All but one state (Oregon) currently interprets ambiguous tax statutes in favor of taxpayers. But as a brief filed by NTUF’s Taxpayer Defense Center with the Colorado Supreme Court argues, Colorado may soon join Oregon if the Centennial State’s high court does not rule in favor of taxpayers in a case they will hear this May.
Chronos Builders, LLC v. Department of Labor and Employment Division of FAMLI asks whether a government-imposed premium calculated on a percentage of wages violates the flat tax provisions of Colorado’s Taxpayer Bill of Rights (“TABOR”). Because TABOR is part of the Colorado Constitution, the case tests the constitutionality of the new Family and Medical Leave Insurance statute (“FAMLI”), adopted by voter referendum in 2020. The Colorado Supreme Court will hear oral argument on the case on May 3, 2022.
Colorado’s FAMLI program provides up to twelve weeks of paid family and medical leave, funded by a payroll tax paid by employers and employees. Employees are on the hook for the payroll tax no matter what, but businesses with ten or more employees are required to match the employee’s premium. The tax is calculated based on the employee’s wages and applies only up to a cap of the wages the employee earns—similar to how Social Security taxes are calculated.
Chronos Builders is a small homebuilder on Colorado’s Western Slope with exactly ten employees. The company thus would need to pay the fee for its employees, based on the wages earned. Chronos Builders challenged the new law under TABOR § 20(8)(a), which requires “all taxable net income to be taxed at one rate . . . with no added tax or surcharge.” In other words, Colorado is a flat tax state, and the funding for the FAMLI program may violate that provision.
The Denver District Court first heard the challenge, but applied a very deferential standard that upholds the law unless Chronos Builders could prove the wage-based premium structure was unconstitutional “beyond a reasonable doubt.” Chronos Builders did not meet that high threshold. But the District Court's decision is contrary to the express standard in TABOR Section 1, which commands that “preferred interpretation” of such taxing laws shall be to “reasonably restrain most the growth of government.”
Because the FAMLI program is going to start soon, the Colorado Supreme Court took the unusual step of hearing the case before the intermediate Court of Appeals could weigh in. The state’s highest court wants to resolve the challenge quickly.
At the Colorado Supreme Court, NTUF’s Taxpayer Defense Center weighed in with an analysis showing that Colorado and forty-eight other states have resolved tax statutory ambiguities in favor of the taxpayer, which aligns well with the test of TABOR Section 1’s “preferred interpretation.” The Denver District Court set aside the well-established rule favoring taxpayers, ignored the express text of the Colorado Constitution itself, and applied a standard too deferential to the government. Therefore, the TDC urged the Colorado Supreme Court to reverse the lower court decision with instructions to provide the proper standard of review.