Did TABOR require a new vote before Colorado resumed statutory coal severance tax adjustments?

Plain-English summary

The Colorado Attorney General concluded that TABOR did not require a new vote before the Department of Revenue applied the coal severance tax adjustment formula in section 39-29-106(5), C.R.S. (2006). The formula predated TABOR and automatically tied the rate to a producer-price index.

The opinion said the department's decision to stop upward adjustments after 1992 was erroneous. It also found no discretion to choose a smaller increase or a different base period.

Currency note

This opinion was issued in 2007. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant in 2007

Coal producers

The opinion treated index-based rate increases as operation of an existing tax formula, not a newly adopted tax increase requiring another election.

Department of Revenue

The department had to implement the formula as written and calculate changes from the January 1978 producer-price index level.

Tax officials and legislators

Administrative nonenforcement after TABOR did not transform resumption of the statutory formula into a new tax policy.

Common questions

Q: Did every upward rate adjustment require voter approval? A: No. The opinion said the adjustment mechanism was enacted before TABOR and operated automatically.

Q: Could the department phase in a smaller increase? A: No. The AG found no discretion to depart from the statutory calculation.

Q: Did the department's long pause change the legal rule? A: No. The opinion called the failure to impose the statutory adjustments erroneous.

Background and statutory framework

Colorado's coal severance tax used a base rate adjusted when the index of producers' prices changed by the amount specified in statute. After TABOR took effect, the department stopped upward adjustments while allowing downward ones.

The opinion read section 39-29-106(5), C.R.S. (2006) together with Colo. Const, art. X, § 20 and concluded that applying the preexisting formula did not require a new vote.

Citations and references

Authorities:

• section 39-29-106(5), C.R.S. (2006)
• Colo. Const, art. X, § 20

Source

• Landing page: https://coag.gov/attorney-general-opinions/
• Original PDF: https://coag.gov/app/uploads/2019/08/No.-07-1-The-Department-of-Revenues-Obligation-to-Update-the-Coal-Severance-Tax-Rate-in-Light-of-the-Limitations-Imposed-by-the-Taxpayers-Bill-of-Rights-TABOR.pdf

Original opinion text

St a t e Se r v ic e s B u il d in g

STATE OF COLORADO

Jo h n W . Su th e r s

Attorney General

1525 Sherman Street - 5th Floor
Denver, Colorado 80203
Phone (303) 866-4500

DEPARTMENT OF LAW

C y n t h ia H . C o f f m a n

Chief Deputy Attorney General

O f f ic e o f t h e A t t o r n e y G e n e r a l

D a n ie l D. D o m e n ic o

Solicitor General

FORMAL
No. 07-01
OPINION
AG Alpha: RV EN AGBCB

OF
July 6, 2007
JOHN W. SUTHERS
Attorney General

The D epartm ent of Revenue has requested an opinion concerning its obligation to update the coal severance tax rate under section 39-29-106(5), C.R.S. (2006), in light of the lim itations imposed by article X, section 20 of the Colorado Constitution, the Taxpayers’ Bill of Rights (“TABOR”). Q u estion s P r e se n te d and A nsw ers The specific questions received from the D epartm ent are: 1.

M ust the D epartm ent of Revenue increase the coal tax rate p u rsu an t to section 39-29-106(5), C.R.S. (2006), or does th a t sta tu te violate the prohibitions of Article X, Section 20 (“TABOR”), on tax increases or new tax policies absent voter approval?

2.

If the D epartm ent m ust enforce the increases in the coal tax rate, m ust the rate be adjusted to the 1978 index of producers’ prices, or does the D epartm ent have discretion to raise the tax by a sm aller increment?

