In this episode of the SALTovation podcast, we continue our conversation with Legislator Cathy Kipp. Her recent election to the Colorado State Senate marks a significant development in Colorado's tax landscape. Cathy discusses the importance of stakeholder engagement, as tax professionals and legislators work together to simplify the tax system for small businesses. The conversation reveals the frustrations faced by taxpayers and the necessity for clear regulations amidst the state's unique home rule provisions. Kathy sheds light on the collective effort to improve tax compliance and ease the burdens on businesses while navigating the intricate legal framework of Colorado's tax laws.

Key Takeaways:

• The complexities of Colorado's sales tax system present ongoing challenges for small businesses statewide.
• Legislators must engage with stakeholders to simplify tax compliance and improve revenue collection.
• The importance of legislative task forces lies in facilitating discussions among diverse stakeholders.
• Home rule cities in Colorado retain significant authority, complicating uniform sales tax administration efforts.
• Listening to the real stories of small business owners can guide meaningful legislative changes.

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Since we've recorded this episode, we have an update.

Kathy Kip ran for election to the Colorado State Senate to represent District 14.

Congratulations, Kathy.

Welcome to Saltivation.

The Saltivation show is a podcast series featuring the leading voices in SALT where we talk about the issues and strategies to help you make sense of state and local tax.

When I like one of my first days when I started in public accounting almost 20 years ago is our sales tax person just had this giant stack of maps in his office and kind of like junior in college, I'm an intern and whatnot.

I was like, why is he constantly looking at maps?

Like, isn't he like a lawyer?

And it's like, well, because it depends on what side of the street is going to be your sales tax rate.

And he had everything kind of highlighted of like, well, this boundary is here, this is Commerce City.

This is here.

And just had stacks and stacks of maps.

I mean this is almost 20 years ago and kind of there weren't the rooftop rates, there wasn't.

Right.

The GIS system can't even remember.

Judy and maybe if you want to give us a little overview of Colorado's kind of home hold harmless provisions, you know, it was a big deal.

No, it was a huge deal.

Huge deal.

Yeah.

So it was a very important legislation to protect the tax collecting community for sure.

But yeah, no, it was very manual.

A lot of these things were very manual.

Trying to figure it out, not really knowing for sure if you got it right.

Taking extra time to call a jurisdiction to say is this right?

If they had the time and bandwidth to do that internally.

So I knew a lot of larger, larger software and other tech businesses and multi state businesses didn't really live in Colorado.

Like they sold the Coloradans.

They didn't care about that.

They didn't care about the nuances of Colorado.

But what they had was a gotcha because they were applying the state rules to the city issues and not doing the cities at all.

So we had this huge non collection group of humans and you wanted to get those more collectors, you know, in the state of Colorado at the local level.

But they're like, we're not doing it because it's too difficult to figure out the rates and make sure it's right in a, in a mass way.

So I mean I think we've made a lot of progress also with the whole registration, common registration, no registration fees.

I mean that's huge to taxpayers because as you, you were there when I think when they learned it was like 2,000 a year to get all these licenses, 20 bucks here, 30 bucks there, 5 bucks here.

I mean, crazy.

And then to auto renew them every year.

People are just not going to comply with that when they owe $5 in tax or 30, you know, they're not going to do it where it's not material.

They're like, come catch me.

And the governments couldn't catch them.

It was just a bit and a piece here.

And there wasn't only a financial nightmare, it was a logistical nightmare.

Right.

Nobody could just keep track of all the pieces.

No.

Yeah.

So I'm glad something that we've done has been useful because sometimes I feel.

Like a lot it's.

I know pass this legislation and it's like, so have we made your lives any easier?

That's my question.

We're still having some issues with SATs, I will tell you, but that's more of a connection issue on the back end.

So some Aurora is a great example.

They're like, they just can't get some of the.

But the information being fed through suds to jive with their system.

They play suds.

Suds blames Aurora.

It's like funny, but it's like it's going somewhere.

But it's funny who can and can't do it.

Like, we had a recent one.

What city was it?

It was an itty bitty little CD call city.

