcast. But we are particularly interested in speaking with Kathy today because, Kathy, of your work on the Colorado.

Colorado Legislative Sales and Use Tax Task Force. Representative Tharp initially chaired that task force.

So how did you get up to speed on such a complex topic without that tax background knowing, or maybe not knowing that our Colorado sales tax system is not the easiest of those systems? So can you talk us through kind of about how you got caught up and how. What kind of drew you to this role?

Cathy: 00:08:23

Yeah, so it's the sales. The Colorado Sales and Use Tax Simplification Task Force. So we're trying to simplify a very, very complex system and how I got pulled into this.

Initially, I believe it was my first year in the legislature. One of my constituents reached out to me and my constituent. Really, they have a. A business, a small business here.

And so I met him and his wife over at a local coffee shop and, you know, they sell toffee. So I bought some toffee from them and they said, well, but here's the thing.

If we're here, we're going to charge you the sales tax for where we are, because this is where we're delivering it to you. But if we were up in our store, we would be charging you the sales tax, you know, where our store is.

But if we were to ship it to you, we would charge you yet a different rate to do that. And so they explained to me what they were going through in trying to figure it out.

They were particularly concerned because as a candy business they were selling, they would get lots of orders for Christmas.

So if you were a business and you wanted to send 300 of your customers throughout the state of Colorado a box of toffee, how do you go through and figure out when we have like 760 odd, something like that, separate taxing jurisdictions with different taxing amounts within Colorado and you're doing destination sourcing, where those are. And it's like, oh, my gosh. Well, that's a big problem. And so I did talk to Tracy Kraft Tharp, and she's like, well, we're doing this.

We've got this law. And I think we passed a law that year that. That made some additional changes, as you've been making changes for a lot of years.

And I don't remember which year of the task force that was, but that was my first year in the legislature.

Meredith: 00:10:16

Kind of the small seller exception, too, initially was for the destination sourcing was.

Cathy: 00:10:21

Well, right. Except seller.

Meredith: 00:10:22

But that kind of went away.

Cathy: 00:10:24

But they weren't that small. I mean, this was a family business and they didn't fall under that exemption. So they were having to actually go look it up.

And actually, at the time, there wasn't really a good way to even go look that information up. So it was really challenging for them. And so, yeah, so we had a lot of conversations. I was talking to the Department of Revenue folks.

I was talking to everybody I could talk to. And then I think it was, how long have I been on this committee now? I think it was like two years later that I joined the committee.

I think it was after Tracy Kraftman Tharp left the legislature. That would be correct, because she was. There are four members of the legislature on that committee.

There's a Democrat and a Republican from the House and a Democrat and Republican from the Senate. And so when Tracy Kraft Tharp left, they appointed me to be the Democrat or the. Yeah, the Democrat from the House.

Meredith: 00:11:21

So you were on it.

I think you started when I got kicked off by accident because I started on it and then the governor's office somehow screwed, messed up and renewing my seat. And then I got back on it. It was kind of funny, but I took a little break. So that was kind of nice for me too.

But things happen and I didn't know what was going on. It was a funny moment.

Cathy: 00:11:39

uld have been, let's see, not: 1920

have been the, the interim of: 2021

Meredith: 00:11:54

Yeah. Yeah. Because I think I missed that summer. Well, and I think sitting on it.

What'S kind of great about that story is that it was a constituent that reached out and it was like, hey, here is something that we feel as a small business owner in this jurisdiction. We don't really know how to do something about it, but what we're going to do is we're going to reach out to our representative.

And I think what that also kind of indicates is that, like, government matters and it truly can work for the people. Right.

And so I love that you took that opportunity to one listen to kind of a member of your constituency and also take that beyond just, you know, smile and a handshake meeting at a coffee shop and like taking it back to, you know, the halls of the Capitol to try to do something about it.

I think that's because now we have the lookup tool online, the gis, and there's a rate and then there's some taxability answers on the Colorado website. So you could self serve for this particular business. But I remember meeting them and thinking, I don't know how to tell you to do it.

There is no good way to do it. And if you're only in one state, it's expensive to buy rates for just one. It's just not that accessible to buy a one system system.

They're more built for broadly America, like all the states, instead of just the bit and a piece. So it's tough. Now you're seeing a lot of vendors in the sales tax space. They don't want to just sell rates.

They want to sell tax calculations and collect, you know, sales tax returns. And so they're not willing to do kind of the little bitly stuff either.

So it's really hard for a small company that's not operating in a multitude of places to manage that compliance so they had to wing it for a while, as I recall. I remember thinking, this is just terrible.

Cathy: 00:13:46

Well, I found there was a part of the statute at the time that I, I was read and I said, well, I think you could probably interpret this to mean that you could, you know, continue doing it the way you're doing it. And I don't remember what that.

Meredith: 00:14:00

Probably sourcing it to their own domicile, like, it's sold here and then we just put it in the A box and send it off. So I'm going to charge tax at my location is probably what they did.