Answers:
Section 39-29-106(5), requires a one percent increase or decrease in the coal severance tax rate w henever the index of producers’ prices rises or falls by one and one-half percentage points. Because this sta tu te was enacted prior to TABOR’s November 4, 1992 effective date, it does not conflict with TABOR, and a vote is not required prior the D epartm ent assessing the increased coal severance tax rate as required by statu te. The D epartm ent’s failure to impose the tax since 1993 was erroneous, and it m ust im plem ent the sta tu te as w ritten. F urtherm ore, the D epartm ent has no discretion in calculating the current tax rate. The D epartm ent m ust apply the plain language of the statu te and calculate the current coal tax rate using the increase or decrease in the index of producers’ prices based on the level of th a t index on January, 1978. B a ck grou n d In 1977, the G eneral Assembly passed House Bill 1076, imposing a severance tax on coal and other commodities. The bill enacted section 39-29106, which levied a tax of sixty cents per ton “upon the severance of all coal in this state as to all such severance occurring on and after Ja n u a ry 1, 1978.” Colo. Sess. Laws 1977, Ch. 544, § 1 a t 1846. The bill also tied the coal severance tax rate to the wholesale price index and required adjustm ents to the rate whenever the index changed by three points: (5) For every three point change in the index of wholesale prices for all commodities prepared by the bureau of labor statistics of the U nited S tates D epartm ent of Labor, the tax rate provided in subsection (1) of th is section shall be increased or decreased one percent. ... The executive director shall determ ine such adjustm ents to the rate of tax based upon changes in the wholesale price index from the level of such index as of Jan u ary , 1978, to the level of such index as of the last m onth of the q u arter im m ediately preceding the q u arter for which any taxes are due. Id. at 1847. 2

In 1988, subsection (5) was am ended to provide th a t the tax rate be increased or decreased one percent for each one and one-half percent change in the “index of producers’ prices for all commodities prepared by the b u reau of labor statistics of the U nited S tates departm ent of labor,” ra th e r th a n for each th ree point change in the wholesale price index. Colo. Sess. Laws 1988, Ch. 285, § 2 at 1344. Also in 1988, the base tax rate was tem porarily dropped to thirty-six cents per ton, to revert to the original sixty-cent rate on July 1, 1994. IcL In 1994, however, the G eneral Assembly made the lower rate p erm a n en t.1 Colo. Sess. Laws 1994, Ch. 55, § 3 at 335. On November 3, 1992, the voters approved TABOR, effective November 4, 1992. Colo. Const, art. X, § 20. Relevant here, TABOR requires advance voter approval for any new tax, tax rate increase, or tax policy change directly causing a net tax revenue gain to any district, occurring after November 4, 1992. Colo. Const, art. X, § 20(4)(a); see Bolt v. Arapahoe County School District N um ber Six, 898 P.2d 525, 540 (Colo. 1995). From Ja n u ary 1, 1978 to December 1992, the D epartm ent adjusted the form ula as required by the statu te. Im m ediately following the passage of TABOR, however, the D ep artm en t’s Office of Tax A nalysis issued a one-page m em orandum dated April 7, 1993, which begins, “The Colorado coal severance tax rates have not been released since late December, 1992, pending the D epartm ent of Revenue’s resolution of the applicability of
[TABOR] to changes in these tax rates.” The m em orandum goes on to state: Beginning w ith the tax rate for November 1992, no further increases or upw ard revisions to tax rates will be made. R ates will be adjusted downward should appropriate index of producers’ prices declines occur (as in December 1992). U ntil fu rth er notice the severance tax ra te on coal for fiscal q u arters beginning on or after December 1, 1992 will be 54.0 cents per ton.

1 Legislative testimony concerning the 1994 amendment (HB 94-1239) indicates that the amendment was offered in part because of a belief that the automatic repeal of the thirty-six cent base rate would constitute a violation of the recently enacted TABOR amendment. For the same reasons articulated in this Opinion that the Department’s imposition of the statutory tax formula is required by section 3929-106, we disagree that the 1994 amendment was necessitated by TABOR. 3

The m em orandum offers no explanation for the D epartm ent’s decision to suspend increases on the coal severance tax rate other th a n to say th a t the suspension was pending “resolution of the applicability of [TABOR] to changes in these tax ra te s.” D isc u ssio n I.

D oes th e v a ria b le n a tu re o f th e coal se v era n ce ta x form ula req u ire a v o te u n d er TABOR b efore th e ta x can be ad ju sted upw ards?