Like, oh yeah, I see it all set up because we definitely have a transition between I'm licensed in Aurora, I want to convert it to suds and there's not a matching somehow where there's a little bit of an extra step that's time consuming and annoying to like make suts work.

But like it's come so far from where it was even when we started.

So I feel like, you know, you gotta say there's progress because if we didn't have that, we'd be still talking today about these crazy cities that we can't comply in.

Now at least we can.

That's there's hope.

And I think there's just a lot of sets kind of takes the brunt of and is kind of the representative for all things that are happening with Colorado sales tax.

And if it is a difficult system to navigate or whatnot, that's what non Colorado taxpayers see.

So when we talk to tax professionals who aren't in Colorado, they're around the country.

They're like, sets is impossible.

We don't understand all of these things.

And so it is easy to kind of have that perception that, like, well, what is this simplification task force doing?

Because the larger thing that the nation sees doesn't totally work.

But there's all of these other smaller things that are happening internally that are huge wins and those, oh, yeah, we need to get those out more.

So it's not just, well, no one likes sets.

And so Colorado's still all messed up.

It's like, we are trying.

Things are happening.

So, yeah, for our non Colorado listeners, things are happening and we are trying.

We are trying.

And it takes a village to make it happen.

People.

People don't understand that.

It's just a system issue.

So I was in Michigan.

Do you know they have a ton of jurisdictions, but they have a very different set of sales tax laws and they're not allowed to increase their rate.

6.

That's crazy.

That's crazy.

Long time.

The world has changed since then.

So that's a problem with the way they've set their system up.

You know, so it's all relative to the state.

But you can say that here in Colorado, a lot of our problem stems from stuff that we have in our state constitution, right.

That says that, you know, home rule has the.

Has these rights and they can do different stuff.

And so unless it's a matter of statewide control concern, then we aren't allowed to do things and mandate that, you know, home rule system.

So there's a lot more carrots and sticks involved in this space.

And.

But I think hopefully we all have the goal of trying to get to the point where we can make it easier for everybody.

Yeah, I think it's interesting that things are in our constitution, though.

We, I mean, every time you get a vote, we gotta vote something to the constitution.

My husband's like, I just have a rule.

I don't want our constitution to get bigger.

But it's like the only way to get things on there to get make change.

I'm like, why can't we make statutes?

Well, and we can, except there's all this stuff in there already, right?

And so, I mean, so this, the state of Colorado, the legislature, and anything that has a letter on it on your ballot instead of a number this year, anything with letters on it, those are things that we, as the legislature referred to the ballot.

And we aren't going to put stuff in the constitution generally unless we really think that it's important or there's no other way to do it.

Right.

So, like, we're.

Well, anyway, you don't need to go into this election.

But there's.

But there's a lot there.

And we.

I think there were six different constitutional amendments.

Yes, there was a decent amount.

Yeah.

So it's a lot.

And then you're like, well, I like the law, but do I want it in my Constitution?

Right.

But some of the.

I think one of them at least is taking stuff out of the Constitution this year.

So that's something.

Yeah.

Well.

And so what do you see as the biggest unresolved kind of challenge in the sales and use tax administration in Colorado?

And are there any particular areas that you think kind of future legislative efforts should focus on kind of that remediation?

Those are great questions.

So I guess two things there.

First, you know, the committee.

There were conversations this year about ending the committee because it's like, well, has it come to its end?

Should we just put that elsewhere?

And to my mind, I'm not convinced that we're done until we have achieved the goal where this is easier to use.

And we're still, I don't think there yet.

So.

But for me, I can't tell you, I have to ask people like you guys, well, how are we doing?

What is the next thing that we should be looking at every year?

Because you guys are the experts.

I always tell everybody I'm a legislator.

I am like a mile wide and an inch deep, and occasionally I get deeper here and there and I learn more.

Learned a lot about taxes since I've been here, but I don't do them.

I'm not on the ground like you guys are, to be able to say, well, yeah, you guys did this over here, but we need you to do this next thing over here.

What we need you guys for is to say, hey, this still isn't working.

Well, this is the next thing we think that you need to do.

Or, oh, everything's working fine now.

We think you can dissolve the committee and go home.

That would be great, But I don't think we're quite there yet.

