Tax-Free Colorado: An idea whose time has come
No one escapes the taxman completely, but “Tax-Free Colorado” is more than just a marketing slogan. It’s a device to lift up communities in the state displaying genuine, measurable signs of economic distress.
Here is how it would work:
It creates a tax-free environment for qualifying start-ups and expanding businesses. Qualifying businesses locating within an approved tax-free zone may operate for up to 10 years free of sales taxes, property taxes, business taxes, corporate taxes and franchise fees. Employees of these companies will pay no state income tax. It also incorporates a relationship with academic institutions that will host these new businesses.
There are, however, strict rules. For starters, applying communities must meet certain criteria of economic non-performance, such as: (1) Per capita income 20 percent below the state average, (2) Growth of local GDP 20 percent below the state average over the preceding five-year period, (3) Unemployment 20 percent above the state average more than three years, (4) A net loss of workforce measured over three years, and (5) Disproportionately high rates of citizens on public assistance.
This immediately rules out much of the Front Range. Though should the economic rug ever be pulled out from under Boulder County, for example, the Tax-Free Colorado program would be available to them.
Next, the program excludes retail, restaurants, doctors offices, accounting firms, law firms, financial services, real estate brokers, utilities, etc. Successful applicants will actually need to make something: software developers, medical device manufacturers, advanced industry, aviation, food sciences/processing, machining, biotech and life sciences and other technology-related companies.
Businesses in the program cannot be in direct competition with other businesses in the state. This is tricky, though, because some companies, Apple and Google for example, choose to locate near each other because they are complementary, not directly competitive even though they offer products that compete. An oversight commission would make such a conflict/complement determination under Tax-Free Colorado.
Finally, and this may be the most important criterion of all, the companies in the program must bring “net new jobs” to the state. That means a job meeting the following requirements:
■ is new to the state;
■ has not been transferred from employment with another business located in this state;
■ is not filled by an individual employed within the state within the immediately preceding 60 months;
■ is either a full-time wage-paying job or equivalent to a full-time wage-paying; and
■ is filled for more than six months.
The “net new job” requirement is vital because it protects against the argument that this program will diminish the local tax base when companies are accepted into the program. Moreover, new workers to the community will buy homes, cars, groceries, etc. — on which they will pay taxes like the rest of us.
As a further protection, local governments must agree to become part of the program and forgo specified tax receipts for 10 years. There are no gotchas.
Businesses and industries seeking inclusion in the program must align with a college or university’s academic mission in a qualifying community. There are a number of benefits to this requirement. Not only will it potentially enhance the programming, faculty, research funding and capabilities of the college or university, but it’s a way to retain graduates that would otherwise leak to Denver or out of state. The potential for workforce training and experiential learning opportunities is enormous.
As an additional local control feature, four-year or two-year universities or colleges will establish their own program participation policies for interested businesses.
In the end, the rules and restrictions significantly narrow the number of businesses that can successfully enter the program. But the businesses that do qualify are the kinds of job-creating businesses that have spillover benefits. Some jobs create more jobs. Those are the ones we want to attract to the struggling communities of the state.
Tax-Free Colorado is no panacea. If I have learned one thing about economic development, it’s that there are no hail mary touchdown pass plays. It’s all about blocking and tackling – doing the little things to advance the ball down the field.
Tax-Free Colorado is a solid, wrap-up tackle. It’s one thing among many this community needs to reverse its sagging fortunes. Aside from the fact that the program is revenue-neutral in terms of costs to taxpayers, there are three significant benefits in my view:
1. It allows struggling communities to develop a better workforce, either through business attraction or retention of the performing graduates of our colleges and universities;
2. It will bring new businesses to these communities. When the economic pie grows, we all get a bigger slice. That’s the main purpose.
3. Finally, it’s a helluva marketing theme. Consider that General Motors brands vehicles around the name “Colorado.” Those of us who were not born in this state dreamed about someday living in Colorado. It’s easy to forget how lucky we are to live here. Now, combine the favored term “Colorado” with another set of favorite words: “tax-free.”
But, it’s just a play on the chalkboard until the Legislature laces up and gets in the game.