May 21, 2013

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SB 13-286: Extending the Time that Renewable Energy Companies May Carry Over Excess Enterprise Zone Investment Tax Credits

May 6, 2013 by Leave a Comment

On Wednesday, April 24, 2013, Sen. Mary Hodge introduced SB 13-286 – Concerning an Extension of the Number of Years that a Renewable Energy Company May Claim Excess Enterprise Zone Investment Income Tax Credits as Credit Carryovers. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill gives renewable energy companies extended carryover periods for enterprise zone investment tax credits that such renewable energy companies have earned in the past and may earn in the future.

The bill was introduced on April 24 and has been assigned to the Finance Committee. The bill is on the Finance Committee schedule Tuesday, April 30 at 1:30 p.m.

Since this summary, the bill was referred, unamended, to the Senate Committee of the Whole.

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Funding a Small Business with Retirement Funds? Think Twice

May 2, 2013 by Leave a Comment

AlexWenzelBy Alexander Wenzel

If you have listened to AM radio in the last three years, you may have heard advertisements for arrangements by which small business owners could use tax-deferred funds to inject some capital into their small business from their retirement funds. The IRS refers to these arrangements as Rollovers as Business Start-Ups (or “ROBS”), although the scheme is not limited to start-ups.

Structure of ROBS

One may be able to understand how the IRS feels about these arrangements by the acronym it has chosen for them. The ROBS arrangement is a fairly simple tax work-around that takes funds from an existing tax-deferred retirement account, rolls-over those funds to a new tax-deferred retirement account (the “ROBS Plan”) that has but one client (the business owner) and one investment (the small company). The ROBS Plan would acquire shares of stock in the company as an “investment”by making a nice tax-deferred injection of capital into the company. While this arrangement may be acceptable to the IRS in a narrow set of circumstances, there are some dangers to this type of funding.

Items of Concern

The IRS is most concerned with two aspects of these arrangements: (i) violations of nondiscrimination requirements of retirement plans; and (ii) faulty valuations of the small business stock traded for the capital injection.

Non-discrimination Issue: The Internal Revenue Code prohibits contributions or benefits provided under a qualified retirement plan from discriminating in favor of highly compensated employees—those who either own at least 5 percent of the company, or receive more than $80,000 in salary. The Treasury Regulations also provide that the benefits, rights, and features of a qualified retirement plan (including, in this case, the ROBS Plan) cannot be discriminatory in effect. That is, employees must be able to invest in the ROBS Plan, not just the business owner.

As is often the case, employees may not even know of the existence of a ROBS Plan, much less be able to participate in it. If either the business owner or the ROBS Plan holds more than 5 percent of the company’s equity and employees are not permitted to participate in the ROBS Plan, the ROBS Plan is in danger of violating the non-discrimination requirement.

Valuation Issue: The IRS is also concerned that the valuation of the stock issued to the ROBS Plan may be inflated. The business owner may not want to lose control of the business ownership to the ROBS Plan and may seek to sell a small percentage of the shares to the ROBS Plan at a high price not supportable by the company’s operations or financial condition. Any such transaction should be supported by a well-documented appraisal. Additionally, if the company’s only asset is the capital injected, the investment may be characterized as a “prohibited transaction” which may result in a 15 percent tax on the transaction, or even 100 percent tax if not promptly corrected.

Dangers abound with ROBS Plans, and it may be wise to pursue other avenues of funding a small business before using those hard-earned retirement funds.

Alex Wenzel is an associate attorney at Burns, Figa & Will, P.C. His practice focuses on real estate transactions and litigation, securities, and corporate formation and transactional work. Prior to becoming an attorney, Mr. Wenzel was a Presidential Writer for the White House in the Office of Special Letters and Responses. A native Ohioan, he earned his B.A. at the University of Cincinnati and his J.D. at the University of Denver.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

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HB 13-1318: Creating Excise and Sales Taxes to be Levied on Retail Marijuana

May 2, 2013 by Leave a Comment

On April 18, 2013, Rep. Jonathan Singer introduced HB 13-1318 - Concerning the Recommendations Made in the Public Process for the Purpose of Implementing Certain State Taxes on Retail Marijuana Legalized by Section 16 of Article XVIII of the Colorado Constitution. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Subject to voter approval at the statewide election in November 2013, the bill imposes a sales tax and an excise tax on the sale of retail marijuana, which was legalized by section 16 of article XVIII of the state constitution.