So I really.

I think it's up to you guys to tell me as.

Or any legislators on that committee or any legislators in the legislature what you think is the status of things and where you think the next.

What we should do next.

Yeah, because that's what I felt pretty stressed that we were going to maybe stop it because what I thought was good about this is the conversation.

Stakeholders are there.

We're making sure it happens.

There's a Mandate.

Right.

Because we have a task force.

We all need to come together and talk about what we're learning and how we could continue to make it better.

And I know people feel a little pressure and stress that they're like, ah, we're trying.

Poor Josh Pens gets beat up a lot.

But that's the way it goes.

We gotta do it.

So I don't know.

I feel like it's a tool and a vehicle to have the conversation, to have a record, to bring the stakeholders together in a regular and concentrated way to advance the balloon.

And you gotta do it.

If you don't make a point and mandate and.

Or discuss, you don't.

It doesn't.

You don't get it done, which is why we didn't even have this.

All these years I've been practicing, people said this could never get done, and I've been practicing 30 years.

There's also a viewpoint that was expressed by one of the groups that the committee is just a roadblock that's putting up roadblocks every time we get together every summer and do stuff.

And it's like, well, okay, so how would you propose going and making progress?

I mean, you could go and advocate for different bills through various legislators, but that's not a cohesive way of approaching it.

I don't think so.

I.

Yeah, you're siloing it.

Instead of bringing the discourse to a common set of potential people could resolve it.

Well, and you guys are all experts.

You know, this is one of the committees where the task force means that we have.

It's more than just legislators.

And you don't want just legislators because again, I don't do your job.

And I couldn't tell you the next thing that we should be doing without your input.

Well, even the experts we have in the cities and the counties, they have kind of their own view of how things get done.

Right.

They're like, well, this works for us and this doesn't work, you know, So, I mean, I know there was a lot of people threatened by it in the very beginning, like, but it's.

I feel like there's been a ton of collegiality created through the process and ammunition or momentum towards Denver especially.

Like, we're good.

We're going to do it.

We're fine.

We're going to set the standard.

We're probably the biggest city in the state.

We're good with this.

We're going to make it work.

We're going to dedicate resources to make this work for the state.

So having that example Just ripple effect across the state.

Well, and I wonder how many maybe jurisdictions thought that the whole kind of secret initiative of the task force was to remove kind of the constitutional ability for home rule cities.

Right.

Where it's like, well, we've been get.

We've been kind of granted or, you know, we have this authority to do what we want.

And the easiest way to simplify Colorado sales tax is to get rid of home rules.

Let's be honest.

Right.

And so I would imagine there's a lot of potential fear that you're going to have this giant coalition of people that want to simplify this and get rid of, you know, those cities authority to do what they want and have, you know.

So I wonder if maybe that was a lot profile.

They all the cities have like zoning and I mean they have stuff.

They just don't have taxes that are different than the state.

That's the problem.

They have a tax base and a lot of the other cities have a tax base.

It just follows the states and they get the taxes that way.

It's not like they're not getting taxes.

Right.

Home rules are one of those things that's in the state constitution.

You're not getting rid of home rules, you're not getting rid of their authority.

But there are places where it is important for the state to be able to set a baseline and then everybody operates from that as the floor.

So that you have a little bit of consistency.

Well, I think Paul Archer and Kathleen Conti actually worked on getting the simplified definitions at the cities, which I didn't realize that was their impetus.

Like define things the same way, please.

Tax them differently, but tell us what they are so we can consistently know that's what you mean.

So that was a herculean effort because everybody just made statutes over the years of ordinances to tax things or not and define it the way they defined it.

So one city didn't define things the same way as the state nor as the other city.

So because they would take an example from one city and then they modify it for themselves, that makes it very difficult to comply with.

And frankly for me to advise people on.

I don't even have a matrix out there that I can pull all the cities, how they handle things.

I have a situation now with a car wash.

Some cities tax car washes if it's manual versus automatic or automatic versus manual.

Some cities don't even address it.

So is it taxable or not?

I mean, things like that are like, I just want to comply, tell me what to do.

But Your laws aren't clear enough for me to comply with them.

That's make it harder.

