Blake: NFIB argues business fees are taxes in violation of TABOR 

Blake: NFIB argues business fees are taxes in violation of TABOR

By Peter Blake

Proponents of the Taxpayer’s Bill of Rights get nervous whenever some group, no matter how worthy its cause, sues the state for violating it.

That’s because the suit will ultimately go to the Colorado Supreme Court, which historically has not liked TABOR and delights in the opportunity to shoot another hole in what is already a leaky tub.

The latest plaintiff is the National Federation of Independent Business, which recently sued the secretary of state in Denver district court on grounds that its members are taxed to finance elections and other state expenses that should be paid out of the general state and local taxes.

The complaint is persuasive — at least to me — and there’s reason to be optimistic about the outcome. But maybe I’m too much like Charlie Brown, thinking that this time the Lucys on the high court won’t pull the football away.

That’s what they did in Barber v. Ritter, a suit brought by some businesses against the state in 2004. They argued that the legislature’s raid on $442 million in 31 cash funds during a three-year budget crisis was in effect a “tax policy change” that produced a net revenue increase to the general fund without voter approval.

That seems evident. After all, the cash funds had to be increased, or stretched out longer, to do the regulatory job they were supposed to do and the businesses had to pay more..

But in 2008 the high court ruled that while a fee may be levied primarily to pay for a particular service, it can legally be transferred to the general fund and spent on whatever the legislature decides. The mere transfer of the money “doesn’t alter the essential character of those fees as fees,” said the court.

The argument in the NFIB case is different. It maintains the essential character of the “fees” its members pay to the secretary of state to finance elections is in fact a tax.

Because a “significant portion” of the business licensing charges are appropriated to defray the state’s general expenses, the licensing charges “are a tax and not a fee,” says the complaint. The charges range from $1 to $125 annually.

“We are simply asking the court to order the secretary of state not to set licensing fees above the amount needed to regulate businesses, which he has unfettered discretion to do,” said Tony Gagliardi, NFIB’s state director.

The secretary of state’s office itself gets no general funds and is expected to be self-supporting. Business fees were once established by legislative statute but in the late 1980s lawmakers directed the office to impose whatever fees are necessary to cover the costs of the office. The passage of TABOR in 1992 further encouraged the legislature to make sure the secretary of state was stuck with election costs.

The total charges for business have more than quadrupled, from $4.19 million in fiscal 1991 to $18.69 million in fiscal 2014.

The “most egregious” part of the system, according to NFIB attorney Jason Dunn, allows the secretary of state to pass along some of the fees to the counties, to help them with their election expenses.

If the system were allowed to stand, Dunn maintained, you could theoretically transfer the Colorado Department of Transportation into the secretary of state’s office and have its expenses paid by fees as well. Then you could ramp up the highway budget by hiking the “fees” and never have to ask the public to approve an increase in the state gasoline tax or car registration taxes.

A spokeswoman for the National Conference of State Legislatures said election costs are handled in different ways throughout the nation but most commonly are borne by local governments, typically counties. This includes federal elections, which are usually tied to local elections anyway. If other states can do it, so can Colorado.

A “poll tax” might be the most direct way to assure that users pay for elections, but of course such levies were banned in federal elections in 1964 by the 24th Amendment to the U.S Constitution. Two years later the U.S. Supreme Court, which had approved poll taxes in 1937, applied the federal prohibition to state elections under the equal protection clause of the 14th Amendment.

Such a prohibition is quite reasonable, since poll taxes have been used by states in the past to keep the poor away from the polls.

NFIB attorney Dunn said several former secretaries of state told him the lawsuit was long overdue. “I can’t believe we haven’t been sued on this yet,” they told him.

One reason TABOR supporters maintain at least some hope for the NFIB suit is that the court has turned a bit more moderate thanks to appointments by Gov. John Hickenlooper.

TABOR provides a drastic remedy for illegally levied taxes: Rebates amounting to four years’ worth of the overage, plus 10 percent interest. But the original complaint does not demand such a penalty. The NFIB might be happy merely to have the practice stopped.

A district judge in Adams County is currently mulling a related TABOR suit filed in August 2013 by county residents. They allege that a stormwater fee imposed by the commissioners in 2012 is actually a tax and should have been approved by voters.