April 19, 2018

Bills Signed Allowing Alcohol to be Auctioned at Special Events, Amending Employer Ability to Access FPPA Plans, and More

On Thursday, March 1, 2018, Governor Hickenlooper signed 26 bills into law. To date, he has signed 29 bills this legislative session. Many of the bills signed Thursday were supplemental appropriations bills or bills moving statutes from Title 12, C.R.S., but among the rest were bills allowing the auctioning of alcohol in sealed containers at special events, amending an employer’s ability to access Fire and Police Pension Association plans, and adopting the Enhanced Nurse Licensure Compact. Summaries of the bills signed Thursday are available here.

  • HB 18-1022 – “Concerning a Requirement that the Department of Revenue Issue a Request for Information for an Electronic Sales and Use Tax Simplification System,” by Reps. Lang Sias & Tracy Kraft-Tharp and Sens. Cheri Jahn & Tim Neville. The bill requires the department of revenue to issue a request for information for an electronic sales and use tax simplification system that the state or any local government that levies a sales or use tax, including a home rule municipality and county, could choose to use that would provide administrative simplification to the state and local sales and use tax system.
  • HB 18-1031 – “Concerning Employer Entry into the Fire and Police Pension Association Defined Benefit System,” by Reps. Jovan Melton & Kim Ransom and Sens. John Cooke & Matt Jones. The bill allows an employer that provides a money purchase plan to apply to the board, with a single application, to cover some or all of the existing members of its money purchase plan in the defined benefit system. Current law requires the employer to apply to the board separately for each plan.
  • HB 18-1075 – “Concerning the Enactment of Colorado Revised Statutes 2017 as the Positive and Statutory Law of the State of Colorado,” by Reps. Pete Lee & Leslie Herod and Sens. Daniel Kagan & John Cooke. This bill enacts the softbound volumes of Colorado Revised Statutes 2017, including the corrected replacement volume consisting of titles 42 and 43, as the positive and statutory law of the state of Colorado and establishes the effective date of said publication.
  • HB 18-1079 – “Concerning a Requirement that the Works Allocation Committee Prepare Annual Recommendations for the Use of the Colorado Long-term Works Reserve,” by Rep. Susan Beckman and Sen. Larry Crowder. The bill requires the works allocation committee to annually submit to the executive director of the Department of Human Services, the governor, and the joint budget committee recommendations for the use of the money in the Colorado long-term works reserve for the upcoming state fiscal year.
  • HB 18-1144 – “Concerning Certain Publishing Requirements for the Department of Revenue’s ‘Disclosure of Average Taxes Paid’ Table,” by Rep. Dan Thurlow and Sen. Jack Tate. The bill updates language regarding mailing of tax tables, and refers in general to the department’s website and also requires the department to provide the table on the software platform that the department makes available to taxpayers to file individual income taxes rather than refer to the “NetFile” link.
  • HB 18-1159 – “Concerning a Supplemental Appropriation to the Department of Education,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Education.
  • HB 18-1160 – “Concerning a Supplemental Appropriation to the Offices of the Governor, Lieutenant Governor, and State Planning and Budgeting,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the offices of the governor, lieutenant governor, and state planning and budgeting.
  • HB 18-1161 – “Concerning a Supplemental Appropriation to the Department of Health Care Policy and Financing,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Health Care Policy and Financing.
  • HB 18-1162 – “Concerning a Supplemental Appropriation to the Department of Human Services,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Human Services.
  • HB 18-1163 – “Concerning a Supplemental Appropriation to the Judicial Department,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Judicial Department.
  • HB 18-1164 – “Concerning a Supplemental Appropriation to the Department of Personnel,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Personnel.
  • HB 18-1165 – “Concerning a Supplemental Appropriation to the Department of Public Safety,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Public Safety.
  • HB 18-1166 – “Concerning a Supplemental Appropriation to the Department of Regulatory Agencies,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Regulatory Agencies.
  • HB 18-1167 – “Concerning a Supplemental Appropriation to the Department of Revenue,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of Revenue.
  • HB 18-1168 – “Concerning a Supplemental Appropriation to the Department of State,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of State.
