Colorado Small Business and the Terrible, Horrible, No Good, Very Bad 2022 Legislative Session

Colorado Small Business and the

Terrible, Horrible, No Good, Very Bad 2022 Legislative Session

BY NATALIE ROONEY

Tony Gagliardi, Colorado state director for the National Federation of Independent Business (NFIB), sums up Colorado’s 2022 legislative session in two sentences: “It was horrible. Stand by for next year.”

Gagliardi, who has served in his role since 2005, says he can’t ever recall a session like 2022. “It goes to show how little legislators understand that small businesses aren’t just smaller versions of big business. When you try a one-size-fits-all regulatory package and environment, you’re going to do more harm than good, and I guarantee it’s the small business owner that will be harmed long before big business.”

A Big Deal for Small Business

Most big businesses have in-house legal teams and HR departments to monitor and address proposed regulations. But as CPAs who have small business clients know, the owner is typically serving as everything from accountant, HR manager, and janitor to fleet maintenance crew. “That’s what our legislators can’t seem to understand,” Gagliardi says. Gagliardi reviews here some of the most critical bills passed in 2021 and 2022 that will impact small business.

Concerning the Sustainability of the Transportation System in

Colorado (Senate Bill 21-260): The Act creates new sources of dedicated funding and new state enterprises to preserve, improve, and expand existing transportation infrastructure; develops modernized infrastructure needed to support the widespread adoption of electric motor vehicles; and mitigates environmental and health impacts of transportation system use. A “NO” vote supported the

NFIB position. Passed the Senate 20-15-0-0. Passed the House 41-24. Signed by the governor. More information: https://tax.colorado.gov/retail-delivery-fee.

SB 21-260 is loaded with fees, including the recently implemented 27-cent retail delivery fee on all deliveries by motor vehicle to a location in Colorado with at least one item of tangible personal property subject to state sales or use tax. The retailer or marketplace facilitator that collects the sales or use tax on the tangible personal property sold and delivered, including delivery by a third party, is liable to collect and remit the retail delivery fee. Deliveries include when any taxable goods are mailed, shipped, or otherwise delivered by motor vehicle to a purchaser in Colorado. Gagliardi says: “The transportation bill is a boondoggle we’ll live to regret. It does little for transportation at a time when our roads are a mess. I’ve been advising (NFIB) members for a long time to visit the Colorado Department of Revenue (CDOR) website to learn about this bill and its implementation. The plan is to use the revenue for multimodal transportation with an emphasis on bike lanes and light rail when Colorado just isn’t designed for it. We’ve got to get away from all or nothing thinking when it comes to fossil fuels versus renewables. I’d love to see renewables, but you can’t just stop fossil fuels because we don’t have the capacity on the electrical grids.” Management of Plastics Products (House Bill 21-1162): The Act prohibits stores and retail food establishments from providing single-use plastic carryout bags to customers. The bill does not apply to retail food establishments that operate solely in Colorado and have three or fewer locations. A “NO” vote supported the NFIB position. Passed the House 40-23-2-0-0. Passed the Senate 20-14. Signed by the governor.

More information: https://leg.colorado.gov/bills/hb21-1162. Under current law, local governments are prohibited from requiring or banning the use or sale of specific types of plastic materials or products. The Act repeals the prohibition on July 1, 2024. Gagliardi says: “When products become more expensive, eventually the costs will be passed along to consumers. When we tell legislators that bills will impact costs, they respond by telling us to raise prices. That truly shows how little legislators understand about how business works. When my cost of goods goes up, I can only accept so much, and then I have to pass that cost along to the consumer. The selling price in a lot of cases is dictated by my competition. If I’m selling the same widget, and someone is selling it for $1 less, I won’t sell as much. It’s a challenge.”

Producer Responsibility Program for Recycling (House Bill 22-1355):

The Act creates the producer responsibility program for a statewide recycling advisory board and instructs the Colorado Department of Public Health and Environment (CDPHE) to implement and manage a recycling program beginning in 2023. Covered materials include packaging materials and paper products sold or distributed in the state. A “NO” vote supported the NFIB position. Passed the House 38-27-0. Passed the Senate 21-14. Signed by the governor.

More information: https://leg.colorado.gov/bills/hb22-1355. On or before June 1, 2023, the executive director of CDPHE must designate a nonprofit organization to implement and manage a statewide program that provides recycling services to covered entities in the state, which are defined as residences, public places, small businesses, schools, hospitality locations, and state and local government buildings. The program is funded by annual dues paid by producers of products that use covered materials. Covered materials are defined as packaging materials and paper products. Gagliardi says: “Implementation is happening in 2023 – that’s soon – and will include any packaging materials and paper products sold or distributed. It will be overseen by a nonprofit group that hasn’t been set up yet and comes with a number of constitutional issues including being forced to pay dues to a group you may or may not wish to be a part of. This is an example of ‘let’s pass this now, and we’ll just figure out the details later.’” Restrictive Employment Agreements (House Bill 22-1317): The Act prohibits the use of “restrictive employment agreements” such as non-compete and non-disclosure agreements, unless the employee was classified as a highly paid worker and earning above $101,250 per year set by the Colorado Department of Labor. That threshold would preclude a business from having noncompetition restrictions against managers and professional staff who are well-paid, and not low-wage workers, but make less than that high amount— and against whom a business should be able to enforce the restrictions. The Act makes protection of customer private information and certain business practices difficult to maintain. A “NO” vote supported the NFIB position. Passed the House 40-21. Passed the Senate 20-15. Signed by the governor.

