The Tax Fairness for Coloradans package — is Coal Dead in Colorado?

The Tax Fairness for Coloradans package – is coal dead in Colorado?

This is one of many questions arising out of HB21-1311(Income Tax) and HB21-1312 (Insurance Premium Property Sales Severance Tax), combined legislation that expanded tax credits for working families and small businesses but hurt the coal industry. Each passed with a 41-23 vote and were signed into law by Governor Polis.

The first bill expands eligibility for the state earned income tax credit and essentially doubles funding for the Colorado Child Tax Credit. “Modernizing” or as some like to quip “social engineering” the Colorado tax code is either way a topic to be avoided at extended family reunions.

The second bill focuses on a property sales severance tax increasing the number of businesses that will be exempt from business personal property tax and is just plain smart legislation for most all Colorado business owners, except the coal industry of course. Coal is dead anyhow, right?

Well, we will see I suppose. The bill phases-out the 50% tax credit for coal produced from underground mines & lignitic coal. It also phases out the exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022. So why keep digging?

Nevertheless kudos to Rep. Emily Sirota (D-Denver), Rep. Mike Weissman (D-Aurora), Sen. Chris Hansen (D-Denver) and Sen. Dominick Moreno (D-Commerce City) for skillfully sponsoring and shepherding both bills across the threshold and into Governor Polis’ office.

A relatively broad but debatable interpretation of the Colorado Department of Revenue’s 2020 Tax Profile & Expenditure Report required bi-annually as per §39-21-303, C.R.S. indicates that these bills collectively should eliminate several loopholes in the state tax code that were not “creating jobs, boosting the economy, or making Colorado more competitive with other states or benefiting Colorado.” That aside what is not debatable is that this tax reform will create more jobs for tax accountants.

So maybe, just maybe, coal miners and related industry professionals can transition into tax accountants. Read on…

Details on HB21-1311 – Income Tax

Neighborhood Barbeque Banter

  • Imposes a cap for taxpayers with adjusted gross incomes equal to or exceeding $400,000 on certain federal itemized deductions.
  • Limits the deduction for contributions made to 529 plans,
  • Disallows full federal deduction for food and beverage expenses at restaurants.
  • Limits the capital gains subtraction.
  • Allows a subtraction from Colorado taxable income in amounts related to repealing the cap on the deduction for certain social security income.
  • Increases the earned income tax credit to 20% in 2022 and 25% in 2023.
  • Allows a child tax credit in the state regardless of the federal requirement that a qualifying child must have a social security number.

Deeper Dive

  • Allows a temporary income tax credit for a business equal to a percentage of the conversion costs to convert the business to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust.
  • Modifies the computation of the corporate income tax receipts factor (increasing it) to make it more ‘congruent’ with combined reporting.
  • Prevents corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance.
  • Clarifies that certain captive insurance companies are not exempt from income tax.
  • Repeals, for social security income that is included in federal taxable income only, the cap on the deduction for pension and annuity income received.
  • Extends the limit on the federal deduction allowed under section 199A of the internal revenue code.

Details on HB21-1312 – Insurance Premium Property Sales Severance Tax

Neighborhood Barbeque Banter

  • Phases-out the 50% tax credit for coal produced from underground mines & lignitic coal and exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022.
  • Requires personal property tax to be based on the property’s value in use as defined by a property tax administrator.
  • Increases the per-schedule exemption for business personal property tax from $7,900 to $50,000.
  • Codifies the definition of tangible personal property to include digital goods, including amounts charged for mainframe computer access, photocopying, packing & crating.

Deeper Dive

  • Disallows the sales tax vendor fees for retailers who report total taxable sales greater than $1 million in the tax period.
  • Requires a company to have a minimum percentage of its total domestic workforce in the state in order for the company to be deemed to maintain a home office or regional home office. This percentages are:
    • 2% for 2022
    • 25% for 2023
    • 5% for 2024 onward.
  • Narrows the tax exemption for annuities considerations to those that are purchased in connection with a qualified retirement plan, a Roth 401(k), or an individual retirement account.
  • Authorizes the commissioner of insurance to appoint an independent examiner to conduct examinations.

So, if you’ve made it this far what do you think, is coal dead in Colorado? I say probably not right away, but yeah. For more on this or tax changes to the Colorado Revised Statutes, contact me directly. My team and I are here to serve.