  • HB 18-1169 – “Concerning a Supplemental Appropriation to the Department of the Treasury,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes a supplemental appropriation to the Department of the Treasury.
  • HB 18-1170 – “Concerning Funding for Capital Construction, and Making Supplemental Appropriations in Connection Therewith,” by Rep. Millie Hamner and Sen. Kent Lambert. The bill makes supplemental appropriations for capital construction projects.
  • HB 18-1173 – “Concerning a Supplemental Transfer of Money from the General Fund to the Information Technology Capital Account of the Capital Construction Fund for the 2017-18 State Fiscal Year,” by Rep. Bob Rankin and Sen. Kent Lambert. For the 2017-18 fiscal year, the bill transfers $2,888,529 from the general fund to the information technology capital account of the capital construction fund.
  • SB 18-019 – “Concerning an Expansion of the Duration for which the Colorado Water Resources and Power Development Authority may Make a Loan Under the Authority’s Revolving Loan Programs,” by Sens. Kerry Donovan & Don Coram and Reps. Chris Hansen & Jeni James Arndt. Current law limits the duration of any water pollution control loan to 20 years; this bill removes the 20-year limitation.
  • SB 18-027 – “Concerning the Enactment of the ‘Enhanced Nurse Licensure Compact’, and, in Connection Therewith, Making an Appropriation,” by Sens. Jim Smallwood & Nancy Todd and Reps. Tracy Kraft-Tharp & Hugh McKean. The bill repeals the current ‘Nurse Licensure Compact’ and adopts the ‘Enhanced Nurse Licensure Compact’.
  • SB 18-030 – “Concerning the Nonsubstantive Relocation of Laws Related to Self-Propelled Vehicles from Title 12, Colorado Revised Statutes, as Part of the Organizational Recodification of Title 12,” by Sens. Chris Holbert & Daniel Kagan and Reps. Mike Foote & Yeulin Willett. The bill creates Title 44 in the Colorado Revised Statutes and relocates certain statutory sections to Title 44.
  • SB 18-032 – “Concerning the Nonsubstantive Relocation of Laws from Title 12, Colorado Revised Statutes, as Part of the Organizational Recodification of Title 12,” by Sens. Bob Gardner & John Cooke and Reps. Mike Foote & Leslie Herod. The bill relocates articles 26 and 26.1 from Title 12 to a new part in Title 18, and relocates the Uniform Unsworn Declarations Act to a new article in Title 13.
  • SB 18-034 – “Concerning the Nonsubstantive Relocation of Laws Related to the Regulation of Gaming from Title 12, Colorado Revised Statutes, to a New Title 44 as Part of the Organizational Recodification of Title 12,” by Sens. John Cooke & Lucia Guzman and Reps. Cole Wist & Pete Lee. The bill creates a new Title 44 and relocates certain statutory sections to Title 44.
  • SB 18-035 – “Concerning the Nonsubstantive Relocation of Laws Related to Gambling Payment Intercept from Title 24, Colorado Revised Statutes, to a New Title 44 as Part of the Organizational Recodification of Title 12,” by Sens. Bob Gardner & John Cooke and Rep. Cole Wist. The bill creates Title 44 of the Colorado Revised Statutes and relocates certain statutory sections to Title 44.
  • SB 18-041 – “Concerning the Ability of Operators of Sand and Gravel Mines to Use Water Incidental to Sand and Gravel Mining Operations to Mitigate the Impacts of Mining,” by Sens. Don Coram & Randy Baumgartner and Reps. Lori Saine & Jeni James Arndt. The bill specifies that the groundwater replacement plan or the plan of substitute supply and the permit may authorize uses of water incidental to open mining for sand and gravel, including specifically the mitigation of impacts from mining and dewatering.
  • SB 18-054 – “Concerning a Limitation on the Amount of an Increase in Fees Assessed Against Assisted Living Residences by the Department of Public Health and Environment,” by Sen. Larry Crowder and Rep. Larry Liston. Current law requires the State Board of Health to establish a schedule of fees for health facilities, including assisted living facilities. The bill applies an inflation rate limitation to the fees for assisted living facilities.
  • SB 18-067 – “Concerning the Ability of Certain Organizations Conducting a Special Event to Auction Alcohol Beverages in Sealed Containers for Fundraising Purposes under Specified Circumstances,” by Sens. Rachel Zenzinger & Kevin Priola and Reps. Tracy Kraft-Tharp & Kevin Van Winkle. The bill specifically allows certain organizations to bring onto and remove from the premises where an event will be held, whether licensed or unlicensed, alcohol beverages in sealed containers that were donated to or otherwise lawfully obtained by the organization and will be used for an auction for fundraising purposes as long as the alcohol beverages remain in sealed containers at all times and the licensee does not realize any financial gain related to the alcohol beverage auction.

For a list of the governor’s 2018 legislative decisions, click here.

Colorado Court of Appeals: Online Travel Companies Not Required to Remit Accommodation Tax to Town of Breckenridge

The Colorado Court of Appeals issued its opinion in Town of Breckenridge v. Egencia, LLC on Thursday, January 25, 2018.