Cathy: 00:14:11

Well, yeah. And I mean, I don't know how exactly they ended up doing it. That was my suggestion because I didn't know how else to recommend it.

But if I can just say, you know, one of the things, at least in my part of the world, and I hope in your part of the world, you have, you have your local government people. Right? I mean, a lot of people don't get that there's anybody between city council in Washington, D.C. but there's several layers of government there.

And, you know, you have your, you have your city council, you have your county commissioners, you have school board members, you have people who are in local government. Then you have like local electeds like me who serve at the state level. So, you know, local House and Senate members, and we are accessible.

I mean, we're not like the people in Washington who have like a million constituents or more each. So it's hard, hard to have a conversation with people.

Most of us are willing to sit down in a coffee shop with you or at least make sure that we respond to your issue, if you have one. I mean, the number of people we helped navigate unemployment insurance during the pandemic was enormous. Right.

We have listening sessions, we have town halls. We just have our job is as the job title is the description. Representative. Right. That's what we're supposed to be doing.

Meredith: 00:15:34

Yeah. Interesting.

Right. You spoke earlier about your kind of background in it and so how do you think. And maybe it has, maybe it hasn't.

That kind of did any of that background and kind of analytical, critical thinking help you understand the complexities of managing kind of these sales, our sales tax system at like both the state and that local levels.

Cathy: 00:16:00

Yeah.

So, I mean, I think it's interesting because my, so I was sort of one of the, I mean, I was working in IT at the, you know, CSU Veterinary Teaching Hospital when I saw my first spreadsheet. I fell in love. They didn't have spreadsheets prior to then. So this is like, I'm really, really old, and this is a long time ago.

Meredith: 00:16:19

Yeah.

Cathy: 00:16:20

And so I was sort of there at the beginning of, like, the world of databases.

And so, you know, I actually eventually wrote a book on, like, you know, database programming and database management and stuff, because, I mean, it's a cool thing. The tools that we have today to do all this stuff are great. And it just always boggles my mind.

Like, we had the bill that just came out of the recent sales and use tax simplification task force, the one that's supposed to give you another way to look it up besides just by the number. We want to say, well, what if you wanted to look it up by name? Come on, that shouldn't be a hard thing to do.

And yet it had close to a $10,000 fiscal note on it. And you're like, are you kidding me? What software are they using now?

ally in this world was in the: 1990

Meredith: 00:17:27

Well, if you go to that, though, you're like, 10,000 or whatever the price is. You're like, divide that by 150, 200 an hour. It's thousands of hours. That's crazy. No way.

No way are these budgets adequate to the work that's going to be done. I'm sorry.

Cathy: 00:17:43

Yeah, I just.

Meredith: 00:17:44

I think they're wildly overstated.

Cathy: 00:17:46

I don't understand it.

I mean, maybe I'll try and get onto the Joint Technology Committee, which is another committee that we have that does all that technology stuff, which there have always been interested people. So I've never been on that committee in the House, but the Senate's a smaller chamber, and it all depends on who's there.

Meredith: 00:18:04

Well, I sat through all the sessions to choose the products that we're using for the GIS database, the taxability decisions, and the back end so we could incorporate the home rule cities with the Colorado Revenue online filing. And I sat through all of that. I was sort of astounded.

I had no idea how big the IT department is at the State of Colorado or how many buildings we have. I was like, wow, we're at this location in Lakewood. We're at this location in Golden.

And I'm like, there's a lot of people that work for the state of Colorado that do Tech and whatever and lots of buildings they work in and. But I was really astounded at like obviously the amount of effort to make a decision on a vendor is just onerous. Right.

But it was quite an interesting discussion and people don't really know how to buy it. That's the other problem is what I sense.

And we use the Gentax system for our back end and it's very customized, so it's certainly not an out of the box solution. But still it was, it was, it took months to make the decision, maybe even a year. In fact, we are executive director of Department of Revenue.

At the time she was a former IT person, so she helped guide us through.

So it was really helpful because she had a different view of things than I think a lot of other people that are like, it doesn't fit all the bells and whistles. Like she's like, you gotta start with something and then build from it as it's, you know, it's exceptions and all that.

So that was very helpful to have that technology education and making the decision on the GIS back backend system and that. So.

Cathy: 00:19:29

Right. And sometimes it makes sense to make sure that, you know. Oh yeah, I'm just gonna go and make this one little.

I remember reading an article years and years ago.

Again, my information is probably a bit dated, but that said 10 of the most expensive mistakes that were ever made, costliest in terms of millions and billions of dollars that they cost in it, were things that were just like changing one character in a line of code and they thought it was a simple fix and didn't have to go through all the testing. And if stuff that you should be doing to make sure that what you did works.

Because if you're going to do software, make software, change software, you should be doing that.