Sales tax: Beginning Jan. 1, 2014, the bill imposes a tax of 15 percent on the sale of retail marijuana or retail marijuana products to a consumer by a retail marijuana store. The tax imposed is in addition to the 2.9 percent state sales tax and any local government sales tax that is imposed on the sale of all property and services pursuant to current law.

On or after Jan. 1, 2014, the general assembly is authorized to establish a rate that is lower than 15 percent by a bill enacted by the general assembly and signed into law by the governor. After establishing a tax rate that is lower that 15 percent the general assembly may increase the rate by bill enacted by the general assembly and signed into law by the governor, so long as the rate does not exceed 15 percent. An increase in the rate does not require additional voter approval.

A retail marijuana store is required to add the tax imposed as a separate and distinct item, and when added, the tax constitutes a part of the total price of the retail marijuana or retail marijuana products purchased. A retail marijuana store is required to collect and remit the tax to the department in the same manner as the state sales tax is collected and remitted to the department pursuant to current law.

Of the revenues collected pursuant to the 15 percent sales tax, 10 percent will be distributed to each local government in the state that has one or more retail marijuana stores within its boundaries. Each local government’s share of the revenues collected shall be apportioned according to the percentage of retail marijuana and retail marijuana products sales tax revenues collected by the department in the local government as compared to the total retail marijuana and retail marijuana products sales tax collections that may be allocated to all local governments in the state. The remaining revenues shall be deposited in the marijuana cash fund and appropriated as directed by the general assembly.

Excise tax: Beginning Jan. 1, 2014, the bill imposes a tax on the sale or transfer of unprocessed retail marijuana by a retail marijuana cultivation facility to a retail marijuana store, retail marijuana product manufacturing facility, or another retail marijuana cultivation facility. The amount of the tax is 15% of the average market rate of unprocessed retail marijuana statewide on the date that it is sold or transferred, as determined by the department, and the tax is imposed when a retail marijuana cultivation facility sells or transfers unprocessed retail marijuana to a retail marijuana store, a retail marijuana product manufacturing facility or another retail marijuana cultivation facility.

On or after Jan. 1, 2014, the general assembly is authorized to establish a rate that is lower than 15 percent of the average market rate by a bill enacted by the general assembly and signed into law by the governor. After establishing a tax rate that is lower that 15 percent the general assembly may increase the rate by bill enacted by the general assembly and signed into law by the governor, so long as the rate does not exceed 15 percent. An increase in the rate does not require additional voter approval.

The bill specifies that every retail marijuana cultivation facility is required to keep certain records regarding the sale or transfer of unprocessed retail marijuana and is required to collect and remit the tax to the department.

As required by section 16 of article XVIII of the state constitution, the bill specifies that the first $40 million received and collected in payment of the excise tax on unprocessed retail marijuana shall be transferred to the public school capital construction assistance fund currently created in law. Any amount remaining after the transfer shall be transferred to the marijuana cash fund.

Revenue and spending limitations: The bill allows the state to collect and spend any revenues generated by the retail marijuana sales tax and retail marijuana excise tax as voter approved revenue changes.

Submission of ballot questions by the secretary of state: The bill requires the secretary of state to submit a ballot question at the statewide election to be held in November 2013 asking the voters to:

  • Allow the general assembly to impose a retail marijuana sales tax at a rate not to exceed 15 percent of the sale of retail marijuana and retail marijuana products;
  • Allow the general assembly to impose a retail excise tax at a rate not to exceed 15 percent of the average market rate of unprocessed retail marijuana on unprocessed retail marijuana at the time when a retail marijuana cultivation facility sells or transfers retail marijuana to a retail marijuana product manufacturing facility, a retail marijuana store, or another retail marijuana cultivation facility;
  • Allow the general assembly to decrease or increase the rate of either tax without further voter approval so long as the rate does not exceed 15 percent for either tax; and
  • Allow any additional tax revenue to be collected and spent notwithstanding any limitations in TABOR or any other law.

Marijuana cash fund: The bill changes the name of the existing medical marijuana license cash fund to the marijuana cash fund.

The bill specifies that the sale of marijuana or marijuana products by a medical marijuana center to a consumer and the sale or transfer of unprocessed marijuana by a marijuana cultivation facility to a medical marijuana center are not subject to either tax. The department of revenue (department) is required to promulgate rules for the implementation of both taxes.

