Should the state tax your massages and dry cleaning? Do enterprise zones really draw businesses to Colorado?
Those are the kinds of questions members of the Long-Term Fiscal Stability Commission may wrestle with in the coming weeks. The 16-member panel, which concluded its first two days of hearings Thursday, is examining the state’s revenue and spending and the role of government.
The panel last week heard from experts who talked about the decline in sales tax as a percentage of the state’s general fund budget.
In 1976, about 37 percent of the state’s general fund came from sales and use taxes, compared with about 30 percent in 2008. Part of the decline is due to a number of sales-tax exemptions that were enacted in the 1970s and 1980s when the state was flush with money. Sales-tax and use-tax exemptions now cost the state an estimated $1.9 billion a year.
Meanwhile, online sales have grown at a rate of 13.3 percent on average each year from 1999 to 2006.
However, one of the biggest changes is in how consumers spend their money. When Colorado’s sales tax was enacted in 1935, services represented about 40 percent of total spending. That figure had grown to 60 percent by 2008.
Personal services include dry cleaning, accounting, massages, legal work, tennis lessons and a host of other actions or activities individuals are paid to do for others. Such services are not taxed, and the state’s 2.9 percent sales tax applies only to tangible goods.
Colorado was one of only four states in 2007 that didn’t tax any personal services, according to the Federation of Tax Administrators.
No one has an estimate of how much taxing services would yield the state, but several members of the commission said the idea deserves discussion.
Also up for discussion is the list of 71 sales-tax exemptions on the books and the 57 individual and corporate income-tax credits and rebates, the latter of which cost the state more than $350 million a year.
And some who have testified before the commission question the use of the state’s enterprise-zone laws, which give tax incentives for locating businesses in “economically distressed” areas. Sen. Moe Keller, D-Wheat Ridge, testified that some estimates say 85 percent of the state’s geographical area is in an enterprise zone, including Denver’s Lower Downtown.
“If everywhere is an enterprise zone, then nowhere is an enterprise zone,” said Rep. Mark Ferrandino, D-Denver and a member of the commission.
Tom Clark, executive vice president of the Metro Denver Chamber of Commerce, testified that an enterprise zone “is seldom a deal-changer” for businesses moving to Colorado.
Neither is Colorado’s relatively low — 4.63 percent — corporate income tax, Clark said.
“I’ve never had a company complain about the corporate income tax in Colorado,” he said.
The commission also heard just how low all of Colorado’s taxes are compared with the rest of the U.S. The state’s combined state and local tax burden per $1,000 of income was $98.01, the fifth-lowest in the nation. Meanwhile, just the state-tax burden per $1,000 of income was $48.25, third-lowest in the country.
Sen. Greg Brophy, a Wray Republican who sits on the panel, said he’s willing to talk about restructuring taxes as long as it doesn’t result in the state collecting more money.
“I would be OK with tax reform that is revenue neutral,” Brophy said.
Tim Hoover: 303-954-1626 or thoover@denverpost.com
