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Colorado Court Grants Taxpayers’ Motion as to Healthcare Tax

Jul 27, 2017 | by William Perry Pendley

DENVER, CO.  A Colorado group that defends the rights of taxpayers today celebrated the ruling by a Denver District Court accepting its amended and supplemental complaint against Colorado agencies and their officials for violating the Colorado Constitution’s Taxpayer’s Bill of Rights (TABOR).  The TABOR Foundation filed its motion on June 30, 2017. Two years earlier, on June 26, 2015, the TABOR Foundation filed its initial lawsuit charging its members should have been allowed to vote on whether a “hospital provider fee” may be imposed on Colorado hospitals; since 2009 Colorado’s Department of Health Care Policy and Financing has collected tens of millions and perhaps even a hundred million dollars.  Federal law lets States impose healthcare assessments to pay for Medicaid services, but the regulations provide for “taxes” and not “fees” as Colorado calls them to avoid TABOR.  Although the 2009 act says the funds will be kept separate from the general fund, in fiscal years 2010, 2011, 2012, and 2013 some of the tax proceeds were put in the general fund.  The TABOR Foundation sought an end to the tax and refund of revenues collected, with interest, as required by TABOR.  As of October 16, 2015, a motion by the Colorado defendants to dismiss the lawsuit had been briefed fully.  On May 30, 2017, however, Governor Hickenlooper signed into law S.B. 17-267, which created the Colorado Healthcare Affordability and Sustainability Enterprise to administer the Hospital Provider Charge beginning on July 1, 2017.  All of the TABOR Foundation’s 2015 claims remain virtually identical, except for the new challenge to creation of the “Enterprise.” 

“We are delighted the court granted our unopposed motion.  This is an unconstitutional attempt by the General Assembly to circumvent TABOR by repackaging the Hospital Provider tax as a fee to be levied and collected by the new ‘Enterprise’,” said William Perry Pendley of Mountain States Legal Foundation (MSLF); MSLF represents the TABOR Foundation.

Federal regulations allow States to impose a “tax” (their only reference to “fees” relate to those for licensing), 42 C.F.R. § 433.68, which the General Assembly expressly set forth in its bills.  C.R.S. § 25.5-4-402.3(3) (citing 42 C.F.R. § 433.68).  The regulations prove the U.S. Department of Health and Human Services intended that the States impose taxes, not fees, on hospital services.  Plus, to stay eligible for federal Medicaid funds, State health care-related taxes must be broad based, uniform, generally redistributive, and cannot violate the “hold harmless” provision of the regulations, that is, a State cannot guarantee it will reimburse a hospital—either directly or indirectly—for taxes paid to the State.  42 C.F.R. § 433.68(f).

Although, under federal regulations, Colorado is legally barred from providing any service to a hospital in exchange for the taxes collected at that hospital, the provision of services in exchange for a fee is what causes a fee to differ from a tax.  Instead, Colorado, by federal regulation, charges all of the hospitals in the state uniformly, and then redistributes those funds in a way that guarantees some hospitals will not receive any funds in return.

Contrary to Colorado Supreme Court and the Supreme Court of the United States holdings that a fee is for services given, a Jefferson County hospital paid $2.1 million in taxes for no services.  Ten Colorado hospitals paid more in taxes than they received in state services. 

Mountain States Legal Foundation, created in 1977, is a nonprofit, public-interest legal foundation dedicated to individual liberty, the right to own and use property, limited and ethical government, and the free enterprise system.  Its offices are in suburban Denver, Colorado.

For more information:  TABOR Foundation v. Colorado Department of Health Care Policy And Financing


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