On April 25 the Finance Committee amended the bill and sent it to the Appropriations Committee. On April 26, the Appropriations Committee amended the bill and sent it to the floor of the House for consideration on 2nd Reading.

Since this summary, the bill was amended in the House on Second Reading but passed, and also passed Third Reading in the House. It has been introduced in the Senate and assigned to the Finance Committee.

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SB 13-281: Expediting the Resolution of Disputes Related to Tax Credits for Donation of a Perpetual Conservation Easement

April 29, 2013 by Leave a Comment

On Thursday, April 18, 2013, Sen. Larry Crowder introduced SB 13-281 – Concerning the Expeditious Resolution of Disputed Claims for State Income Tax Credits Allowed for the Donation of a Perpetual Conservation Easement. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Taxpayers may claim a state income tax credit for a portion of the value of a perpetual conservation easement that the taxpayer donates. If the executive director of the department of revenue disputes the claim of the credit, current law sets forth procedures for resolving the claim administratively or through an appeal process in the courts. In the past, a significant number of claims have been disputed and are in the process of being resolved.

The bill requires all disputes for tax credits claimed prior to July 1, 2008, to be resolved by July 1, 2014, and prohibits the state from using any funds, resources, or personnel to continue to litigate these disputed claims after that date.

The bill was introduced on April 18 and assigned to the State, Veterans, & Military Affairs Committee. The bill is scheduled for committee review on May 1 at 1:30 p.m.

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Bills Regarding Employment Law, the Colorado Governmental Immunity Act, and More Signed by Governor

April 24, 2013 by Leave a Comment

On Friday, April 19, 2013, Governor Hickenlooper signed one dozen bills. He has currently signed a total of 137 bills this legislative session. The bills signed Friday include bills relating to employment law, damages under the Colorado Governmental Immunity Act, education law, and more. The bills are summarized here.

  • SB 13-013 - Concerning Peace Officer Authority for Certain Employees of the United States Secret Service, by Sen. Steve King and Rep. Beth McCann. The bill allows certain agents of the U.S. Secret Service to have limited peace officer authority while working in Colorado.
  • SB 13-018 - Concerning the Use of Consumer Credit Information by Employers, by Sen. Jessie Ulibarri and Rep. Randy Fischer. The bill restricts the use of employees’ and applicants’ consumer credit information by employers, and requires employers to allow employees or potential employees to explain any adverse information.
  • SB 13-023 - Concerning an Increase in the Limitation on the Amount of Damages that may be Recovered by an Injured Party under the “Colorado Governmental Immunity Act,” by Sens. Bill Cadman and John Morse and Reps. Claire Levy and Bob Gardner. The bill increases the amount of damages available under the CGIA to reflect inflation adjustments.
  • SB 13-042 - Concerning the Renewal of Distinguished Foreign Teaching Physician Licenses by a Person Ranked Lower than an Associate Professor, by Sen. John Morse and Rep. Mark Waller. The bill allows distinguished foreign physicians who are teaching at state medical schools to renew their licenses if they are at the level of assistant professor or higher.
  • SB 13-058 - Concerning the Verification Requirement for Parking Privileges for Persons with a Permanent Disability, by Sen. Kevin Grantham and Rep. Lois Landgraf. The bill waives the requirement that persons with permanent disabilities must prove their disabilities every three years in order to renew their parking permits.
  • SB 13-071 - Concerning Uniquely Identifying Student Numbers for Persons Enrolled in Adult Education Programs, by Sen. Evie Hudak and Rep. Rhonda Fields. The bill requires that the Educational Data Subcommittee must identify a method for applying a unique student identification number to individuals enrolled in adult education programs.
  • SB 13-139 - Concerning Supplemental On-Line Education Services, by Sen. Ellen Roberts and Rep. Don Coram. The bill designates the authority to contract for online education services to the Board of Cooperative Educational Services.
  • SB 13-184 - Concerning Repeal of the Criminal Penalties for Discrimination in Places of Public Accommodation, by Sens. Pat Steadman and Steve King and Rep. Paul Rosenthal. The bill repeals the criminal penalties for discrimination in public places but leaves in place the civil penalties.
  • SB 13-192 - Concerning the Ability of Government Agencies to Extend the Time Permitted for Action Based on the Results of Fingerprint-Based Criminal History Record Checks, by Sen. Rollie Heath and Rep. Max Tyler. The bill extends the amount of time government agencies may have before acting on the results of criminal background checks.
  • HB 13-1039 - Concerning Additional Sources of Moneys to be Credited to the Legislative Department Cash Fund, by Rep. Lois Court and Sen. Nancy Todd. The bill allows certain moneys collected to be allocated to the legislative department cash fund.
  • HB 13-1208 - Concerning Creative Districts and Authorizing the Creative Industries Division of the Colorado Office of Economic Development to Offer Incentives in the Form of Need-Based Funding for Infrastructure Development in State-Certified Creative Districts and to Provide Such Funding from any Moneys Appropriated to the Creative Industries Cash Fund for that Purpose, by Rep. Crisanta Duran and Sen. Linda Newell. The bill allows the Creative Industries Division in the Office of Economic Development to spend money to develop infrastructure for creative districts.
  • HB 13-1237 - Concerning the Voluntary Contribution Benefiting the Special Olympics Colorado Fund that Appears on the State Individual Income Tax Returns, by Reps. Dave Young and John Buckner and Sen. Mary Hodge. The bill reestablishes the Special Olympics tax return check-off, since it was not renewed in 2012 after its 2011 sunset.

