Small business group sues over Colorado fees

A small business advocacy group has sued Colorado over fees the group contends actually constitute a tax subject to state constitutional limits.

The National Federation of Independent Business filed the lawsuit against former Secretary of State Scott Gessler in district court in Denver.

“We’re simply asking the court to order the secretary of state not to set licensing fees above the amount needed to regulate businesses, which he has unfettered discretion to do,” said Tony Gagliardi, state director of the NFIB in Colorado.

“Currently, they’re at a level beyond what it costs to regulate the businesses they were meant for and being used to pay for unrelated expenses, which makes them now a tax, not a fee. We are sensitive to the fact that the Legislature is complicit in this, by passing election-related laws forcing the money that comes from fees to be used for other purposes, but this is unconstitutional and needs to stop,” Gagliardi added.

According to the lawsuit, the state collects about $20 million a year from businesses that are required to file certain documents with the state. However, the Secretary of State’s office doesn’t just regulate businesses, it runs elections operations, regulates bingos and raffles and conducts other functions not related to businesses, all of which is funded by the money collected from businesses. The office receives no money from the state general fund.

“As a general legal principle, a fee is intended to defray the costs of a particular government service, while a tax is designed to raise revenues to defray the general expense of government. Unlike a fee, a tax is subject to (Taxpayer Bill of Rights) vote requirement, while a fee is not. Because a significant portion of the business licensing charges are appropriated to defray the department’s and the state’s general expenses, the business licensing charges are a tax and not a fee,” the lawsuit states.

The lawsuit states the business and licensing department within the Secretary of State’s office became too much of a cash cow for lawmakers to resist milking for all its worth. “Businesses file approximately 750,000 corporate documents with the department every year and pay a charge for each filing. Periodic reports are the most common business filings, with 29,000 to 42,000 submitted per month. Currently, the various charges range from $1 to $125 … The total charges from businesses has increased every year. For example, for fiscal year 1990-91, the department collected $4.19 million, and in fiscal year 2013-2014, the department collected $18.69 million, representing an increase of over 400 percent over that time period.”