Recently, Gov. Roy Romer was in Fort Collins urging the business community to push for a new tax structure. Speaking before the Economic Developers Council of Colorado March 20, Romer cited the Gallagher Amendment and Amendment One as the principal problems within the state’s tax system.
While on the surface this sounds right, Romer’s views towards expanding enterprise-zone benefits are more revealing. These views present the state’s actual policy toward attracting base jobs into the Colorado economy.
The 1982 Gallagher Amendment limits the residential property tax burden by requiring businesses to make up the difference with more taxes. Originally, business property was assessed at 29 percent of value and residential property at 20 percent. During the current legislative session, the General Assembly reduced the residential rate to 9.71 percent.
This means that for property-tax bills due Jan. 1 1998, businesses must pay property taxes almost three times greater than residential property.
Romer protests that tax hikes under the 1992 Amendment One (or so-called Taxpayer Bill of Rights) require public votes and that its impact is to ratchet down taxes at every turn. Romer asked the business community “to step forward and give some courage to those in the political community for revising the tax base.”
However, at the end of January, Gov. Romer was urging that benefits to businesses locating in Enterprise Zones become harder to obtain. These benefits are largely from tax credits applied to Colorado’s corporate and individual income taxes. Romer laments that these credits could cost state government $40 million annually.
In fact, these businesses produce net tax gains that are probably 10 times greater than the state’s cost. Property taxes are assessed on the commercial investment and employee residences. The business also pays property taxes on all of its equipment purchases. Individual income taxes are due on salaries, and either individual or corporate taxes are due on profits. Unemployment taxes and workers-compensation insurance are charged.
State and local sales-and-use taxes are paid on the company’s purchases, and workers pay sales taxes on their purchases. License fees are charged. Development and planning fees are paid to municipalities for the company’s new construction and its workers’ new residences.
Electronic Business Today just published a survey showing Colorado Springs and Denver among the 20 best cities for locating an electronics plant. If things are so great in Colorado, why are these companies locating elsewhere? For instance, 18 electronic-fab plants with total investment of more than $30 billion are either under construction or recently completed in the State of Oregon.
The answer is that company executives making location decisions know of Colorado’s onerous tax policies against business. Oregon has no sales or use tax and limits property tax. Michigan is airing a television campaign urging business to locate in its enterprise areas. It promises no taxes on new business.
Yes, reform is long overdue to what has become a broken Colorado tax policy. Unfortunately, the General Assembly has an unblemished track record of inaction. The Gallagher Amendment and TABOR are unlikely to be reversed, as these “citizen tax relief” measures are written into the constitution. Let us bring relief to business in the most immediate way possible: enterprise-zone support. Courage must be shown by Greeley’s Dick Monfort, a member of the Colorado Economic Development Commission, to expand EZ benefits.
Former Fort Collins mayor John Knezovich is a certified public accountant.