For the complete list of Governor Hickenlooper’s 2013 legislative decisions, click here.

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SB 13-256: Authorizing Any County or City and County to Use an Alternate Property Tax Protest and Appeal Procedure First Implemented in Denver

April 19, 2013 by Leave a Comment

On Tuesday, April 9, 2013, Sen. Owen Hill introduced SB 13-256 – Concerning Authorization for Any County or City and County to Elect to Use an Alternate Property Tax Valuation Protest and Appeal Procedure Previously Created for the City and County of Denver. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Currently, the county board of equalization receives and hears petitions for appeal regarding the valuation for assessment of taxable property. The county board of equalization process has multiple filing deadlines and addresses multiple valuation appeals in a single year. The board of county commissioners also receives and hears petitions for appeal and has jurisdiction over petitions for abatement or refund of taxes, including assessment of taxable property overvaluation. The board of county commissioners’ process has one filing deadline and can address valuation appeals, abatements, and refunds over multiple years.

House Bill 13-1113 created a pilot program that authorizes the governing body of the city and county of Denver, at the request of the assessor, to elect to use an alternate protest and appeal procedure that combines the multiple steps in the annual valuation dispute process through the county board of equalization into the single hearing and appeal process conducted by the board of county commissioners. House Bill 13-1113 specifies the filing deadlines for tax petitions and for resolving valuation disputes for the city and county of Denver to use the alternate protest and appeal procedure.

The bill expands the pilot program created by House Bill 13-1113 so that any county or city and county in the state may elect to use the alternate protest and appeal procedure.

Introduced on April 9, the bill has been is assigned to the Finance Committee; the bill is scheduled for committee review on April 18, “Upon Adjournment.”

Since this summary, the Finance Committee referred the bill, unamended, to the Senate Committee of the Whole for consideration on Second Reading.

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Colorado Court of Appeals: Board of Assessment Appeals Erred by Not Addressing YMCA’s Declaration of Religious Purposes

April 15, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Larimer County Board of Commissioners v. Colorado Property Tax Administrator on Thursday, April 11, 2013.

Property Tax Exemption—Charitable Use Exemption—Religious Purpose Exemption—Jurisdiction.

In this property tax exemption case, the Young Men’s Christian Association of the Rockies (YMCA) and the Colorado Property Tax Administrator (Administrator) appealed the Board of Assessment Appeals (BAA) orders. The BAA found that the YMCA was not entitled to a charitable use exemption or a religious purposes exemption from property taxes, except for its chapels and religious activity center. The orders were vacated in part, the appeal was dismissed in part, and the case was remanded.

The YMCA owns and operates facilities in Grand and Larimer Counties. The Counties contended that the Court of Appeals did not have jurisdiction to entertain the Administrator’s appeal. Because the BAA did not recommend that the matter was of statewide concern, the Administrator may not appeal. Accordingly, the Court did not have jurisdiction to hear the Administrator’s appeal and, therefore, dismissed it.

The Counties contended that the Court did not have jurisdiction to entertain the YMCA’s appeal. CRS § 39-2-117(5)(b) gives any owner of taxable property in such county the right to appeal the tax administrator’s determination regarding an application for a property tax exemption. Therefore, the Court of Appeals had jurisdiction to hear the YMCA’s appeal from the BAA’s determination.

