The Colorado Court of Appeals recently held that a statutory tax rate increase was prohibited pursuant to the Colorado Taxpayer’s Bill of Rights (TABOR), despite a state Attorney General’s opinion upholding its constitutionality. Colorado Mining Association v. Huber, ___ P.3d ___, 2010 WL 547638 (Ct. App. 2010). The lower court had determined that the statutory adjustment to the coal severance tax rate was neither a “tax rate increase” nor a “tax policy change” and thus was not covered by TABOR. The Court of Appeals reversed, holding that a statutory formula requiring a tax increase was prohibited without the TABOR-prescribed voter approval even though the statute was in effect prior to the adoption of TABOR.

The statute at issue (C.R.S. § 39-29- 106(5)) was enacted in 1977 and imposed a tax on the “severance” of coal from the earth. Rather than directly imposing a tax rate, the statute set forth a formula requiring that for every one and one-half percent change in the producer price index, the severance tax rate shall be adjusted by one percent. When the TABOR amendment to the constitution was added in 1992, the Department of Revenue (DOR) determined that TABOR precluded any further increases in the severance tax rate without voter approval and maintained that policy until 2008. However, in response to Attorney General Formal Opinion No. 07- 01, which concluded that adjusting the tax rate according to a pre-TABOR statutory formula was not a violation of TABOR, the DOR imposed an increase in the severance tax rate from $0.54 to $0.76 per ton. The Colorado Mining Association challenged the new rate as constitutionally forbidden.

The Court of Appeals applied a “simple syllogism” to determine that TABOR was violated by the statutory rate adjustment: (1) TABOR prohibits increasing tax rates without voter approval; (2) applying the statutory formula increased the coal severance tax rate; therefore, (3) TABOR was violated. Notably, the court found it insignificant that the formula was statutorily imposed prior to the enactment of TABOR because “the future tax burden had not even been determined prior to TABOR.” It also found unpersuasive the DOR’s argument that the increase was the result of external factors out of the government’s control. This case serves as a reminder to taxpayers that significant weight should not be placed on all state authorities, including attorney general opinions. Rather, an evaluation of the authority is required to determine its relevance and significance.