Taxation—Municipalities—Accommodation Tax—Lessors—Renters—Online Travel Companies—Jurisdiction—Exhaustion of Administrative Remedies—Class Certification.

The Town of Breckenridge sought to collect accommodation and sales taxes from 16 online travel companies (OTCs). The OTCs maintain websites through which travelers can book hotel accommodations and travel-related services. As relevant here, under the “merchant model” the OTCs contract with a hotel to allow customers logging into the OTC’s website to book reservations for the hotel. These contracts offer rooms to OTCs at a discounted rate. OTCs coordinate information between travelers and hotels; OTCs neither purchase nor reserve rooms in advance.

Breckenridge brought this action to recover unpaid accommodation and sales taxes from the OTCs, asserting five causes of action. The district court partially granted the OTCs’ motion to dismiss but refused to dismiss the accommodation tax claim. Breckenridge then unsuccessfully sought class certification for 55 home rule cities that also levy a lodger’s or accommodation tax. The parties filed cross-motions for summary judgment, which were resolved in favor of the OTCs.

On appeal, Breckenridge contended that the district court erred in concluding that OTCs are neither “lessors” nor “renters” of hotel rooms because they sell the legal right to use hotel rooms in exchange for consideration. Breckenridge asserted that the OTCs are capable of leasing or renting even without physical possession of hotel rooms. Because the hotels maintain possession of the rooms and are the sole grantors of the right of occupancy, hotels are lessors or renters and OTCs are essentially brokers. The accommodation tax statute indicates that the accommodation tax applies only to those who have a possessory interest in the accommodation being taxed. The OTCs had no possessory interest and were not engaged in the business of owning, operating, or leasing, and could not independently grant customers access to rooms, so they are not subject to Breckenridge’s accommodation tax.

Breckenridge also contended that the court erred in granting summary judgment because issues of fact exist. Breckenridge failed to meet its burden of producing sufficient evidence to establish that a genuine issue of fact exists as to whether OTCs acquire inventory, whether the OTCs provide customer service, and the extent of the hotels’ involvement in merchant model transactions. The court properly granted the OTCs’ summary judgment motion.

Breckenridge also contended that the district court erred in concluding that it lacked subject matter jurisdiction over its sales tax claim because Breckenridge failed to exhaust administrative remedies. Breckenridge argued that it was not required to exhaust its own administrative remedies because doing so would be futile and whether OTCs are subject to sales tax was a question of law not subject to exhaustion requirements. It is evident from the Breckenridge Town Code that a party’s first step in seeking relief for unpaid sales taxes is to petition for administrative review from the finance director. Breckenridge failed to take this step. Therefore, the district court lacked subject matter jurisdiction to address Breckenridge’s unpaid sales tax claim.

Finally, Breckenridge contended that the district court abused its discretion by denying Breckenridge’s request for class certification. Breckenridge was not entitled to class certification under C.R.C.P. 23(b)(2) because Breckenridge was seeking primarily monetary damages, and it failed to meet the C.R.C.P. 23(b)(3) requirements because there was no predominance of common questions nor was class action the superior remedy.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Defendant Sentenced to Significant Jail Time After Evasion of Personal Taxes

Tenth Circuit Court of Appeals issued its decision in United States v. Stegman on Friday, October 20, 2017.

Defendant Stegman owned and operated Midwest Medical Aesthetics Center (Midwest), which provided a wide range of medical aesthetic services. Clients were permitted to pay with a credit card, cash, or check made out to Stegman personally, who encouraged cash or checks. Stegman would personally collect the cash and checks at the end of each business day.

Stegman then established several limited liability companies (LLCs), which were effectively used to launder Midwest client payments. Stegman would use the LLCs to purchase money orders that she then used to purchase items for personal use. Stegman reported zero cash income on her federal income tax returns in 2007, 2008, and 2009.

Stegman employed two separate tax preparers for her corporate and personal tax returns. Stegman provided Jones, the corporate tax preparer, with Midwest bank account information, but did not provide Jones with bank records for the other accounts into which she deposited Midwest income. Similarly, Stegman did not provide Lake, the personal tax preparer, with accurate records of the Midwest client payments that she used to purchase personal property.

When Stegman was audited for the 2007 and 2008 tax returns, Stegman said Midwest never accepted cash payments, stated that the source of her money came from relatives or savings, and gave conflicting information for the purpose of one of her LLCs. The case was then referred to the IRS’s criminal investigation division. The investigation that followed revealed that Stegman used her LLCs to create false business expenses, that Stegman altered Midwest’s ledgers and directed other employees to destroy business records, and that Stegman encouraged a former Midwest client, Clark, to tell the IRS that she, Clark, didn’t remember anything about her dealings with Midwest. Stegman raises five issues on appeal.

