First Regular Session Sixty-fifth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 05-0058.01 Nicole Hoffman HOUSE BILL 05-1050 HOUSE SPONSORSHIP Garcia, and McCluskey SENATE SPONSORSHIP (None), House Committees Senate Committees Finance A BILL FOR AN ACT Concerning the establishment of a program that allows certain employers to retain a percentage of the wages withheld from their employees for state income tax purposes as an incentive for creating job growth. Bill Summary (Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments that may be subsequently adopted.) Interim Committee on Stimulating Economic Development Through Business Personal Property Tax Exemptions and Other Methods. Establishes the "Employer Retention of Employee Wage Withholding Act". For income tax years commencing on or after January 1, 2006, allows any employer in the state that is engaged in a strategic project to retain 50% of the amount that the employer withholds from an employee's wages for state income taxes for employees hired exclusively for purposes of the strategic project. Specifies that in order to retain wages withheld, an employer shall obtain an affidavit issued by an economic research organization that has been certified by the Colorado office of economic development (certified organization). Specifies that the affidavit shall verify that the project for which the wage withholdings are retained is a strategic project. Specifies that the affidavit shall include verification that the counties and municipalities in which the project occurs will contribute a specified amount for the project. For income tax years commencing on or after January 1, 2006, authorizes any employer that is qualified to retain 50% of employee wage withholdings to retain 100% of such wage withholdings so long as the employer spends 50% of the amount retained for a public economic infrastructure project. Requires an employer that retains 100% of wage withholdings to obtain an affidavit from a certified organization verifying that the project for which the wage withholdings are retained is a strategic project and verifying that the infrastructure project is a public economic infrastructure project. Specifies certain requirements that a certified organization shall satisfy in order to receive and to maintain certification. Authorizes a certified organization to impose a reasonable fee on any employer seeking an affidavit. Specifies that an employer's retention of any amount of an employee's wage withholdings shall not affect the status of the employee for income tax purposes or for any other purpose. Defines terms. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Title 39, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW ARTICLE to read: ARTICLE 30.5 Employer Retention of Employee Wage Withholding 39-30.5-101. Short title. This article shall be known and may be cited as the "Employer Retention of Employee Wage Withholding Act". 39-30.5-102. Definitions. As used in this article, unless the context otherwise requires: (1) "Certified economic model" means an economic model that has been certified by the Colorado office of economic development pursuant to section 39-30.5-105. (2) "Certified economic research organization" means an economic research organization that has been certified by the Colorado office of economic development pursuant to section 39-30.5-105. (3) "Employer" means a taxpayer that transacts business in or derives income from sources within the state, has employees who perform services for the taxpayer, controls the payment of wages for the employees' services, and withholds wages for income tax purposes pursuant to section 39-22-604. (4) (a) "Public economic infrastructure project" means an infrastructure project: (I) That is financed in part by an employer that is approved by both the Colorado office of economic development and the governing body of each county and municipality in which the project occurs; (II) For which the projected direct benefit to the employer for the employer's expenditure on the infrastructure project is not more than twenty-five percent of the value of the infrastructure project; and (III) For which the counties and municipalities in which the project occurs contribute to the infrastructure project a combined total amount equal to ten percent of the employer's expenditure on the infrastructure project. (b) "Public economic infrastructure project" shall include, but shall not be limited to, infrastructure for public higher education, infrastructure for public elementary and secondary education, roads, utility extensions, water projects, infrastructure for medical facilities, and infrastructure for telecommunications. (5) "State revenue gain" means additional income tax, sales and use tax, or other revenues to the state in an amount that is greater than the cost to the state of allowing retention of employee wage withholdings pursuant to this article. (6) "Strategic project" means a project that is projected to generate a state revenue gain in the same fiscal year as the withholding and for which a certified economic research organization has issued an affidavit stating that the project will generate a state revenue gain based on a certified economic model. 39-30.5-103. Employer retention of employee wage withholding - strategic projects. (1) Subject to the provisions of this section, for income tax years commencing on or after January 1, 2006, any employer that is engaged in a strategic project in the state may retain fifty percent of the amount that the employer withholds from an employee's wages for state income taxes pursuant to section 39-22-604 for every employee hired exclusively for purposes of the strategic project. (2) In order to retain wages withheld as permitted by subsection (1) of this section, each year an employer shall obtain and include in the employer's income tax return an affidavit issued by a certified economic research organization. The affidavit shall verify that the project for which the employer retains a percentage of wages withheld is a strategic project. 