Colorado likely to make private-letter-ruling program permanent

A worker signs a document electronically.

For 17 years, businesses have been able to ask the Colorado Department of Revenue questions about interpretation of tax statutes and rules that result in binding decisions — a process that financial professionals call extremely helpful in maintaining compliance with state law.

After two committee hearings and debate before the Senate, it appears that their ability to seek these private-letter rulings will continue indefinitely. And businesses should be able to query the department on a wider range of issues as well.

The House Finance Committee voted unanimously on Thursday to make the private-letter-ruling program a permanently allocated facet of state government rather than requiring it to come back every five to seven years for sunset reviews that are required to continue it. The vote on Senate Bill 156 followed unanimous its approval by the Senate on March 13, and it appears headed for House backing next.

Established in 2006, the private-letter-ruling program allows businesses to seek non-binding general-information letters on the state’s interpretation of statutes or to pay for a binding ruling to clarify a specific tax question.

A commonly used program

The revenue department issued 32 rulings and 55 letters between July 2016 and June 2021, according to a sunset review of the program conducted by the Colorado Department of Regulatory Agencies. And an analysis by the nonpartisan Legislative Council said it expects the department to issue between 10 and 30 letters and rulings per year going forward, collecting between $5,000 and $11,000 in revenue doing so.

A standard ruling letter costs $500, while more complex cases carry fees of anywhere from $1,000 to $10,000. Tax experts have said, however, that $1,000 is typically the cap on what they are charged by the state.

The private-letter-rulings are helpful because the department, in recent years, has pulled back on broad guidance it gives on tax policies after having policy positions cited in lawsuits against it, said Rhonda Sparlin, a partner in charge of RubinBrown’s state and local tax services group. The private-letter rulings are a way to get questions answered within 90 days and to be able to move forward on tax issues from there.

With the private-letter-ruling program set to expire later this year, a bipartisan group of legislators pushed not only to have it continue but to make it permanent. Rep. Bob Marshall, the Highlands Ranch Democrat who is sponsoring SB 156 in the House along with Democratic Rep. Marc Snyder of Manitou Springs, said that after nearly two decades without major complaints about the program, this “very useful tool” should be enshrined in state law.

Colorado state Rep. Bob Marshall speaks on the House floor earlier this month.

“We don’t have a tax court here in Colorado, unlike the federal system. So, it’s completely appropriate to have these private-letter rulings,” Marshall told the committee on Thursday. “This is basic vanilla tax-law process.”

New facets to program

In addition to making the program permanent, SB 156, sponsored by Democratic Sen. Chris Kolker of Centennial and Republican Sen. Larry Liston of Colorado Springs, expands the program in a couple of ways.

First, it allows for an extension of the 90-day period for the revenue department to answer the inquiring taxpayer if the taxpayer agrees. Existing law permits the executive director of the department to decline the request for a ruling, and allowing for the extension may lessen the chances of such a decline if the deadline is more flexible for completing a letter that department leaders have agreed to undertake.

The bill also allows the revenue department to issue letters and rulings regarding any tax or fee administered by the department. Previously, the language in the law spoke only of taxes but not of fees.

Rep. Ron Weinberg, R-Loveland, enthusiastically supported SB 156 on Thursday, saying that in a legislative session that’s been marked by tense debate over policies on regulations, housing and health care, he hopes to see more bills like this one that help businesses.

“This bill is amazing, and it’s a great bill,” Weinberg said just before the vote. “Seeing colleagues from the other side of the aisle pass and put into law things that are going to help the free market deserves to be notated.”