1. The Amendment of the Indictment During Trial

Stegman argued that the district court erred by granting the government’s motion to amend the indictment during trial. The indictment in this case alleged that Stegman was the owner and operator of “Midwest Medical Aesthetics Center” and not “Midwest Medical Aesthetics Center, Inc.” The Tenth Circuit distinguished between a district court’s amending an indictment as to form, which is permissible, and as to substance, which is impermissible. An amendment as to form is a change that does not mislead the defendant in any sense, does not subject the defendant to any added burdens, and does not otherwise prejudice the defendant.

Stegman argued that the amendment, which substituted the name of one business entity for another, was substantive. The Tenth Circuit disagreed. Contrary to Stegman’s assertion, and consistent with what the district court concluded, the amendment was merely a matter of form, and dropping the “Inc.” accurately reflected the change that Stegman made to the structure of her business. Because the amendment was one of form only, the district court did not err in granting the government’s motion to amend the indictment.

Stegman further argued that the jury was never told there was an amendment or that she was entitled to rely on the indictment and, as a result, the jury may have been left with the impression that she misled them. The Tenth Circuit disagreed for several reasons. First, Stegman’s counsel conceded that Stegman never asked for such an instruction. Second, she failed to properly alert the district court to her constitutional challenge. Third, the argument lacked merit given the conclusion that the amendment was one of form only. Finally, the evidence of Stegman’s guilt was overwhelming and thus the district court’s decision did not deprive her of the right to a fair trial.

2. The Purported Braswell Violation

Stegman next contended that the government violated the Supreme Court’s decision in Braswell v. United States, 487 U.S. 99 (1988), by using corporate records against her as an individual. The company ledgers were obtained by compulsory summons issued to her. The Court in Braswell noted that it had long recognized that, for purposes of the Fifth Amendment, corporations and other collective entities are treated differently from individuals.

Prior to trial, Stegman moved to exclude from evidence handwritten ledgers of Midwest that were produced to the IRS pursuant to a Corporate Summons. Stegman argued, in pertinent part, that under Braswell, the Government could not introduce into evidence the fact that Stegman produced the documents in response to a subpoena, and thus could not attribute the documents to Stegman as an individual. Contrary to Stegman’s assertions, however, the Tenth Circuit found no violation of Braswell.

3. The Alleged Destruction of Exculpatory Evidence

Stegman also argued that the district court erred in denying her motion to dismiss the indictment due to destruction of exculpatory evidence.

After Stegman’s audit was referred to the IRS’s criminal investigation division in 2009, the IRS’s civil division forwarded to the criminal division a referral package of documents that included the file from an earlier audit that the IRS had conducted for the 2000 and 2001 tax season. The file was ultimately destroyed at the National Archives and Record Administration facility without the IRS’s knowledge.

Stegman moved to dismiss the indictment due to destruction of exculpatory evidence, namely the old civil audit file relating to her tax returns for 2000 and 2001. Stegman argued that these returns contained positions that were similar, if not identical, to the positions the government claimed were criminal in this case, and that the IRS found the 2000 and 2001 tax returns were accurate and did not assess any additional tax.

Where, as here, a defendant made the necessary request, but the evidence was no longer available at that time, the failure to preserve the evidence violates due process if the evidence was exculpatory and its exculpatory value was apparent before its loss. If, however, the evidence was not apparently exculpatory but merely potentially useful, the failure to preserve the evidence does not violate due process unless the criminal defendant can show bad faith on the part of the police.

The Tenth Circuit concluded that the district court did not clearly err in finding that the exculpatory value of the civil audit file was not apparent, as Stegman failed to challenge the district court’s finding that many of the documents could be obtained from other sources. Further, Stegman failed to establish that she relied in good faith on the IRS’s determination that her tax positions in 2000 and 2001 were valid. Lastly, Stegman failed to produce any evidence that the IRS itself played a role in the file’s destruction or any authority supporting a per se bad faith rule.

4. The Admission of Testimonial Statements from Don Lake

In her fourth issue on appeal, Stegman argued that the district court erred by allowing the government to introduce testimonial statements from her now-deceased personal tax preparer, Don Lake, in violation of the Confrontation Clause.

In her appeal, Stegman focused on the district court’s admission of Exhibit 85, a fax cover sheet and faxed records that Lake sent to an IRS Revenue Agent during the course of the IRS’s investigation. Mrs. Lake identified Don Lake’s handwriting on the fax cover sheet and on some of the accompanying records. Stegman objected to Exhibit 85, arguing that the language on the fax cover sheet violated her confrontation rights.