The YMCA also argued that the BAA erred when it found that the YMCA did not qualify for a religious purposes exemption. The BAA did not discuss the YMCA’s declared purpose in using the properties, whether the YMCA’s activities are in furtherance of the YMCA’s religious purposes, or whether the activities are an integral part of the YMCA’s religious worship. Further, the BAA did not address the YMCA’s declaration of religious purposes contained in its application, the effect of the declaration’s presumed validity, or whether the presumption had been overcome. Because such declarations are presumptive with regard to the religious purposes for which property is used, the BAA did not apply the proper legal standards and, therefore, erred as a matter of law.

The YMCA further contended that the BAA erred when it found that the YMCA did not qualify for a charitable use exemption. Based on the record, the BAA did not properly consider whether the YMCA used the properties solely and exclusively for charitable purposes. Accordingly, the BAA did not apply the correct legal standards and, therefore, erred as a matter of law.

Summary and full case available here.

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The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset (Part 3)

April 11, 2013 by Leave a Comment

Editor’s Note: This is Part 3 of a 3-Part Series. For Part 1, click here, and for Part 2, click here.

By Merry H. Balson and Laurie A. Hunter

Return of the Charitable IRA Rollover Through 2013. The 2012 Tax Act extended the IRA charitable rollover rules through 2013. These rules were originally put in place in 2006, and had expired at the end of 2011. The charitable IRA rollover provisions allow individuals who are 70 ½ or older to transfer (or “rollover”) up to $100,000 per year from their IRAs to most charities on a “tax neutral” basis if the transfer is a “qualified charitable distribution” and satisfies certain rules. Qualified Charitable Distributions will not count as taxable income to the individual (as would usually be the case in any other distribution from an IRA) but no charitable income tax deduction is allowed for the contribution. Transfers must be directly from the IRA trustee to the charity to qualify. Additionally, transfers to private foundations, donor advised funds, supporting organizations or split-interest trusts (such as charitable remainder or charitable lead trusts) do not qualify for this special treatment. Because the charitable IRA rollover had expired in 2011 and has now been reinstated retroactively for 2012, taxpayers were also allowed to treat distributions from IRAs made after November 20, 2012 and before January 31, 2013 as a charitable IRA rollover for 2012, if that distribution is made in cash to charity before January 31, 2013. As a result, in 2013 taxpayers had an opportunity to give up to $200,000 to charity from their IRAs (with $100,000 treated as given in 2012) if they acted by the end of January.

Other Annual Extenders. The 2012 Tax Act also extended a number of credits and deductions that have been extended year by year for some time, and did not make them “permanent.” These include the American Opportunity Tax Credit,[1] more favorable conservation easement rules,[2] more favorable depreciation rules, the wind energy credit, and research and development credits.

Health Care Act Changes. Finally, changes taking place in 2013 include raising the medical expense deduction to 10% of adjusted gross income from 7.5%, and the new 3.8% surtax on net investment income for single taxpayers with $200,000 “modified” adjusted gross income and $250,000 for married filing jointly.

Conclusion

The 2012 Tax Act is replete with references to permanence. While that might provide comfort to some, keep in mind that the provisions of the 2012 Tax Act are only truly permanent until Congress and the President decide to change them. Until then, we can all breathe a sigh of relief that sunset never came to pass, and for the first time in decades advise our clients about the tax implications of their gifts during life and at death with some measure of certainty.

Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at mbalson@wadeash.com or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at lhunter@wadeash.com or 303-329-2227.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

 

[1] Pub.L. 112-240, Sec. 103, H.R. 8, 126 Stat. 2313 (2013).

[2] Pub.L. 112-240, Sec. 206, H.R. 8, 126 Stat. 2313 (2013).

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SB 13-221: Requiring an Application for a Tax Certificate for the Donation of a Perpetual Conservation Easement

April 8, 2013 by Leave a Comment

On Friday, March 15, 2013, Sen. Steve King introduced SB 13-221 – Concerning an Application and Review Process for Issuing Tax Credit Certificates for a State Income Tax Credit Allowed for the Donation of a Perpetual Conservation Easement. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Current law allows a landowner to claim a state income tax credit of up to $375,000 for donating all or a portion of a perpetual conservation easement to a qualified organization. Landowners are also allowed to transfer all or a portion of a credit to another taxpayer, known as a transferee. Currently, a conservation easement tax credit cannot be claimed or used by the landowner or transferred to another taxpayer unless a tax credit certificate is issued by the division of real estate (division) in the department of regulatory agencies.