39-30.5-104. Employer retention of employee wage withholding - public economic infrastructure project. (1) Subject to the provisions of this section, for income tax years commencing on or after January 1, 2006, any employer that is permitted to retain wages withheld as permitted by section 39-30.5-103 may retain the remainder of the wages withheld from the same employees, so long as fifty percent of the amount withheld is expended by the employer on a public economic infrastructure project. (2) In order to retain wages withheld as permitted by subsection (1) of this section and to use fifty percent of such amount on a public economic infrastructure project, each year an employer shall obtain and include in the employer's income tax return an affidavit issued by a certified economic research organization. The affidavit shall verify that the infrastructure project for which the employer retains wages withheld is a public economic infrastructure project. The affidavit shall include verification from the counties and municipalities in which the project occurs that the counties and municipalities will contribute a combined total amount to the infrastructure project equal to ten percent of the employer's expenditure for the infrastructure project. The taxpayer shall obtain such affidavit in addition to the affidavit required to verify that the project for which the employer retains wages withheld is a strategic project. 39-30.5-105. Certification of economic research organizations - issuance of affidavit. (1) The Colorado office of economic development shall be responsible for certifying the following: (a) Economic research organizations as suitable to determine whether a project is a strategic project and to issue affidavits to that extent for purposes of section 39-30.5-103; (b) Economic research organizations as suitable to determine whether an infrastructure project is a public economic infrastructure project for purposes of section 39-30.5-104; and (c) Economic models as suitable for use by an economic research organization. (2) Any economic research organization may apply to the Colorado office of economic development to be certified to issue affidavits pursuant to this section. The office shall have the discretion to certify any organization that applies for certification pursuant to this section and that satisfies the following requirements: (a) The organization shall be one of the following, as determined by the Colorado office of economic development: (I) A public or private institution of higher education that is engaged in substantial economic research activity independent of any economic research in connection with the requirements of this section; or (II) A private economic research organization that demonstrates competence, integrity, and the experience necessary to perform the analysis required to determine whether a project is a strategic project for purposes of section 39-30.5-103 and to determine whether an infrastructure project is a public economic infrastructure project for purposes of section 39-30.5-104. (b) The organization shall use an economic model that has been certified by the Colorado office of economic development. (3) A certified economic research organization shall comply with the following requirements in order to maintain certification: (a) The organization shall publish for public review the economic model and any other criteria and methodology used to determine whether a project is a strategic project or, if applicable, the economic model and any other criteria and methodology used to determine whether an infrastructure project is a public economic infrastructure project. (b) The organization shall apply generally accepted economic impact analysis methodology in making its determinations pursuant to this article. (c) The organization shall provide its certification analysis and results to the state auditor upon request from the auditor. (4) Any employer that retains wages withheld pursuant to this article shall obtain the required affidavit from one of the certified economic research organizations. The organizations may impose a reasonable fee on any employer seeking an affidavit pursuant to this section. 39-30.5-106. Employees held harmless. An employer's retention of any amount of an employee's wage withholdings pursuant to this article shall not affect the status of the employee for income tax purposes or for any other purpose. The employee shall be held harmless by the state and shall be treated as if the employer had not retained any percentage of the employee's wage withholdings. 39-30.5-107. Repeal of article. This article is repealed, effective June 30, 2012, unless it is continued or reestablished by the general assembly acting by bill prior to said date. SECTION 2. Effective date. This act shall take effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly that is allowed for submitting a referendum petition pursuant to article V, section 1 (3) of the state constitution (August 10, 2005, if adjournment sine die is on May 11, 2005); except that, if a referendum petition is filed against this act or an item, section, or part of this act within such period, then the act, item, section, or part, if approved by the people, shall take effect on the date of the official declaration of the vote thereon by proclamation of the governor.