The Tenth Circuit remarked that Stegman made no attempt to challenge the district court’s finding that the papers contained in Exhibit 85 were actually her own financial documents rather than Lake’s work papers. She also failed to make a showing that the documents were testimonial in nature, which is a requirement for a challenge under the Confrontation Clause. As for the fax cover sheet that contained Lake’s handwriting, the Tenth Circuit agreed with the district court that it was also not testimonial in nature.

5. Stegman’s Advisory Sentencing Range

Finally, Stegman argued that the district court erred by miscalculating her advisory sentencing range under the Sentencing Guidelines. More specifically, Stegman asserted that the district court improperly calculated the intended tax loss and improperly applied the sophisticated means and obstruction of justice enhancements in calculating her advisory Guidelines sentencing range.

The Sentencing Guidelines apply to tax-related crimes, such as those of which Stegman was convicted. It directs a district court to apply a base offense level from the Tax Table corresponding to the tax loss. If the offense involved both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses added together. The district court in this case found that the corporate tax loss and the individual tax loss were inextricably intertwined, and Tenth Circuit agreed.

One section of the Sentencing Guidelines states that if a tax-related offense involved sophisticated means, the base offense increases. “Sophisticated means” includes especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense, and includes conduct such as hiding assets or transactions through the use of fictitious entities, corporate shells, or offshore financial accounts. The district court in this case concluded that the “sophisticated means” enhancement applied to Stegman, and the Tenth Circuit found no error.

The Sentencing Guidelines further direct a district court to increase a defendant’s offense level if the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice with respect to the investigation, prosecution, or sentencing of the instant offense of conviction and the obstructive conduct related to (A) the defendant’s offense of conviction and any relevant conduct, or (B) a closely related offense. The district court in this case found that Stegman obstructed the IRS’s investigation in three ways: directing employees to shred receipts that documented cash that she received from her business, altering Midwest ledger entries to change the characterization of the way certain expenses were entered so that they appeared to be legitimate business expenses, and directing a witness, Clark, to testify that she did not remember her business relationship with Midwest.

Stegman argued that any attempt she made to tamper with Clark’s testimony was unsuccessful because Clark told investigators that she couldn’t recall what happened when she was a client of Midwest. Notably, the district court found that even if Stegman’s attempt to influence Clark’s testimony was unsuccessful, it nevertheless was an attempt to obstruct justice. The Tenth Circuit, therefore, concluded that the district court did not err in applying the obstruction of justice enhancement.

The Tenth Circuit Court of Appeals AFFIRMED the judgment of the district court.

Colorado Court of Appeals: County Treasurer Must Exercise Due Diligence When Notice Returned Undelivered

The Colorado Court of Appeals issued its opinion in Wells Fargo Bank Financial Colorado, Inc. v. Olivas on Thursday, December 14, 2017.

TaxationSale of Tax LiensTax DeedNoticeDiligent Inquiry.

Buyers signed a deed of trust with Wells Fargo Financial Colorado, Inc. (WFFC) to secure a mortgage and an open-end deed of trust to Wells Fargo Financial Bank (WFFB) to secure a line of credit. Beginning in 2008, buyers failed to pay both the monthly mortgage installments to WFFC and the property taxes on their house. WFFC did not pay the taxes after September 2009, and Housman paid the 2009 taxes on October 20, 2010, when the Treasurer, Olivas, sold a tax lien on the house by public auction. Housman also paid taxes on the property for tax years 2010, 2011, and 2012. In 2013, Housman applied for a tax deed. In early January 2014, the Treasurer took steps pursuant to C.R.S. § 39-11-128 to notify all parties with an interest in the property of an impending issuance of a tax deed and a right to redeem. The notice to WFFC was returned as undeliverable as addressed. The notice to WFFB was not returned to the Treasurer. Believing that he had provided the required notice because one Wells Fargo entity had received the notice, the Treasurer issued Housman a tax deed on May 28, 2014. Housman sold the property to Moran a few weeks later, and Housman continued to hold a deed of trust on the property. In May 2015, WFFC filed a complaint for declaratory relief seeking to void the tax deed to Housman, the special warranty deed from Housman to Moran, and the deed of trust held by Housman. WFFC moved for summary judgment, and Housman and Moran cross-moved for summary judgment asserting, among other things, that WFFC’s complaint should be barred by laches. The district court granted summary judgment for defendants, concluding that Housman’s tax deed was valid.

