June 17, 2019

Colorado Court of Appeals: Municipality Cannot Remove Property from Regional Transportation Authority Simply by Annexing Property

The Colorado Court of Appeals issued its opinion in Wal-Mart Stores, Inc. v. Pikes Peak Rural Transportation Authority on Thursday, May 17, 2018.

Annexation—Colorado Constitution Article XX, section 6—Regional Transportation Authority—Sales Tax—Use Tax—Matter of Mixed Local and State Concern.

Colorado’s Regional Transportation Authority law (RTA Law) allows municipalities, counties, special districts, and the state to combine to provide regional transportation services and to collect sales and use taxes to pay for such services. In 2014, the City of Fountain annexed a parcel of vacant land (the Property) from unincorporated El Paso County. The Property was within the boundaries of the Authority when it was formed in 2004. Fountain, a home rule city in El Paso County, has never been a member of the Authority. After the Pikes Peak Rural Transportation Authority (Authority) announced its intention to collect a 1% sales tax from recently built retail businesses on the Property, the operators of the businesses, Wal-Mart Stores, Inc. and Sam’s West, Inc. (collectively, plaintiffs) filed a declaratory judgment action against the Authority and the Colorado Department of Revenue (DOR), which collects sales tax on behalf of both Fountain and the Authority. Plaintiffs sought a declaration that defendants could not collect sales and use taxes on the Property because the Property was now part of Fountain, which was not a member of the Authority. On cross-motions for summary judgment the district court declared that the taxes could be collected and entered summary judgment for defendants.

On appeal, plaintiffs first argued that Fountain’s annexation of the Property removed it from the Authority’s boundaries and that the Authority’s attempt to tax retail sales outside of its boundaries violates the RTA law. A municipality may annex property from unincorporated parts of the county in which it lies. However, that annexation power does not permit a municipality to automatically remove territory from other political subdivisions of the state. The Property remained within the Authority’s boundaries.

Plaintiffs’ also argued that under C.R.S. § 43-4-603(2)(d) the Property was no longer within the boundaries of the Authority due to its annexation by Fountain, which is not a “member of the combination” constituting the Authority and must be deemed to be outside the Authority’s boundaries under RTA Law. The court of appeals concluded that the legislature intended the statute to define the boundaries of an authority at its inception, not to define requirements for changing those boundaries thereafter. Further, the RTA law defines a specific procedure for how territory may be removed from an established authority, which was not followed here. Fountain’s annexation of the Property did not remove it from the Authority’s boundaries.

Plaintiffs further contended that the Authority’s statutory power to tax is preempted by Article XX, section 6 of the Colorado Constitution, which they argued gives home rule cities “plenary” and “sole” authority over local concerns such as municipal taxation and supersedes state statutes that conflict with local laws in these areas. Colorado case law has long recognized that transportation regulation is generally a matter of mixed local and state concern, and the Colorado Constitution does not give home rule cities sole authority over taxation within their boundaries. The provision of transportation services to the Property and the imposition of taxes to pay for such services is not a matter of purely local concern that under article XX, section 6 would supersede conflicting state law. Further, plaintiffs failed to establish that the state statute granting the Authority the right to impose such a tax conflicts with Fountain’s power to impose its own taxes. The district court did not err in rejecting plaintiffs’ preemption argument and concluding that the Authority’s sales tax on eligible transactions on the Property was valid.

Lastly, the court rejected plaintiffs’ argument that the district court erred by failing to address all of the factors that courts frequently consider in determining whether an issue is a matter of local, mixed, or state concern.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

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