It is incontrovertible th a t TABOR does not affect taxing schemes in place prior the enactm ent of th a t am endm ent in 1992. See Bolt, 898 P.2d at 540 (discussing TABOR’s effect as applicable only to tax schemes adopted after November 4, 1992); see also Form al Opinion of the A ttorney G eneral No. 96-1 (same). The cu rren t version of the coal severance tax was enacted in 1988. The variable n atu re of the tax, however, and its potential for upw ard adjustm ents post-Tabor raises the question of w hether such adjustm ents require voter approval. It is clear from the plain language of section 39-29-107(5) th at, absent TABOR, the D epartm ent has no discretion w hether to calculate and apply the coal severance tax according to the statutory formula. Subsection 107(5) states, “The executive director shall determ ine such adjustm ents to the rate of ta x ....” § 39-29-107(5) (em phasis added); see People v. Manzo, 144 P.3d 551 (Colo. 2006) (use of the word shall in sta tu te creates a m andatory duty). Thus, the D epartm ent’s role is purely m inisterial. In the Bolt decision, the plaintiffs challenged an additional mill levy imposed by the A rapahoe County Board of Education as violating the vote requirem ent of TABOR. Bolt, 898 P.2d 525. While the board of education m et and imposed the levy prior to TABOR’s passage, the board of county commissioners did not m eet to give final approval to the levy until after TABOR became effective. The Court determ ined th a t the board of education was required to certify a mill levy sufficient to m eet the district budget, and th a t the board of county commissioners had no power to modify the certified levy. Thus, the Court held th a t because the levy was imposed by the board of education prior to TABOR’s passage, the voter approval requirem ents of TABOR did not apply. Id., 898 P.2d at 539-540.

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Likewise, former Colorado A ttorney G eneral Gale Norton came to the same conclusion in two formal opinions analyzing sim ilar situations. In Form al Opinion 93-3, the A ttorney G eneral was asked w hether increases in em ploym ent tax rate s computed under the Colorado Employm ent Security Act required voter approval because the tax ra te applicable to an individual employee was dependent on a variety of statu to ry factors and could fluctuate from year to year. The opinion concluded th a t because the statu to ry tax rate schedules were in place prior to TABOR’s passage, and necessarily contem plated fluctuations in the tax rate, the tax scheme was not a new tax or tax rate increase under TABOR. The opinion found th a t the rate changes were based on “objectively m easured figures th a t change yearly. Therefore, surcharge taxes paid will fluctuate from year to year, although the method of the com putation of the tax will rem ain co n stan t.” AGO 93-3, pp. 2-3 (em phasis in original). F urther, the opinion concludes th a t while a p articular em ployer’s “rates and taxes may fluctuate from year to year, ... th is is solely a function of the established criteria set forth in the statute, and not as a result of a change or increase in the tax rate schedule.” Id. at 3. Likewise, in AGO 95-2, the A ttorney G eneral was asked w hether the autom atic repeal of a tax exemption on sales of precious m etal bullion and coins, which occurred post-TABOR, was a tax policy change requiring voter approval. The opinion concluded, consistent w ith AGO 93-3, th a t the repeal was not a tax policy change. The A ttorney G eneral found: Because the present tax stru ctu re was enacted in 1990, and ... was in place before TABOR ..., the elim ination of the exemption which occurs by operation of this scheme is not a tax policy change or other event w ithin the m eaning of TABOR’s subsection (4). Therefore, im position of the tax is not a tax policy change requiring voter approval. AGO 95-2, p. 2. Thus, because the tax change occurred under a “previously set design” and not as a result of a change in tax policy, voter approval was not required. Id. at 3. Here, the coal tax rate is sim ilar to these taxing schemes in all relevant respects. The coal tax policy had been set prior to TABOR’s effective date and requires adjustm ents to the tax rate according to pre-set, objective, statutory criteria capable of independent verification. The coal severance tax rate is adjusted as a m atter of pre-existing law, and the tax policy has not changed since TABOR’s passage, other th a n to m ake the thirty-six cent base 5