And let's just tax services too and make it really complicated.

Oh, I'm sorry, maybe that wasn't the way you wanted to go.

There are states that do, South Dakota, Connecticut, Hawaii, West Virginia, I mean they.

Have a broad based tax.

New Mexico.

Right.

So gross receipts tax.

So it does exist.

Yeah.

It's an interesting issue in making every transaction a taxable item no matter what you do in commerce.

It's like the vat.

Right.

And then there's some refund thing.

I don't even know how really how that all works, but it's high.

It's like 17% too.

The bats.

You're likely not going to be in this role forever.

Right.

And so what advice would you give to the next person who takes over your seat on this committee or even a new kind of colleague that's coming in, you know, as kind of a representative from each party, from each chamber to ensure that kind of this momentum continues and you know, things continue to move forward?

Well, I would say listen to people and listen to the stories because I think that making sure that you hear the stories that people are telling you so that you don't think that things are just all hunky dory, right?

Oh, well, that's just the way government works.

It's always been like that.

It's going to be that way forever.

No, you have to think about things.

It's like, because, I mean, and actually, you know, if you aren't, if you talking to people who aren't legislators, sometimes you get that kind of response.

Oh, well, this is just the way it is.

It's like, well, okay, but why is it that way?

Is it that way because a statute, Is it that way because people just do it that way?

Is it people?

Is that in the state constitution?

Is it federal?

Which we can't do anything about.

Where is the level of the problem so that we can address it?

But I think once you start hearing how complicated our system has been and how onerous and time consuming it has been for, for so many of our small business people, we wanna support our small business people here in Colorado, right?

People are like, democrats don't support small business people.

It's like, no, I think we really are trying to do that.

And I think this is one of those areas where Democrats, Republicans, whoever you are, come together and say we want this to work for the people in our communities.

And so, and I don't think you're gonna have too hard of a time.

I think the person who I believe is likely to win, for instance, my seat in the House is a tax attorney.

She might very well be interested in coming and serving on this kind of committee.

Oh, I don't know who this is.

I don't pay attention to all these things.

Well, you wouldn't know at this point, but yeah, okay.

But yeah, we can talk.

I love that people speak tax.

Yeah, well.

And well, Bob Marshall is already a tax attorney.

He's got a really tight seat.

Seat.

I don't know if he'll be back for sure.

So he might be interested.

But Yara Zokaye, who is likely to win the seat that I am leaving to go run for the Senate.

And we'll, we'll know by tomorrow.

Yeah, but what, what I usually find with the tax attorneys that I associate with because I'm on the Colorado Bar Tax Committee, they're like estate and gift attorneys.

They do federal structure planning.

They don't do state and local or they'll file, you know, federal estate return, but they don't understand sales tax.

Like, there's a big dichotomy between the actual minutia estate and local tax filings and the federal tax system.

So.

And that's the big kahuna.

Right.

But when.

What I found in my career is that this tiny little transaction based tax is huge for business.

Because if you have a million dollar business and anything's taxable, that's $80,000 of risk you need to protect yourself against.

If you need to collect it from your customer and you don't.

So 80,000 is a lot of money.

It's probably more tax than they're paying per year that they need to collect.

And it's, it's a problem for business to have that kind of responsibility.

If somebody like me, who's not a tax attorney can figure this out, I imagine even if it's not their specialty, regular tax attorney can figure it out.

And Yara is, by the way, involved in state and local taxes in the sense that she is currently our deputy.

Assessor for the property taxes.

Yeah, that's an interesting area of tax, too.

There you go.

Yeah.

Well, and what's interesting about that is Judy and I were at the kind of open meeting when Colorado went to like destination based sourcing.

And I don't think we will ever forget one, the amount of people that were in that room from all over the state that were just like, hey, from a small business perspective, it's not possible for me to do this The.

Especially if you have to kind of.

It's a significant change going from kind of like one jurisdiction completely kind of changing the Colorado tax return, which would be my vote to simplify, like just Colorado sales tax return, because there's a lot of stuff in there, and I have filed a lot of those returns.

And even I'm like, it's not right, but I can't tell.

And this is the best information I have.