On appeal, WFFC contended that the district court erred in granting summary judgment to defendants. A reasonably diligent treasurer should know that secured parties on different deeds of trust that secure different loan amounts, with different names and addresses, may not be so closely affiliated that notice to one may be assumed to effect notice to the other. The Treasurer failed, as a matter of law, to perform his statutory duty to exercise reasonable diligence in seeking an alternative address for WFFC. When notice is defective because it was given without the diligent inquiry required by law, the tax deed is voidable.

The judgment was reversed and the case was remanded for further proceedings on the affirmative defense of laches. If the court concludes that laches does not bar WFFC’s claims, it shall address the request for declaratory relief. If recovery of the land conveyed by the tax deed is effected by this suit, the court shall consider whether C.R.S. § 39-12-101 applies.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Taxpayer Entitled to File Statutory Claim for Relief After Expiration of Protest Period

The Colorado Supreme Court issued its opinion in OXY USA, Inc. v. Mesa County Board of Commissioners on Monday, November 13, 2017.

Tax Law—Taxpayer Error—Overvaluation

The supreme court holds that section 39-10-114(1)(a)(I)(A), C.R.S. (2017), allows abatement and refund for illegally or erroneously levied taxes based on overvaluation caused by taxpayer error. This result follows from the statute’s plain text that allows abatement for “overvaluation” without making a distinction between government- and taxpayer-caused overvaluations. The court rejects the court of appeals’ holding that Coquina Oil Corp. v. Larimer County Board of Equalization, 770 P.2d 1196 (Colo. 1989), and Boulder County Board of Commissioners v. HealthSouth Corp., 246 P.3d 948 (Colo. 2011), require a different result. Coquina was superseded by the 1991 legislative amendment that added “overvaluation” as a ground for abatement, and HealthSouth’s holding was limited to intentional taxpayer overvaluations. The supreme court reverses the judgment of the court of appeals and remands for further proceedings.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Corporation with No Property or Payroll of Its Own Need Not Be Included on Tax Return

The Colorado Court of Appeals issued its opinion in Agilent Technologies, Inc. v. Colorado Department of Revenue on Thursday, November 2, 2017.

Holding CompanyPropertyCorporate Income Tax ReturnsCombined Returns.

Agilent Technologies, Inc. (Agilent) is incorporated in Delaware, but during the years at issue (tax years 2000 to 2007), it maintained research and development and manufacturing sites in Colorado. Agilent timely filed corporate income tax returns for these years. Agilent Technologies World Trade, Inc. (WT) is a subsidiary of Agilent and is incorporated in Delaware. It was formed as a holding company to own foreign entities operating solely outside the United States. As a holding company, WT does not own or rent property, has no payroll, and does not advertise or sell products or services of its own.

For federal tax purposes, WT and the foreign entities elected to be taxed as a single corporation. Agilent did not include WT in its corporate tax returns for the years at issue. The Department of Revenue (Department) issued notices of corporate income tax deficiency requiring that Agilent include WT in its Colorado combined returns for the years at issue and assessed tax, interest, and penalties. Agilent contested the Department’s adjustments, and the director upheld the notices. Agilent sought review in the district court. The district court concluded that the Department was prohibited from requiring Agilent to include WT in its Colorado combined corporate income tax returns and entered summary judgment for Agilent.

On appeal, the Department contended that the district court erred when it held that WT was not an includible C corporation under C.R.S. § 39-22- 303(12)(c). Conversely, Agilent argued that C.R.S. § 39-22-303(8) required exclusion of WT from its combined return. C.R.S. § 39-22-303(12)(c) requires inclusion of a corporation in a combined report if “more than twenty percent of the C corporation’s property and payroll” is assigned to locations inside the United States. Because WT had no property factors, although it wasn’t prohibited from including WT, Agilent was not required to include WT in its Colorado combined tax return.

The Department also contended that the district court erred when it ruled that, as a matter of law, C.R.S. § 39-22-303(6) could not be applied as an alternative basis for including WT in Agilent’s tax return. It also contended that the economic substance doctrine should be applied to permit taxation of WT even in the absence of specific statutory authorization. C.R.S. § 39-22-303(6) authorizes the Department to allocate income and deductions among corporations that are owned or controlled by the same interests on a fair and impartial basis to clearly reflect income and avoid abuse. However, C.R.S. § 39-22-303(6) cannot be applied to allocate income among affiliated corporations that were not otherwise includible under C.R.S. § 39-22-303(8) to (12). Accordingly, the district court did not err in concluding that C.R.S. § 39-22-303(6) did not provide a basis for including WT in Agilent’s tax return. Further, it was not alleged that WT lacks a business purpose apart from reducing tax liability. Therefore, the economic substance doctrine does not provide an independent basis in this case for including WT in Agilent’s combined return.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Hunting and Fishing Club, Not Individual Members, is True Landowner and Bears Tax Burden

The Colorado Court of Appeals issue its opinion in HDH Partnership v. Hinsdale County Board of Equalization on Thursday, October 19, 2017.