rate perm an en t in 1994. Thus, Revenue is obligated to follow the General Assembly’s m andatory directive to adjust the rate according to law. This is analogous to the statu to ry tax credits which autom atically expire, thereby increasing the burden on taxpayers th a t previously took advantage of such credits. See, e.g., § 39-22-519 (tax credit for use of vehicles in tran sp o rtation of sludge, enacted in 1994 and autom atically repealed in 1999),
§ 39-22-128 (w eather related livestock sale credit for period 2002 to 2004 only); § 39-29-121(1.5) (fifty-percent tax credit for contributions to child care facility, enacted in 2000 and autom atically repealed in 2010); see also M em orandum from Office of Legislative Legal Services to R epresentative Vicki Agler, M arch 27, 1998 (concluding th a t income tax credits w ith autom atic repeal date do not require vote under TABOR). This analysis is supported by a m em orandum from the Office of Legislative Legal Services, dated Ja n u a ry 15, 1996, which offers a general method of determ ining w hat a tax policy change is under TABOR. It describes a tw o-part test, the first step of which is to “determ ine if any tax law is being changed in a m anner th a t modifies or affects tax policy.” The question asks: Is a sta tu te relating to the im position of a pecuniary charge for the purpose of defraying general governm ental expenses of the state or of any local governm ent being created, repealed, or am ended in a m anner th a t resu lts in a modification of the stan d ard s or rules governing the imposition of the charge? Here, the statu to ry formula has not been amended, and the fact th a t the rate fluctuates w ith the producer’s price index does not cause a tax rate increase under TABOR. Likewise, the fact th a t the D epartm ent has erroneously failed to increase the coal severance tax is irrelevant. In Colorado D epartment of Revenue v. Woodmen of the World, 919 P.2d 806 (Colo. 1996), the court held th a t the D epartm ent could rein state sales taxes for fratern al societies after m any years of allowing them an exemption. Responding to an inquiry from Woodmen, the D epartm ent stated in a le tte r dated October 6, 1944 th a t it was exem pt from the paym ent of sales tax. The D epartm ent confirmed this position in a sim ilar letter on Ju n e 2, 1978, and in certificates of exemption issued on A ugust 29, 1979, and October 6, 1988.

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In 1989, however, the D epartm ent determ ined th a t the sales tax code did not exem pt sales to fratern al benefit societies. Therefore, the D epartm ent notified Woodmen th a t it was no longer entitled to m ake purchases th a t are exem pt from Colorado sales tax. Woodmen, 919 P.2d at 808. Relevant here, the Court held th a t an agency in terp retatio n th a t is in conformity w ith the relevant statu to ry provisions and “reasonably supported by the agency’s reasoning and the record is entitled to deference. This is tru e even where the agency decision conflicts w ith earlier agency interpretations. To hold otherw ise would preclude agencies from correcting m istakes and would p erp etu ate a th w artin g of the legislature's w ill.” Id. at 817 (em phasis added) (internal citations omitted). Although the facts in Woodmen occurred prior to the passage of TABOR, the decision clearly holds th a t an agency should not continue to misapply a sta tu te once it determ ines it h as made a m istake. In sum, the current tax rate has been in effect since 1988, and adjustm en ts have never been discretionary with the D epartm ent. The applicable rate is fixed by sta tu te w ith a m andatory directive to adjust the rate according to changes in the index of producers’ prices. To require a vote each tim e the statutory form ula requires an upw ard adjustm ent would be to render th e sta tu te a nullity. II.

G iven th e D ep a rtm en t’s refu sa l to in crea se th e coal sev era n ce ta x rate sin ce 1993, w o u ld im p lem en tin g se c tio n 39-29-107(5) c o n stitu te a “ta x p o licy ch a n g e” u n d er TABOR?

If adjusting the coal tax rate is a “tax policy change resulting in a net revenue gain” under TABOR, voter approval is required. “Tax policy change” is not defined by TABOR, but the plain m eaning of the term “tax policy” necessarily implies a tax scheme imposed by some entity w ith authority to set “policy” in th a t arena. For example, among the definitions of “policy” provided by M erriam -W ebster’s Collegiate Dictionary are: “A definite course or m ethod of action selected from among alternatives and in light of given conditions to guide and determ ine present and future decisions,” and “A highlevel overall plan em bracing the general goals and acceptable procedures especially of a governm ental body.” M erriam -W ebster’s Collegiate Dictionary (11th ed.) 960. W ith lim ited exception, only the G eneral Assembly or the voters m ay set statew ide tax policy; the executive branch merely im plem ents th a t policy. “[A] regulation may only carry into effect the will and policy established by the G eneral Assembly and an adm inistrative body has no power to impose a new tax.” Meyer v. Charnes, 705 P.2d 979, 983 (Colo. App. 1985) (em phasis added); see also Form al Opinion of the A ttorney General No. 7