The executive director of the department of revenue (department) has the authority, for good cause shown and in consultation with the division and the conservation easement oversight commission (commission), to review and accept or reject, in whole or in part, the appraised value of the conservation easement, the amount of the tax credit being claimed, and the validity of the tax credit based upon the federal and state statutes and regulations in effect at the time of the donation. Under the current process, the department reviews conservation easement tax credit claims and uses for compliance with applicable requirements after the landowner or transferee files a tax return with the department.

The bill requires a landowner to file an application for a conservation easement tax credit certificate with the division and have certain aspects of the conservation easement donation reviewed and approved by the division director and the commission before a tax credit certificate is issued. The bill sets forth provisions governing the following:

  • The authority and responsibilities of the division, the division director, the commission, and the department in the tax credit certificate application review process, including the authority of the commission to delegate its authority to the division director;
  • The required documentation to be included with an application for a tax credit certificate;
  • The payment of a fee to cover the costs of administering the tax credit certificate application review process;
  • The process for identifying potential deficiencies with a conservation easement donation for which a landowner is applying for a tax credit certificate, notifying the landowner of the potential deficiencies, and obtaining additional information from the landowner to address the potential deficiencies; and
  • The process for approving an application or, if an application is denied, conducting settlement negotiations and appealing the denial.

A landowner may also request an optional preliminary advisory opinion from the division director and the commission regarding a proposed conservation easement donation. The opinion would be advisory only and would not constitute approval of a tax credit certificate application or a tax credit claim. The bill was introduced on March 15 and is assigned to the Finance Committee.

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Colorado Court of Appeals: Assessor’s Reference Library of State Property Tax Administrator Correctly Used to Determine Valuation

April 5, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Bachelor Gulch Operating Co., LLC v. Board of County Commissioners of Eagle County on Thursday, March 28, 2013.

Tax Abatement/Refund—Subdivision of Property During a Tax Year.

Bachelor Gulch Operating Company, LLC (Bachelor Gulch) appealed the order of the Board of Assessment Appeals (BAA) denying its petition for an abatement or refund of taxes for tax year 2007. The order was affirmed.

Bachelor Gulch owns a substantial portion of the Ritz Carlton Hotel in Eagle County (hotel). For tax year 2007, the Eagle County Assessor assigned the hotel an actual value of approximately $47 million. As of January 1, 2007, which was the assessment date for tax year 2007, the hotel was a single unit for tax assessment purposes. During that year, two new plats were filed that subdivided the original hotel unit, ultimately creating fifty-one separate “child parcels.” Fifty of these were residential condominiums created out of existing hotel rooms. The other was what remained of the hotel after the subdivision (hotel child parcel).

Following the subdivisions, the Assessor allocated the $47 million among the child parcels in proportion to the square footage of each. Approximately $36 million was allocated to the hotel child parcel. Bachelor Gulch petitioned the Board of County Commissioners of Eagle County for an abatement or refund of taxes, which was rejected. Bachelor Gulch then appealed to the BAA, and the appeal was denied.

The Court of Appeals was confronted with the question of what procedure an assessor should use when a property is subdivided during the course of a particular tax year, after the initial valuation and before the next statutory assessment date or a revaluation due to unusual conditions. Colorado statutes provide for the biennial appraisal and valuation of real and personal property for property tax purposes. Bachelor Gulch argued that CRS § 39-5-125(1) applied and the Assessor was required to determine the actual value of the hotel child parcel for 2007. The Court found that the statute unambiguously allows an assessor to conduct a valuation only when it is discovered the taxable property had been omitted from the assessment roll. Because that was not the case here, CRS 39-5-125(1) does not apply.

The Court found no Colorado statute that addresses the question of what to do when a property is subdivided after the initial valuation but before the next assessment date. The State Property Tax Administrator has provided guidance in the Assessor’s Reference Library (ARL). Specifically, the ARL provides that although subdivision and condominium plats can be processed at any time during the year, “the original parcel value and classification must remain the same as assigned to the property on the January 1 assessment date.” In addition, if a project is subdivided after the notice of valuation deadline, the current actual value as of the assessment date is apportioned to the lots or units in the project. Having found that the ARL governs this situation, the Court held that the BAA correctly found that the Assessor complied with its provisions. The order was affirmed.