Taxation of Hunting and Fishing Memberships—County Assessment—Real Property Taxes.

Owners of fishing and hunting memberships (petitioners) were taxed on the parcels of real estate allocated to them in their membership agreements. The parcels are part of a larger tract of land used as a hunting and fishing club (club). Membership in the club is granted to those who hold a deed to one of the parcels that collectively comprise the club grounds. Members cannot make improvements on their parcels or exclude other club members. The club retains control over the grounds and grants all members equal access, regardless of the parcel to which they hold title. A member’s right to access the grounds can be revoked if the member owes money or violates club rules.

Petitioners initiated this action after they disagreed with the county’s assessment of their parcels. The Hinsdale County Board of Equalization (BOE) affirmed the assessor’s valuation. Petitioners appealed to the Board of Assessment Appeals (BAA), which affirmed the BOE’s decision.

On appeal, petitioners argued that the law permits the court to look beyond the title to the substance of the parties’ rights when determining ownership. The Colorado Court of Appeals concluded that the club was the true property owner because it enjoyed the most significant incidents of ownership. The members effectively had a license to use club grounds, even though they held bare legal title to the parcels. Therefore it was the club, and not the members, that had to bear the real property tax burden. Further, the BAA erred in affirming the assessor’s valuation because it was based on the personal property value of petitioners’ licenses to use club grounds rather than the value of the parcels as real property.

The order was reversed and the case was remanded with directions.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Claim Arose Prior to Filing Bankruptcy Petition and Therefore was Dischargeable

The Colorado Supreme Court issued its opinion in Hardegger v. Clark on Monday, October 2, 2017.

Contribution—Bankruptcy Discharge—Tax Withholding Liability—26 U.S.C. § 6672(d).

This case required the supreme court to determine when the right of contribution provided in 26 U.S.C. § 6672(d) (2012) gives rise to a “claim” under the U.S. Bankruptcy Code. Applying the “conduct test,” under which a claim arises for bankruptcy purposes at the time the debtor committed the conduct on which the claim is based, the court concluded that petitioner’s claim for contribution arose when the parties’ jointly owned company incurred federal tax withholding liability, rendering the parties potentially responsible for that debt. Because this conduct occurred before respondents filed their bankruptcy petition, the court concluded that petitioner’s claim constituted a pre-petition debt that was subject to discharge. Accordingly, the court affirmed the judgment of the court of appeals.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Meal Plans Provided Wholesale to College and Therefore Improperly Taxed

The Colorado Court of Appeals issued its opinion in Sodexo America, LLC v. City of Golden on Thursday, September 7, 2017.

Tax—Meal Plans—Students—Wholesale—Contract.

Sodexo America, LLC (Sodexo) provides food services and food to the Colorado School of Mines (Mines) pursuant to a contract with Mines. Mines, in turn, contracts with its students to provide them food (the food obtained, prepared, and served by Sodexo) through various meal plans. The City of Golden (City) taxes Sodexo for students’ use of the meal plans. Sodexo collects and remits sales tax on campus food purchased with cash, check, or credit card. But the City also assesses Sodexo for sales tax on transactions whereby students swipe meal cards in exchange for meal plan meals, which taxation Sodexo challenged. The district court granted summary judgment in favor of the City on Sodexo’s challenges to the City’s assessment and denial of refunds.

On appeal, Sodexo contended that the City can’t tax it for meals purchased by Mines’ students under the students’ contracts with Mines. The Golden Municipal Code states that the City may levy sales tax on the purchase price of food, but exempts from taxation wholesale sales. Under the relevant contract and pursuant to the plain language of the Code, no sales occur between Sodexo and Mines’ students with meal plans; instead, Sodexo sells meal plan meals to Mines at wholesale. Because the Code expressly exempts wholesale sales from taxation, the City’s assessment is invalid.

The judgment was reversed, and the case was remanded for entry of judgment in Sodexo’s favor and for any other proceedings consistent with this opinion.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Public Utilities Commission has Exclusive Jurisdiction Over Claims for Enforcement of Tariffs

The Colorado Court of Appeals issued its opinion in Development Recovery Co., LLC v. Public Service Co. of Colorado on Thursday, June 15, 2017.