So as a state and local tax practitioner for 20 years, sometimes I can't even fill out that return anyway.

But that's just like that there is kind of that power in the.

In the hearing from those that are on the ground doing the work.

Right.

Because, you know, Joe tax attorney isn't filing a Colorado sales tax return monthly to report all this stuff.

They've never filed a Colorado sales tax return in their life.

They have no idea what they're doing.

And so it is truly the people to get the feedback who are doing the work that are really going to push forward change.

And, you know, with all of those people in the room, the state responded and they kind of pushed back the kind of the start date of the reporting.

So kind of there was like hundreds of people in this room.

I mean, people were crying.

The line was huge to talk to.

I think Josh was there.

It was.

It was surreal.

Like, it was heartbreaking, honestly, like, how sad and stressed these people were.

I don't.

You don't want to go into business and feel that way.

Like it was.

So the state heard them and tried.

So that's a good thing.

That's good.

But, you know, and obviously you guys found Tracy Kraft Tharp, Kevin Van Winkle and those people who were wanting to take this cause on, because I think those were.

Weren't they both founding members of this group?

I believe.

I think you're right.

I think Kevin Van Winkle was.

You're right.

I forgot.

I mean, Tracy's the one I remember the most, but.

Yeah, right.

But I mean, now that.

Well, and Kevin is running for county commissioner, so he will, I would say, likely not be in the legislature after the election for too much longer.

So that means that you are going to get new people.

But what I guess I would think is more important is to consider all of you guys as each of everybody in your tax community who wants to see change.

You all have people in your house who represent you and people in the Senate who represent you.

So reach out to those people and tell them your stories and tell them why it's important, because you're going to get somebody like me who's going to say, wow, why is this so hard?

And this shouldn't be so hard, and what can we do to make it better and easier?

Because that's why we're there.

And so, I mean, really, I think for you guys to be able to tell your stories to people like me, because you're not going to get people who are deep in the weeds and know everything that you do.

So being able to tell that story to people, I think is just really important.

I mean, something we do a lot in the legislature as an example, is we have these things called fact sheets.

And usually there's a fact sheet for a bill, but maybe if there's, you know, we want to talk to somebody, you know, make a little fact sheet and say, this is what it takes to do this in Colorado.

This is what it would take to do it in another state.

This is the amount of time, resources, money it's taking your small businesses in Colorado to comply with the law.

And don't you want the law complied with because that means that you're going to have more revenue to do work with, Right?

Correct.

Well, and Kathy, I think that's the perfect spot to end, the perfect call to action.

And so thank you so much for joining us on the Saltifation podcast.

It is for those listeners.

This will come out after the day, but today is election day, and so there is a lot happening.

And, you know, again, thank you for sharing your time with us.

We really appreciate it.

And it just says that grassroots efforts make a difference and volunteerism is real and unpaid but highly valuable.

And you can make a huge difference in the world you live in.

So thank you for that and your family for making that sacrifice so that you could do it.

Well now, thank you guys for all you do to try and put us into a better place to.

Because what you're doing is really volunteering a lot of your time to try and make the whole system easier for all of those small businesses in Colorado.

Right.

Everybody's got their sort of little niche in the world, and you being able to bring it and share it with people like me is what will create change.

Yeah.

And I don't want to make money doing this.

It's not fun for me.

I want them to comply.

I want to make money helping them comply, and then I'm happy.

Help lots of people do it and not have this fighting all the time.

Like, I don't want to do it.

I'm like, yeah, well, you really should.

You're going to get in trouble.

Well, so what I need from you guys then is to hear what are the next steps that we should be making as a group?

Right.

What do you think is left for us to do?

We're going to, you know, didn't do a whole lot of legislation that we're passing on this year, but I think it'll be really interesting to come back next year when the things have had time to settle in a little bit and see are we in a better place and what should be done next.

Yeah, to see more people in the system would be awesome.

We're working on getting a bunch of our clients in it and we are having some problems, but it's not universal.

It's just a bit and a piece.

We'll have even more examples of like, okay, let's how can we fix this?

Like, how do we get this to work?

You know, that kind of stuff.

Well, thank you again.

And this has been saltivation.

Until next time.

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