More information: https://leg.colorado.gov/bills/hb22-1317. HB 22-1317 attempts to restrict the use of Restrictive Employment Agreements. Under current law, a noncompetition restriction cannot be enforced against a worker who isn’t “executive and management personnel.” The Act allows the Department of Labor to determine at which level of compensation a noncompetition agreement could be enforced. These restrictions can impede protections taken by employers to prevent the theft of customer and vendor files. Gagliardi says: “Depending on how large a firm is, whether it’s accounting, law, manufacturing, or high tech, the bill really restricts the use of non-compete contracts and non-disclosure agreements, which NFIB is very much against. If I have a small, high-tech startup with a handful of employees, they may be earning $30,000 to $40,000 a year but also earning stock options. If one quits and goes to work for another startup, there’s nothing to prevent him or her from taking my customer or vendor lists. Anyone dealing with customer lists, including CPA firms, will want to protect that list. Your customers expect you to protect their data.” Wage Theft Employee Misclassification (Senate Bill 22-161): The Act updates and modifies laws pertaining to the payment of wages, employee misclassification, and workplace safety. A “NO” vote supported the NFIB position. Passed the Senate 20-15. Passed the House 41-24. Signed by the governor.

More information: https://leg.colorado.gov/bills/sb22-161. Gagliardi says: “Employers need to be careful and work closely with professionals to determine what is an independent contractor. You can be charged with wage theft for misclassifying because you’re not paying unemployment taxes if you classify someone as an independent contractor.”

The News Isn’t All Bad

Some 2022 legislation works in favor of Colorado’s small business interests:

Sales Tax Destination Sourcing Rules Exception (House Bill

22-1027): The Act extends the small retailer exception to the sales and use tax destination sourcing rules. A “YES” vote supported the NFIB position. Passed the House 64-0. Passed the Senate 33-0. Signed by the governor.

More information: https://tax.colorado.gov/transition-to-destination-sourcing. Gagliardi says: “The bill extended until Oct. 1, 2022, the time for small retailers to begin using the sales-and-use-tax destination-sourcing rules. The rules initially were established by the Colorado Department of Revenue in reaction to the U.S. Supreme Court’s South Dakota v. Wayfair decision, which stipulated businesses collect sales taxes at the point of delivery rather than the point of sale. This extension allows small businesses to make the necessary preparations to implement available software-enabling compliance.” The SALT Parity Act (Senate Bill 22-124): The SALT Parity Act, enacted in 2021, allows pass-through entities to elect to pay state income tax at the entity level, which allows the entity to claim an unlimited deduction at the federal level for state and local taxes paid. While this election reduces federal taxable income for the pass-through entity, it does not reduce or increase Colorado’s taxable income under current law. A “YES” vote supported the NFIB position. Passed the Senate 33-0. Passed the House 62-3. Signed by the governor. More information: https://leg.colorado.gov/bills/sb22-124.

CONTINUED FROM PAGE 25

The Act converts the state income tax deductions created to keep state revenue neutrality into a tax credit and makes provisions of the "SALT Parity Act" retroactive to Jan. 1, 2018. An S corporation or a partnership must make the retroactive election on or after Sept. 1, 2023, but before July 1, 2024, in a composite amended tax return for all of the years for which the election is made that is filed on behalf of the S corporation or partnership and the electing pass-through entity owners. Gagliardi says: “The Act gives businesses that choose to do so a workaround the federal cap on state and local tax (SALT) deductions. As of Jan. 1, 2022, the Colorado Act allows a pass-through entity to elect to be taxed at the entity level, which permits business income to be taxed to the entity itself rather than to individual owners. Prior to SB 22-124, this option was only available to C-Corps. (See the related information beginning on page 28.) SALT parity puts everybody on a level playing field when they file their taxes if you’re a small business. Without this, small businesses lose a good portion of the small business deduction because they can only take a 20 percent maximum per the state. Now, with SALT parity, a small business can claim on the state return the same way it does on the federal return.”

GET REGISTERED, BE INFORMED

A lot of legislation impacting Colorado’s small businesses went down in 2022. Gagliardi encourages CPAs to register with various state agencies to receive notifications on legislation impacting their clients. He recommends starting with the Colorado Department of Revenue (CDOR), the Secretary of State’s office, the Department of Regulatory Agencies (DORA), and the Colorado Department of Labor and Employment (CDLE). Gagliardi also encourages CPAs to have their clients sign up for notifications of rule changes, as well, especially with the Family Medical and Leave Act (FMLA) implementation taking effect in 2023. “Small businesses need to be aware of the rulemaking process,” he says. “These things move very quickly. By signing up for notifications, they’re made aware when something is changing, can submit comments, and testify on rule changes, in addition to following what the legislature does each January through May.”

SEE HOW THEY VOTED

At the end of the 2022 legislative session, the Colorado NFIB created a Voting Record to help small businesses evaluate a legislator’s attitudes toward small business. View the 2022 summary at:

https://assets.nfib.com/nfibcom/ Colorado-Voting-Record-21-22.pdf.