Colorado voters added the Taxpayer’s Bill of Rights to their state constitution to ensure voter approval of all state and local tax increases. Government frequently attempts to dodge this provision by characterizing charges as “fees,” which do not require voter approval. The difference between a tax and a fee is that a fee defrays the cost of providing a service and a tax does not. Less than 15% of Colorado’s business and licensing charges are dedicated to drefraying the cost of operating the Business and Licensing Division of the Department of State; the vast majority subsidizes general services. The National Federation of Independent Business sued to invalidate the charge as a tax that was enacted without voter approval. PLF filed a brief in support of the challenge.
The Colorado Department of State requires companies to pay a business and licensing charge for filing various statutorily mandated corporate documents. The government considers this charge to be a “fee” that does not require voter approval. However, more than 85% of the business and licensing charges go to the Department’s Cash Fund, and less than 15% of the Fund is used to defray the cost of operating the Business and Licensing Division. Because most of the money raised from the business and licensing charge subsidizes the Department of State’s general services, it has the hallmark of a tax, and therefore should be put before the voters for approval. The National Federation of Independent Business challenged the unilateral imposition of this charge and PLF filed an amicus brief supporting the lawsuit, arguing that the courts should give effect to voter intent by presuming that the voter-approval provision applies to government charges.
Colorado courts examine three factors to determine whether a charge is a tax or fee: (1) the language of the enabling statute; (2) the primary purpose for which the money is raised; and (3) whether the primary purpose of the charge is to defray the cost of services for those who must pay it. However, the courts have not come up with a clear methodology as to how to consider the factors in this balancing test. PLF’s brief argues that Colorado courts should give strongest consideration to the third factor—whether the charge is meant to defray the cost of providing a service to those who must pay it—and de-emphasize the first factor which considers the label given to the charge. Indeed, when courts give too much weight to the government’s characterization, governments will have a perverse incentive to mislabel charges to avoid the constitutional requirement of voter approval.