Summary and full case available here.

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The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset (Part 2)

April 4, 2013 by Leave a Comment

Editor’s Note: This is Part 2 of a 3-Part series. Click here for Part 1.

By Merry H. Balson and Laurie A. Hunter

How does the 2012 Tax Act affect estate planning?

Lifetime Gifts. Many clients who were concerned that sunset would cause the estate tax exemption to decrease from $5 million to $1 million made gifts before the end of 2012 to use all or part of the $5 million exemption. Those who did not make end of year gifts in 2012 (and those who did but did not fully use their exemption equivalent) are given another chance to make such gifts because the historically high exemptions are still in effect. Completed irrevocable gifts can remove future appreciation from the donors’ estates, as well as give trust beneficiaries other benefits of irrevocable trusts generally, such as creditor protection and protection from claims of divorcing spouses (in certain circumstances). In addition, if only one spouse made a gift to an irrevocable trust for the benefit of the other spouse, but because of the “reciprocal trust rule” the other spouse did not make a similar gift, that spouse may now wish to consider, after the passage of time, making a gift of their own.

Keep in mind that the downside of making gifts still applies: no stepped up basis on death. Instead, the gifted assets have a “carryover basis” from the donor.

Continued Use of Family or Credit Shelter Trusts. There are a number of reasons an estate planner should continue to discuss the use of family trusts or credit shelter trusts in estate plans instead of relying solely on portability of the first spouse’s unused exemption. First, future appreciation of assets in the family trust will pass estate tax free. Second, income from the family trust can accumulate outside the surviving spouse’s estate. Third, the family trust can be designed to provide creditor protection for the surviving spouse. Fourth, assets in the family trust can avoid claims of a new spouse to the trust assets either at the surviving spouse’s death or divorce. Finally, the family trust can provide a vehicle for an independent trustee to administer the assets, especially in the case of a blended family.

Addressing Portability Election in Planning Documents. With the permanence of portability, practitioners who are not already doing so should consider the extent to which the portability election should be addressed in wills and trusts. The documents could require the personal representative to elect portability on a timely filed estate tax return or could merely authorize the personal representative to do so. Additionally, consider addressing who should bear the cost of the estate return preparation, particularly where the return is being filed solely to elect portability. Furthermore, issues relating to the portability election may also be a subject for negotiation in premarital or postmaritial agreements.

Income Tax Changes in the 2012 Tax Act. In addition to the estate and gift tax provisions, there are numerous income tax provisions in the 2012 Tax Act. The following is a summary of some of those provisions affecting individuals:

  • Tax rates stay the same for most taxpayers. Individuals will have an increased tax rate (back to Clinton-era rates) if they have taxable income over $400,000, and married filing jointly taxable income is over $450,000. The top tax rate will be 39.6%.[1]
  • Payroll tax rate returns to 2010 level. The 2% reduction in the social security payroll tax has expired.[2] Withholding will increase for all taxpayers back to the 2010 level.
  • Long-Term Capital Gains rates stay at 0% (for 10% and 15% rate taxpayers) and 15% (for up to 35% rate taxpayers). For those in the new 39.6% rate, the capital gain rate will be 20%.[3] Qualified dividend rates stay at the same rates as long-term capital gains.[4]
  • Alternative Minimum Tax changes are made “permanent” so that the income levels are $50,600 for single taxpayers and $78,750 for married filing jointly, and these levels are indexed for inflation.[5] Previously, these changes had to be adopted every year.
  • Personal exemptions will be reduced because the suspended phaseout is again in effect. For $250,000 single taxpayers or for $300,000 for married filing jointly, the personal exemption will be reduced by 2% for each $2,500 over the threshold.[6] These levels will be adjusted for inflation.
  • The limits on itemized deductions that had been suspended will again apply so that for the same threshold for the personal exemption levels discussed above, the total amount of itemized deductions will be reduced by 3% of the amount by which the taxpayer’s income exceeds the threshold, but not more than 80%.[7]
  • Trusts and Estates reach the highest tax rate (now 39.6%) at roughly $12,000 in taxable income, so trusts in particular may be subject to the higher income tax rate, the higher capital gains rate and the new 3.8% surtax on investment income mentioned below.[8]

To be continued…

Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at mbalson@wadeash.com or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at lhunter@wadeash.com or 303-329-2227.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

 

[1] Rev. Proc. 2013-15, Sec. 1.01, 2013-5 IRS 444 (January 11, 2013).