Public Utility—Subject Matter Jurisdiction—Enforcement of Tariffs—Common Law Claims.

The Public Service Company of Colorado, d/b/a Xcel Energy Co. (Xcel), is a utility company regulated by the Colorado Public Utilities Commission (PUC). Development Recovery Company, LLC (DRC) was the assignee of claims from real estate developers who entered into extension agreements (agreements) with Xcel for the construction of distribution facilities to provide gas or electric service for homes in new developments. The agreements specified that they were governed by the PUC’s rules and regulations and referred several times to Xcel’s extension policies. The extension policies on file with the PUC are referred to as tariffs and provide that extension contracts are based on the estimate of the cost to construct and install the necessary facilities to provide the requested service. The tariffs explain in detail how construction costs and payments are to be handled.

DRC filed a complaint against Xcel alleging various common law claims and violation of C.R.S. § 40-7-102, related to an unspecified number of agreements between developers and Xcel over the course of 18 years. Xcel moved to dismiss, arguing that this matter was within the exclusive jurisdiction of the PUC or, alternatively, if the PUC did not have exclusive jurisdiction, the court should nevertheless refer the matter to the PUC under the primary jurisdiction doctrine. The district court agreed with Xcel on both grounds and dismissed the complaint.

On appeal, DRC argued that the district court has exclusive subject matter jurisdiction over DRC’s common law claims, asserting that the trial court erred in concluding that the substance of its claims is merely the enforcement of tariffs. The court of appeals noted that the PUC has exclusive jurisdiction in its constituted field, including enforcement of tariffs. The court concluded that all of DRC’s claims substantively involved enforcement of the tariffs (essentially, how costs were to be calculated and paid). Further, even if DRC has a cause of action under C.R.S. § 40-7-102, exhaustion of administrative remedies before the PUC is required.

DRC also asserted that the district court must have jurisdiction because only it can award the relief sought. DRC cannot confer subject matter jurisdiction on the district court simply by requesting relief in the form of damages. Further, the PUC has authority to order reparations where excessive charges have been collected by a public utility for a product or service, which is a potential remedy in this case.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Public Utilities Commission Properly Imposed Tariff After Billing Error

The Colorado Supreme Court issued its opinion in Carestream Health, Inc. v. Colorado Public Utilities Commission on Monday, June 19, 2017.

Public Utilities—Tariffs—Standing—Injury-in-Fact.

In this appeal, the supreme court considered two issues from the district court’s review of a decision of the Colorado Public Utilities Commission. Both issues pertain to a billing error that led Public Service Company of Colorado to undercharge Carestream Health, Inc. for gas it received over the course of a three-year period. The first issue is whether the Commission properly interpreted Public Service’s tariff, specifically the requirement to “exercise all reasonable means” to prevent billing errors. The court concluded that determining what means are “reasonable,” as that term is used in the tariff, necessarily requires considering what errors are foreseeable. The court therefore held that the Commission properly interpreted the tariff and acted pursuant to its authority. The second issue is whether Carestream had standing to challenge Public Service’s use of its tariff to recover a portion of the undercharge from its general customer base. Because Carestream suffered no injury from that action, it lacks standing to challenge it. The court accordingly affirmed the district court’s judgment.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: County Assessor Authorized to Retroactively Assess Property Taxes on Oil and Gas Leaseholds

The Colorado Supreme Court issued its opinion in Kinder Morgan CO2 Co., L.P. v. Montezuma County Board of Commissioners on Monday, June 19, 2017.

Oil and Gas—Property Taxation—Statutory Construction.

The supreme court reviewed the court of appeals’ conclusion that the Montezuma County Assessor had statutory authority to retroactively assess property taxes on oil and gas leaseholds operated by Kinder Morgan, after the assessor determined that Kinder Morgan had underreported the wellhead selling price of CO2 gas produced at the leaseholds. The court considered whether this assessment was authorized under the statute permitting retroactive property tax assessments when, pursuant to C.R.S. § 39-5-125(1), “taxable property has been omitted from the assessment roll.” Given Colorado’s self-reporting scheme for property taxation of oil and gas leaseholds and the legislature’s amendments to that scheme—which describe the “underreporting of the selling price or the quantity of oil and gas sold [from a leasehold]” as a form of omitted property, C.R.S. §§ 29-1-301(1) and 39-10-107(1)—the court concluded that the assessor had statutory authority to issue the assessment in this case. The court further concluded that the Board of Assessment Appeals did not err in determining that Kinder Morgan had underreported the wellhead selling price of CO2. The court therefore affirmed the judgment of the court of appeals.

Summary provided courtesy of The Colorado Lawyer.