Home Rule Municipalities In Colorado Sue State Over Sales Tax Exemption Law

By Sara Wilson, Colorado Newsline

July 1, 2022

Five home rule municipalities sued the state of Colorado on Friday over a new law they say imposes state control over their taxing authority.

“The authority to levy sales and use taxes to raise revenue is the heart of home rule municipalities and a critical function of municipal operations,” Denver City Attorney Kristin Bronson said in a statement. “HB 22-1024 unlawfully intrudes on the Colorado Constitution, and the residents of home rule municipalities have the full right of self-governance in local and municipal matters.”

Along with Denver, the plaintiffs are Boulder, Commerce City, Pueblo and Westminster.

The state and certain local governments exempt from sales and use taxes construction and building materials related to public schools, among other public works. The new law in question, which Gov. Jared Polis signed in April, extended the exemption of sales tax collection for public school construction materials to home rule cities. Before the law, home rule cities could still levy sales and use taxes on those construction materials.

“For decades, Colorado home rule cities have exercised this power to levy and collect sales and use taxes on goods and services without regard to whether the state levies or collects sales and use taxes on the same goods and services,” the complaint reads.

Denver collects approximately $2 million to $4 million annually in those taxes, according to the complaint filed in Denver District Court. Pueblo collects between $3 million to $4 million annually, and Commerce City collects approximately $1.5 million annually.

The plaintiffs argue that the law, which becomes effective on Aug. 10, violates the state Constitution and that the state Legislature cannot limit home rule municipalities from exercising their power of taxation. They are seeking a court order that will prevent the law from going into effect.

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