[2] Pub.L. 112-240, Sec. 101 (a-b), H.R. 8, 126 Stat. 2313 (2013).

[3] Pub.L. 112-240, Sec. 102(b), H.R. 8, 126 Stat. 2313 (2013).

[4] Pub.L. 112-240, Sec. 102(a), H.R. 8, 126 Stat. 2313 (2013).

[5] Pub.L. 112-240, Sec. 104, H.R. 8, 126 Stat. 2313 (2013).

[6] Pub.L. 112-240, Sec. 101(b), H.R. 8, 126 Stat. 2313 (2013).

[7] Id.

[8] Id.

Filed Under: Practice Management Tagged With: , , , , , ,

Colorado Court of Appeals: City’s Arguments for Taxation Engendered Reasonable Doubts and Must Be Resolved in City’s Favor

April 4, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in City of Golden v. Aramark Educational Services, LLC on Thursday, March 28, 2013.

Sales Tax Assessment—Summary Judgment.

Plaintiffs, the City of Golden (Golden) and Jeff Hansen, in his official capacity as Golden’s Finance Director, appealed the district court’s summary judgment in favor of defendant, Aramark Education Services, LLC (Aramark). The summary judgment was reversed and the case was remanded to the district court to reinstate the assessment.

The Colorado School of Mines (CSM) and Aramark entered into a Food Services Management Agreement (FSMA) in which they agreed that Aramark would be the exclusive operator of the food service facilities in the CSM Student Center, including the residential dining hall and the Food Court, the I-Club, and other facilities. Aramark operated the Slate Café, the I-Club, the Food Court, Java City, Mines Park Convenience Store, and CSM concessions.

No CSM representative ever handles or takes possession of food either before or after it reaches those facilities. Aramark provided food that generally fell into one of six categories for purposes of this case. Golden levies a sales tax on all sales of tangible property that occur in Golden, including food, unless specifically exempted under the Golden Municipal Code (GMC). Aramark only collects and remits sales tax on CSM campus food sales made with cash, checks, credit, or debit cards. Aramark argued that other sales (as parts of meal plans or added to ID cards) were exempt under the GMC for (1) wholesale sales and (2) direct sales to state institutions “in their governmental capacities only.” Golden disagreed that these were exempt and assessed sales tax.

Aramark protested and received a hearing before Golden’s Finance Director, who upheld the assessment. Aramark appealed to the Colorado Department of Revenue, which reversed. Golden appealed to the Denver District Court and on cross-motions for summary judgment, the district court entered summary judgment in Aramark’s favor. Golden appealed.

The Court of Appeals began by noting the presumption that taxation is the rule and exemption from taxation is the rare exception. All reasonable doubts are resolved against the exemption.

Golden argued that Aramark’s food sales on the CSM campus are wholesale sales. Aramark countered that it sells the food to CSM on a wholesale basis and CSM resells the food to its students, faculty, staff, and guests. The Court held that when individuals purchase food from Aramark-operated food service facilities on CSM’s campus, Aramark is making retail sales to the customers, which are subject to Golden’s sales tax. However, on the issue of when the food is provided as part of a CSM meal plan, a summer conference or summer camp meal plan, or using “Munch Money,” the issue is much closer. However, because Golden’s arguments have sufficient merit to engender reasonable doubts, the issue was resolved in Golden’s favor.

Golden also argued that it was error to conclude that Aramark was exempt from Golden’s sales tax under the GMC’s “governmental capacity” exemption. Such a sale must be a “direct sale” to a department or institution of the State of Colorado. CSM is an institution of the State of Colorado, but it is less clear whether Aramark directly sells its food to CSM. Regardless, the Court concluded that the sales do not qualify because they were not made to CSM in its “governmental capacity only.” CSM has the power to rent, lease, maintain, operate, and purchase buildings and facilities for dining. Aramark does not sell food to CSM in its capacity of doing those things.

The Court additionally found that the sales were made to CSM in both its governmental and proprietary capacities. It was purchasing food in its governmental capacity of educating students, as well as for the private advantage of the faculty and for itself as a legal entity. The summary judgment was reversed and the case was remanded with instructions to reinstate the tax assessment.

Summary and full case available here.

Filed Under: Case Law Tagged With: , , , ,
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2013-05-21 07:07:23