August 22, 2019

Colorado Court of Appeals: Automobile Financier Not Entitled to Tax Credit for Bad Debt Write-Off

Colorado Court of Appeals issued its opinion in Daimler Chrysler Financial Services Americas, LLC v. Colorado Department of Revenue on Thursday, March 13, 2014.

Motor Vehicles—Sales Taxes—Tax Refund—Bad Debt—Assignment of Rights.

Consumers purchased motor vehicles from several motor vehicle dealers using retail installment contracts secured by liens on the vehicles. At the times of the sales, the dealers assigned all of their rights under the contracts to Daimler Chrysler Financial Services Americas, LLC (Daimler), which paid the dealers the entire amounts due on the contracts, including the sales taxes. The dealers then remitted the sales taxes to the Department of Revenue. When certain consumers defaulted on their contracts, Daimler repossessed the vehicles securing those purchasers’ obligations. Even after repossession and sale of the collateral, unpaid balances remained on some of those contracts. Daimler “charged off” those debts for federal income tax purposes and sought a bad debt tax credit or refund from the Department of Revenue, which was denied.

On appeal, Daimler contended that the district court erred in holding that Daimler and the dealers did not constitute a “group or combination acting as a unit” for purposes of Daimler’s claim for a tax credit or refund under CRS § 39-26-102(5). Here, subsection 102(5) and subsection 113(6) conflict. Subsection 102(5) provides for a credit for sales taxes paid on accounts that are subsequently charged off as bad debts without reference to any particular kind of business. Subsection 113(6) also provides for a credit for sales taxes paid on accounts that are subsequently charged off as bad debts, but specifically addresses motor vehicle sales and limits the type of entity that can claim a credit. Thus, subsection 113(6) is the more specific provision, and it prevails. Because it is not a retail seller of motor vehicles or a wholly owned affiliate or subsidiary of such a seller, Daimler did not qualify as a seller–financer under subsection 113(6)(b) and, therefore, could not claim a tax credit.

Daimler also contended that the district court erred in concluding that the dealers could not provide Daimler valid assignments of any rights to relief under subsection 102(5) even if Daimler could not originally claim those rights as a taxpayer itself under the statute. However, because the dealers are not seller–financers and have no rights to tax credits, they have no tax credits to assign to Daimler.

Summary and full case available here.

HB 14-1012: Replacing Colorado Innovation Investment Tax Credit with Advanced Industry Investment Tax Credit

On January 8, 2014, Rep. Max Tyler and Sen. John Kefalas introduced HB 14-1012: Concerning Income Tax Credits that Promote Investment in Colorado Advanced Industries. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill repeals the Colorado innovation investment tax credit and replaces it with the advanced industry investment tax credit (tax credit). The tax credit is available for a qualified investor who, prior to January 1, 2018, makes an equity investment in a qualified small business from the advanced industries, which consists of advanced manufacturing, aerospace, bioscience, electronics, energy and natural resources, information technology, and infrastructure engineering. The tax credit is equal to 25 percent of the investment or, if the qualified business is located in a rural area or economically distressed area, it is equal to 30 percent. The maximum amount of credit for a single tax credit is $50,000, and the maximum of all tax credits allowed for a calendar year is $2 million; except that unused tax credits from 2014 may roll over into 2015. A tax credit may not be refunded, but it may be carried forward for five tax years.

The Colorado office of economic development (office) determines the eligibility for the tax credit and issues nontransferable tax credit certificates as evidence of eligibility and the amount of the tax credit. To claim the tax credit, a taxpayer must submit a copy of the tax credit certificate. The office and the department of revenue are required to share information related to the tax credit. In 2017, the office is required to submit to legislative committees a report that includes information about the tax credits issued and the economic benefits from the related qualified investments.

The state treasurer is required to transfer moneys from the repealed innovation investment tax credit cash fund to the newly created advanced industry investment tax credit cash fund. The general assembly shall appropriate any moneys in the fund to the office for the direct and indirect costs associated with the authorizing tax credits. The bill is assigned to the Finance and Appropriations Committees.

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

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.

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

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.

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

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.

HB 13-1183: Imposing a Cap on the Amount of Tax Exemption that May Be Claimed for Donations of Conservation Easements

On January 31, 2013, Rep. Claire Levy and Sen. Kent Lambert introduced HB 13-1183 – Concerning the Imposition of a Cap of 45 Million Dollars on the Total Amount of State Income Tax Credits that May Be Claimed by All Taxpayers Each Year for the Donation of a Conservation Easement in GrossThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Taxpayers are allowed to claim a state income tax credit for donating a conservation easement. Current law caps the total amount of credits that may be claimed by all taxpayers each year for a three-year period. The amount of the cap is $22 million for 2011 and 2012 and $34 million for 2013. Credits that exceed the amount allowed for each year are placed on a wait list for a future year.

The bill extends the cap for 2014 and later years and increases the annual amount of the cap for these years to $45 million. Clarifying amendments on the process of administering the cap are made. On March 15, the House approved the bill on 2nd Reading; the bill is scheduled for 3rd and final Reading in the House on Monday, March 18.

Since this summary, the bill passed the 3rd Reading in the House.