And so sometimes people will go in and change something that they think is really simple and then it'll screw other stuff up and unintended consequences. So there is something to be said for it costing a little bit more than you think. But yeah, the hours of.

It's kind of the red tape of government too in terms of the selection process. You want to make sure that you're being fair. Right.

Because you're a governmental entity, you want to make sure we're giving everybody an equal shot, blah, blah, blah. But at some times that red tape can really slow things down as well.

And so trying to achieve the balance, we probably aren't there yet and we probably need to work harder at that.

Meredith: 00:20:54

Well, yeah, Judy, you brought up the GIS database, which I know was a big, which was a huge lift.

It really wasn't a huge lift. We just bought the vendor and hooked it up because they'd already built it.

The lift was politically getting these meets and bounds in cities and counties to believe the jurisdictions were incorporated, that they had the right information to source the tax, their city and county. It was more political than it was actually practical because it did exist because taxpayers need accurate rates.

So the rates aren't accurate, then the vendor's in trouble. So this vendor had invested in accurate rates. So it, but they, the cities and counties didn't believe it.

They're like, no way, it's not going to be accurate.

Well, that's kind of the like sidebar and I'll get back there. But you know, as we, depending on when this comes out, had that conversation with Paul Archer.

We talked about kind of the system and, and whatnot and how there is this lack of trust with the home rules and the state. And so that's kind of a similar issue bringing the two together since kind of the topic is similar. That. Right.

board to say that no zip code: 80211

So there is a lot of kind of dependency and trust that you've got to get over kind of the home rules and all that to make sure that everyone's getting what they're supposed to. And so with that, told you I'd bring it back. Senate Bill 24o23, the hold harmless for errors in the GIS database legislation.

Can you explain the significance of that bill and how it addresses some of the challenges business or municipalities face? And maybe I'd set you up to bring it home on that.

Cathy: 00:22:52

Well, and Judy can probably tell you more than I can, but I mean, frankly, it just seems like a duh. Right.

I mean, if you're going to be getting information on where your taxing jurisdiction is from the state government and the state government gives you the wrong information and you end up paying an incorrect tax amount of tax based on that or to the right, wrong entity, why should you be held liable for that? That's just wrong. And I don't even understand why we necessarily even had to run legislation to do that. But we did because it was an issue.

Meredith: 00:23:30

It is an issue.

Cathy: 00:23:31

The Fact that it's still an issue.

Meredith: 00:23:33

Well, no, it was an issue before. There was all kinds of issues where REITs are long that we have the wrong jurisdictional allocation. That's very common.

So when a city comes in, they're like, that's. That's our money. You gave it to the wrong city. So it's. We have. They're very particular. They know where they are. Right.

But not a business doesn't always know that. They're like, I have a Commerce city address. Oh, but I'm an unincorporated nowhere ville. I mean, it does exist. And so businesses don't know that. So.

Cathy: 00:24:03

Right. And it just says didn't make any sense. And I think anybody who just looked at it and said, why do we do this to people? That doesn't make any sense.

That's one of the great things about the sales and use tax simplification task force is because it's a bipartisan committee with one member from each chamber in each party. That means that pretty much all the legislation we pass has to be bipartisan. Anything that gets passed our committee, it has to have agreement.

And so we're just like sitting there saying, well, yeah, you think this. Yeah, I think that too. I mean, it's not rocket science. There's, you know, we're all just. Most legislators are laypeople. Right.

We all come from different backgrounds and different areas, but hopefully we're all just reasonable human beings for the most part who can just look at a situation and say, well, that just doesn't seem like a reasonable people. We can't expect our constituents to do that. Let's make this better. I mean, that's kind of the job.

Meredith: 00:25:03

For me, though. I thought it was kind of interesting that we passed it because it really helps. Small business, like most large business isn't using our GIS locator.

It's a verification tool. But they have a system of record that pulls rates and rules for their locations based on address information they put in their billing system.

So a lot of people aren't really using that specifically to, let's say, validated after the fact.

They use a holistic do the rates everywhere in America, you know, so a lot of people can't take the time and effort to look a rate up every single time they have a transaction. That's just not efficient if you have a larger business.

So software is supposed to solve some of that, but even they do have issues with where the rates are.

We have definitely have issues on audits where rates are misapplied because of just the way the sourcing happens within the billing system to the rate system.

Cathy: 00:25:51

Yeah. Well and that's like in you go back to the candy company, right.

If somebody sent them a spreadsheet with 300 addresses, as I said, send a pound of toffee to each of these addresses.

Meredith: 00:26:00

Yep.

Cathy: 00:26:01

You aren't going to want to go look up each one of those even if you can.

You want to get us, you're going to want to submit the spreadsheet of addresses and get back this is the tax rate for each of those so that you can stick them into your spreadsheet automatically and just I mean that's why we have technology, right? Can you imagine doing this before we had technology?

Meredith: 00:26:20

Not possible.

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