This Week in State Tax

The Colorado Supreme Court recently held that the amendments made by the City of Lakewood in 1996 and 2015 to its business and occupation (B&O) tax on the business of providing basic local exchange telephone service within the city constituted “new taxes” under the Colorado Taxpayer’s Bill of Rights (TABOR), thus requiring advance voter approval. As Lakewood failed to obtain such approval, both ordinances were in violation of TABOR and were therefore void.

Lakewood originally enacted its B&O tax in 1969, imposing it on utility companies that maintained telephone exchanges and supplied local exchange service within the city. In 1996, Lakewood expanded the tax to apply to “each person” providing basic local telecommunications service, including the provision of cellular service to any business entity as its primary local service. In 2015, the scope was further broadened to include all cellular and wireless voice services provided to any person or entity, regardless of whether it was their primary service.

Lakewood did not seek voter approval for either amendment. Following an audit, Lakewood assessed MetroPCS (a T-Mobile subsidiary) for $1.6 million in unpaid B&O taxes. MetroPCS challenged the ordinances, arguing the amendments imposed new taxes without voter approval in violation of TABOR. The district court agreed, finding that both ordinances expanded the tax base to previously untaxed services and providers.

The Supreme Court affirmed the district court ruling, upholding the finding that the amendments to the Lakewood B&O tax constituted a “new tax” and required voter approval under TABOR. The Court emphasized that the original 1969 ordinance was narrowly tailored to utility companies maintaining physical infrastructure, whereas the 1996 and 2015 ordinances broadened the scope of the tax to include certain non-utility providers and all cellular services, respectively. These legislative changes created new tax liabilities for previously untaxed entities and services.

The Court further concluded that revenue generated by the amendments was not merely incidental to the enactment of the ordinances. The Court explained that both ordinances expanded the tax base without eliminating any existing tax liabilities or exemptions. Unlike prior cases involving legislative changes which both added and removed taxable items—suggesting a neutral or incidental revenue impact—the Lakewood amendments moved in only one direction: they added new taxable services and providers. The Court also pointed out that “Lakewood explicitly recognized in each Ordinance the likelihood that new providers would be subject to the tax.”

The Court further addressed Lakewood’s stated goals of promoting competitive neutrality and eliminating barriers to market entry. While acknowledging those objectives, the Court noted they could have been achieved without expanding the B&O tax. Lakewood could have rescinded the B&O tax altogether and relied on its existing sales tax structure to replace the revenue. Although rescission was not legally required, the Court emphasized that the decision to expand the tax base rather than eliminate it reinforced that revenue generation was not merely an incidental effect of the legislative changes. Accordingly, the Court concluded that without first seeking voter approval, both ordinances violated TABOR and therefore were void. Please contact Steve Metz for more information on MetroPCS v. City of Lakewood, Colorado. 

A circuit court judge in Leon County rejected an airline’s contention that the Florida special apportionment formula for airlines violated the Commerce Clause of the U.S. Constitution. For corporation income tax purposes, Florida apportions the income of an airline based on the ratio of “revenue miles” in Florida to revenue miles everywhere. A revenue mile in Florida is any mile flown by the airline within a designated rectangular box that includes most of the Florida landmass along with an area of open ocean that is approximately the size of the Florida landmass. The taxpayer objected to Florida’s inclusion of open-ocean miles in its computation, contending that it violated the internal consistency test set forth by the U.S. Supreme Court in Complete Auto Transit. As the taxpayer articulated it, if other states adopted an identical approach to the Florida specifical apportionment rule, these states may draw boxes that overlap with that drawn by Florida. This would result in an airline flying significant miles in overlapping sections, which could subject the airline to tax on more than 100 percent of its income, thus violating the internal consistency test.

The court disagreed with the taxpayer’s application of the internal consistency test, reasoning that no state would be permitted to adopt an “identical” approach (because other states would be barred from taxing miles flown over Florida), and that how other states might draw their own boxes was a speculative question that went beyond what is permitted by the internal consistency test. The court also noted that, because only the states in which a flight takes off and lands are permitted to tax the airmiles of a flight, even if states did draw overlapping boxes, it would be inconceivable that these areas of overlap would be sufficient to tax more than 100 percent of an airline’s income. In this specific case, for instance, the court calculated that the apportioned tax base of the taxpayer was less than 50 percent of its Florida economic activity, based on various information provided by the taxpayer during discovery. Finally, the court pointed to the state’s alternative apportionment provisions as protecting an airline from an unreasonable level of Florida taxation. Contact Henry Parcinski for more information on JetBlue Airways Co. v. Florida Department of Revenue.

The Illinois Department of Revenue has issued a proposed rule implementing the tax amnesty program called for in the 2025 state budget. The program will run from October 1, 2025 through November 17, 2025 and will apply to all unreported taxes for tax periods ending after June 30, 2018 and prior to July 1, 2024. Matters under audit, pending in the Fast Track Resolution Program, pending before the Informal Conference Board, the Office of Administrative Hearings, or the Independent Tax Tribunal will all be eligible for the amnesty program, but matters pending in state courts will be ineligible. The amnesty will provide relief from all penalties and interest on taxes paid during the amnesty. Note, however, a taxpayer that owes only penalties and interest on previously reported tax is not eligible for the amnesty program. The amnesty program applies to all taxes administered by the Department of Revenue, except certain motor fuel taxes. A separate amnesty administered by the Secretary of State will be available over roughly the same period for the Illinois franchise tax.

Contact Brad Wilhelmson or Drew Olson for more information on the Illinois Amnesty Program. In addition, please listen to the TWIST podcast with Drew and Brad on the amnesty for further details.

The New York Tax Appeals Tribunal upheld the denial of a sales tax refund in a case involving a bulk sale transaction, citing several missteps by the petitioner. The Tribunal affirmed that the petitioner failed to give the Department of Taxation and Finance the required 10-day advance notice, did not withhold consideration or the outstanding tax due from the seller, did not prove any qualifying payment of tax which would support a refund, and filed its refund claim outside the statutory window.

In 2008, the petitioner purchased business assets from a seller but did not provide notice to the Department as is statutorily required for bulk sale transactions. The Department in 2010 deemed the parties’ agreement to be a bulk sale and issued a notice of determination assessing sales tax; some assessments in this notice were later cancelled. In 2021, the petitioner filed a refund claim which was denied by the Department because the statute of limitations had expired. The petitioner then timely filed a protest to the refund denial, which the Department permits so long as the liability in question has been paid in full. The Administrative Law Judge reviewing this petition determined the petitioner failed to establish when or how much of the liability at issue was previously paid and so denied the petition.

On exception, the petitioner argued the ALJ did not address whether the petitioner was a purchaser in a bulk sale, and further that any tax due should have been collected from the seller of the assets. The Department countered that whether a bulk sale had occurred had already been determined, that the petitioner’s failure to provide the required 10 day notice to the Department and to withhold consideration from the seller rendered the petitioner liable for any outstanding tax, and that the petitioner had not met its burden to show the refund denial was erroneous.

The exception was reviewed and denied by the Tribunal. The Tribunal agreed a bulk sale had occurred, held that the petitioner forfeited statutory protections by not giving the required 10-day notice, found the petitioner failed to prove the fair market value of the assets or that any payments had been made, and concluded the refund claim was untimely. For further questions around bulk sales or general administrative procedures in New York, please contact Judy Cheng.