Pot-Tax Error Might Not See Quick Legislative Fix in January

Soon after state lawmakers started sipping 26-year-old cabernet sauvignon and toasting the end of the 2017 legislative session, a glaring oversight came to light.

Legislators inadvertently left out a paragraph in their centerpiece bill and consequently eliminated millions of dollars in pot-tax revenue from the coffers of special districts across the state. Governor John Hickenlooper and the Democratic-led House had hoped to rectify the issue during a three-day special session in October, but the Republican-held Senate killed the proposed pot-tax fix and told special districts that the issue would be raised in January, when the 2018 legislative session convenes.

But January is around the corner, and what was expected to be a simple fix might instead be another drawn-out battle.

“If the timing wasn't right in October to pass the legislation, but it is now in January and nothing else has changed, I’m suspect at the very least to wonder what has changed to change those minds and change those votes,” says state representative Dan Pabon, a Democrat from Denver. “I’m skeptical as to whether that has happened.”

The political gaffe arose at the end of the 2017 regular session, when a bipartisan coalition of lawmakers passed Senate Bill 17-267, which exempted hospital-provider fees from TABOR requirements, averting deep cuts to rural hospitals and simultaneously funding roughly $2 billion in transportation, among other things. To do this, the bill raised the state marijuana tax from 10 percent to the voter-approved maximum of 15 percent while exempting retail pot sales from the regular 2.9 percent state sales tax.

Slipping through the cracks as lawmakers rushed the bill through in the final three days of the regular session was the fact that the retail sales-tax exemption would drain nearly $4.4 million from special districts in the 2017-2018 fiscal year and could cut up to $8.6 million in the 2018-2019 fiscal year, according to an October fiscal note.

“I think this was a mistake that was unintentional. I think we have clear authority to remedy those mistakes both in statute and in law,” Pabon says.

Special districts don't collect their own revenue from sales tax; rather, the Colorado Department of Revenue collects those taxes and remits them to the appropriate special districts that have been approved to receive a percentage of them. In this case, nine special districts across the state, including the Regional Transportation District, were receiving voter-approved sales-tax revenue until legislators fumbled in May.

Democrats have largely been in support of a legislative fix — literally rewriting their wrongs — but during the special session, Republicans supported the notion that reinstating taxation powers, albeit ones that were mistakenly revoked, is a constitutional issue that requires a vote under the Taxpayer’s Bill of Rights.

Senate President Kevin Grantham says a bill is being drafted by fellow Republican Bob Gardner, an attorney and vice chairman of the Senate Local Government Committee that oversees special districts. Gardner wasn't immediately available for comment, and Grantham won't divulge details of the draft bill or how it would fix the tax error, but he says that "it's a solution, elegant or not" and that he expects the bill to emerge "pretty early on in this session."

“A solution has probably been found that will satisfy most folks in regard to putting the ability to collect the tax back in place as it was intended, and do it in what appears to be a constitutional manner faithful to the intent of the voters," Grantham says.  "I think [the Republican bill] will...put the onus on the special districts to collect the tax and ask the people of their own volition.”

While nine special districts have lost state funds, at least temporarily, as a result of the mixup, RTD has been the number-one loser. Since the bill took effect on July 1, RTD has lost an estimated $560,000 a month. The second-largest hit has been the Scientific and Cultural Facilities District, which has lost about $56,000 a month since July. SCFD funds institutions like the Denver Art Museum, the Denver Zoo, Denver Botanic Gardens, the Denver Museum of Nature & Science and the Denver Center for the Performing Arts.

“I think that Colorado is a microcosm of what we’re seeing nationally, and that is some fairly intense partisan politics," says Scott Reed, assistant general manager of communications for RTD. "It’s disappointing, because this occurred through no fault of the special districts and has been stated by all involved that it was a mistake."

While Democrats argue that the Colorado Supreme Court gave lawmakers the ability to legislatively correct a mistake without a vote, Republicans say the matter falls under TABOR, making it a constitutional issue that should go to voters.

“If the opponents feel like they don’t have the ability to pass this through legislation," Pabon responds, "then at the very least, they should present it to the voters in the form of a piece of legislation and have them vote on it.”