Gov. Jared Polis on Thursday signed a law prohibiting third-party auditors from sharing information about companies that they learn while doing their work, but it remains to be seen exactly how much the bill will prevent business-hated “trigger audits.”
Senate Bill 46 sprang from the frustrations expressed by several businesses that they’ve found themselves in recent years being audited by as many as two dozen Colorado cities at once, sometimes in a cycle that repeats every three years. In those cases, a contracted third-party auditor conducts financial investigations on behalf of municipalities that don’t have resources to delve themselves into companies selling goods within their boundaries and ensure they are licensed and reporting taxable sales.
Almost all those audits are done by Revenue Recovery Group of Baton Rouge, Louisiana — a firm that told the Sales and Use Tax Simplification Task Force that it’s conducted 11,200 audits in Colorado in the past 28 years. The company’s founder said that he solicits cities before beginning an audit of a company doing business within their borders and does not share information with other prospective clients after the investigation begins.
Fear that information from audits is shared
Businesses and tax professionals involved in the organization Simplify Colorado Sales Tax said, however, that they’re worried such third-party auditors are using their information to get work from more cities, particularly as RRG refuses to sign non-disclosure agreements. And they pushed for significant deterrents on such behavior, including creation of a right of private action against contracted auditors found to have violated the law and a five-year ban on local re-audits of companies that achieved clean audits.
What the SUTS Task Force recommended, which became SB 46, was a much more conservative approach to barring the sharing of confidential information that is gleaned from audits. The bill from Democratic Sens. Jeff Bridges of Greenwood Village and Cathy Kipp of Fort Collins requires third-party auditors maintain confidentiality of any information they find, with violations punishable as a misdemeanor and subject to fines of $1,000.
Simplify Colorado member Judy Vorndran, state and local tax partner with TaxOps LLC, said after the bill was drawn up that it lacked teeth, and members of the coalition worked to see if there was a way to strengthen it as it moved quickly through the legislative process. They fell back on a strategy, however, of passing SB 46 as is — it received only one “no” vote in the two legislative chambers — and going back to the SUTS task force this summer to discuss bolstering its enforcement provisions.
Budget shortfall plays role in debate
That strategy ended, however, with the March 5 introduction of SB 199, which stops 10 interim committees, including the SUTS task force, from meeting after the 2025 session in order to save money as the state tries to close a $1.2 billion budget shortfall. SB 199 passed the Senate unanimously and is awaiting debate in the House.
As such, businesses seeking relief from these trigger audits — relief that is needed because a typical audit costs a business $100,000 in time and in penalties, meaning that multiple audits can add up quickly, Vorndran said — must settle for now for the new law. SB 46 takes effect on July 1.
Matthew Groves, the CEO of the Colorado Automobile Dealers Association and the current chairman of Simplify Colorado, said Friday that after all the talk about what the bill could have been, he believes the final product still sends a strong message. And that message is likely to be received not only by third-party auditors but by the cities that use them, he said.
The debate over these batch audits, which have been allowed under state law for about 45 years, brought a new spotlight to potential abuses that hadn’t been shone on them before, Groves said in an interview. While the average Colorado resident isn’t likely to raise a fuss about audit abuse, both cities and the third-party auditors now know that legislators are willing to take some steps to curb it and could consider doing more if businesses continue to complain, he said.
“Draw attention to something that no one knew”
That said, Groves added that he believes the months of discussion that lead to SB 46 becoming law will deter future abuses — violations that the main third-party auditor contracted by cities already denies committing. And if there is no slowdown in the number of trigger audits that businesses see, then Simplify Colorado members know they can go to legislators even without the existence of the SUTS task force to get more help, he said.
“I think it will definitely draw attention to something that no one knew was going on that was a significant drag on businesses and their ability to do business,” Groves said of what he called a “big deal” bill. “We’re also trying to make municipalities take ownership of their auditing contractors.”
Municipalities had been the primary group pushing back against the wide-ranging bill that Simplify Colorado originally pushed, saying local-control rules do not allow the state to limit how often audits can be done and can’t get in the way of cities enforcing their laws. But at the Jan. 28 hearing of the Senate Finance Committee, Colorado Municipal League Legislative & Policy Advocate Elizabeth Haskell said her organization supported SB 46 even though it believes the standards it requires already are in place.
“By doing so, we can ensure trust and transparency for the auditing process,” Haskell said.