96-1 (“A change in tax policy occurs when a statu to ry modification is made to the stand ard s or rules governing the imposition of a specific tax.” (emphasis added)); but see Colo. Const, art. XVIII, § 9 (Limited Gam ing Amendment, allowing Gaming Commission to im plem ent annual tax); § 12-47.1-601 (establishing gam ing tax criteria). Thus, the D epartm ent does not create “tax policy” by following a statute, and the D epartm ent does not change tax policy w hen it properly follows a statutorily required form ula th a t it previously failed to enforce. The fact th a t the D epartm ent erroneously failed to im plem ent the statutory m andate of section 39-29-107(5) since 1993 does not change th is conclusion. The D epartm ent had no authority or discretion to set tax policy in 1993. Thus, as a m atter of law, its 1993 decision to not enforce section 29-39-107(5) cannot be construed as creating a tax policy it has no authority to create; and it therefore cannot be setting a new tax policy today w hen it im plem ents the coal severance tax as it has always been required to do by law. Moreover, the 1993 m em orandum was not intended to be a definitive statem en t of agency policy. Instead, it was a statem en t of the Office of Tax Policy (an informal office w ithin the D epartm ent) th a t any increases would be tem porarily suspended “pending the D epartm ent of Revenue’s resolution of the applicability of [TABOR] to changes in these tax rates.” Accordingly, future im plem entation of section 39-29-106 by the D epartm ent would not constitute a “tax policy change” under TABOR. III.

D oes th e D ep a rtm en t h a v e d iscr etio n in how it ca lcu la te s the coa l sev era n ce ta x rate?

Given th a t the coal severance tax rate m ust be adjusted according to the statu to ry form ula and th a t it is not a TABOR violation to do so, the final question is w hether the D epartm ent m ust adjust the form ula upw ards from the 1978 base rate, or w hether it has th e discretion to increase the rate by some sm aller am ount. By statute, the base tax rate for coal severance is $.36 per ton. The applicable rate is th en calculated according the prescribed statutory formula: For every full one and one-half percent change in the index of producers' prices for all commodities prepared by the bureau of labor statistics of the U nited S tates departm ent of labor, the tax rate provided in subsection 8

(1) of this section shall be increased or decreased one percent. The executive director shall determ ine such adjustm ents to the ra te of tax based upon changes in the index of producers' prices from the level of such index as of January, 1978, to the level of such index as of the last m onth of the q u arte r im m ediately preceding the q u arter for which any taxes are due.
§ 39-29-106(1) & (5), C.R.S. (2006) (emphasis added). The unam biguous language of the sta tu te indicates th a t the adjustm ents are (1) m andatory, and (2) m ust be based upon the difference in percentage between the Jan u ary , 1978 index of producers’ prices and th a t rate a t the end of the last q u arte r im m ediately preceding the q u arter for which taxes are due. Because such adjustm ents have not been made since 1993, it is likely th a t a proper application of the tax in 2007 will resu lt in a dram atic increase in the tax obligation of coal producers. Nonetheless, proper application of the statu to ry formula today resu lts in the same tax rate th a t would exist had the form ula been properly applied each year since 1993, and therefore cannot be characterized as retroactive or an attem pt to “catch up” to the required rate. Moreover, there is no legal authority for allowing the D epartm ent to deviate from its statu to ry duty to adjust the tax rate as required by law. Indeed, the caselaw is to the contrary. See, e.g. Am erican Bonding Co. of Baltim ore v. People, 127 P. 941, 946-947 (Colo. 1912) (“Public policy and public necessity require prom pt and efficient action from such officers (m inisterial officers), and, w hen en tru sted with the assessm ent of taxes and the collection and disbursem ent of revenue, they have no right to refuse to perform m inisterial duties prescribed by law because of any apprehension on th e ir p a rt th a t others may be injuriously affected by it.”)

CONCLUSION
For the reasons indicated above, I conclude th a t section 39-29-106(5), C.R.S. (2006), does not conflict w ith TABOR, and therefore voter approval is not required prior to the D epartm ent calculating and assessing the coal severance tax as required by law. Going forward, the D epartm ent should apply the plain language of the sta tu te and calculate the current coal tax rate

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using the increase or decrease in the index of producers’ prices based on the level of the index as of January, 1978.

Issued this 6th day of July, 2007

U-3.

/7 JO H N W. SUTHERS - -----/ J Colorado A ttorney G eneral

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