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House panel cuts investment tax break
Herald Denver Bureau
For most of the last two decades, the Legislature has granted tax exemptions, but it hasn't had the legal authority to repeal them. A month-old state Supreme Court ruling has changed that situation, and lawmakers have wasted little time in going after revenue for their ailing budget.
On Friday, the House Finance Committee approved House Bill 1366 on a 6-4 vote. It will bring in more than $17 million by 2010 by ending the capital gains exemption.
The panel previously has approved rollbacks of tax credits for cigarettes and food sold from vending machines.
The full House has not yet voted on any of the three bills.
Republicans bristled at the capital-gains bill.
"We don't have any idea about what the economic impact of this bill could be for people who are making investments and they're getting capital gains back," said Rep. Kent Lambert, R-Colorado Springs. "Legislators before us decided this was a good thing for economic stimulus."
A capital gain is the profit made by selling an investment such as stocks or real estate. Colorado offers an income-tax exemption for capital gains earned on Colorado-based assets.
However, a recent U.S. Supreme Court ruling found North Carolina's tax exemptions for local sources violated the U.S. Constitution's Commerce Clause. Colorado lawmakers have wondered when they would be sued for the same thing, but until now, they felt powerless to repeal a tax exemption without going to the voters.
"We were in a bit of a jam, because although our lawyers pretty clearly felt we were violating the U.S. Constitution, we were afraid we would be violating the state constitution," said Rep. Jack Pommer, D-Boulder, who is sponsoring HB 1366.
But the Legislature's lawyers say a March 16 Colorado Supreme Court ruling gives them the power to repeal tax breaks.
The Senate sponsor, Chris Romer of Denver, told his fellow Democrats on Tuesday that he and Pommer would be going after the capital gains exemption.
"Very clearly we have an illegal millionaire's tax exemption for capital gains," Romer said.
Romer wants the savings to go to schools.
Rep. Jerry Frangas, D-Denver, wanted to devote the savings to community health centers, which recently suffered a $15 million cut. But his plan lost on a 5-5 tie. For now, the bill does not say where the added tax money will be spent.
The next stop for the bill is in the full House.
jhanel@durangoherald.com
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