Denver, Boulder, and Pueblo sue Colorado state over new tax law – Greeley Tribune
Several Colorado cities are suing the state over a new law that would prevent them from collecting sales and using the building materials tax for public schools.
HB22-1024 passed the legislature this year with bipartisan support in both houses. Governor Jared Polis signed it into law in April and is expected to take effect in August. In short, lawmakers said they wanted to prevent taxpayers from paying extra for school buildings.
“A lot of the time you’re taking a levy on yourself to build the school and pay back the deposit,” said Rep. Shannon Bird, a Westminster Democrat, sponsor. “If there’s another tax on that, you now have to pay another tax over 25 or 30 years, and with interest.”
She noted that a sales tax of just a few percentage points can add millions to projects. A 4% sales tax on $25 million of building materials is, for example, an additional $1 million added to the cost.
But the municipalities — Denver, Boulder, Commerce City, Pueblo and Westminster — argue the law is an unconstitutional usurpation of their right to collect taxes.
“The power to collect sales and use taxes to generate revenue is at the heart of self-governing municipalities and a core function of municipal operations,” Denver City Attorney Kristin Bronson said in a statement. “HB 22-1024 illegally infringes on the Constitution of Colorado, and residents of self-governing municipalities have the full right of autonomy in local and municipal affairs.”
A spokesperson for the governor said the law was a cost-cutting measure and accused Denver of raising costs.
“At a time when construction costs are rising, it’s ridiculous that Denver is trying to force schools to pay more,” spokeswoman Melissa Dworkin said. “We should be doing more to reduce the cost of building classrooms and upgrading our schools with needed repairs and technology, and this tax exemption is a good start.”
Of the 272 incorporated municipalities, 104 are considered self-governing cities. It allows local government to form charters and establish laws on local matters that can supersede state law. However, on statewide issues or those of mixed interest, state law supersedes local rules, according to a legislative briefing.
Of 69 state governments that collect sales and use tax, those suing the state do not exempt the collection of sales tax on school building materials, according to a Denver press release. Denver typically collects between $2 million and $4 million in local sales and use taxes on school building materials each year, according to the release.
The Commerce City City Council voted unanimously on Wednesday to join the lawsuit, according to a news release. Although he collects sales and use tax on school building materials, he is not joining the lawsuit because of it, his mayor said in a statement. Instead, it is about preserving autonomy rights.
“The city’s position on this issue does not reflect a desire to tax or impede the construction of public schools,” Mayor Benjamin Huseman said. “To the contrary, this lawsuit challenges the idea that the State of Colorado has reason to dictate such decisions in our hometown, when those decisions should rightfully stay with local voters through their Locally elected.”
However, sponsoring lawmakers said they took this into account when drafting the bill. Since the state often helps fund school construction, sales tax on materials becomes a state interest, said Senator Chris Kolker, a centennial Democrat, sponsor.
He doesn’t think cities are intentionally defrauding state taxpayers, but raising money off the backs of taxpayers trying to improve education. He called it “common sense” not to add sales tax to things already paid for with taxpayers’ money.
“As a state, we fill school districts with their funding,” Kolker said. “When their funding is now reduced due to a sales tax — which is typically exempt for nonprofits — it requires more of that funding from us to meet school district needs.”
The sponsor, Sen. Chris Hansen, a Democrat from Denver, noted that an amendment was added to the bill specifically aimed at addressing challenges like this. The amendment emphasized the state’s responsibility to provide thorough and uniform education,” and said local taxes jeopardize that. None of the lawmakers said they were surprised by the lawsuit.
“The urgent need we have in the state and the backlog we have in building schools is a very important part of this debate,” Hansen said, noting estimates of a $17 billion backlog in building schools in the state. “I think that really makes it a compelling statewide interest, and I hope the courts will agree with that.”