Colorado billionaire Phil Anschutz and wife Nancy are suing the Colorado Department of Revenue for a tax refund in a case that could have serious financial consequences for the state.
The couple argues that due to changes to federal tax law made as part of Congress’ 2020 pandemic response law, the CARES law, the Colorado tax law, was also changed so that he and his wife are requesting a refund of their 2018 income tax bill can .
But attorneys for the Colorado Attorney General, who is representing the Treasury Department on the case, argue that the Anschutzes are promoting an unreasonable interpretation of Colorado tax laws and calling on a judge to dismiss the lawsuit. State lawyers also argue that if the court takes the side of the protection, it could create fiscal chaos in the way the state collects and reimburses tax revenues.
Both the Colorado Department of Revenue and the Colorado Attorney General declined to comment on the pending litigation. Anschutz lawyers did not respond to requests for comment.
The Anschutz lawsuit, which commenced the lawsuit, filed in Denver District Court on April 5, is under lock and key after Judge J. Eric Elliff issued a protection order on June 1, which the Public access to the document and other information contained in the court prohibits filings.
However, an edited version of the state’s motion to dismiss and other court records shed light on the complex dispute over the interplay of federal and Colorado tax laws. Although the dollar amount of refund the Anschutz is demanding remains a secret, the amount could be substantial given Phil Anschutz’s vast wealth and business interests.
Forbes ranked Phil Anschutz 50th on its 2020 list of the Richest Americans, with an estimated net worth of more than $ 10 billion (it could be much higher after he recently sold his minority stake in the Los Angeles Lakers). He owns The Broadmoor hotel and resort in Colorado Springs and several Colorado media companies, including The Gazette, based in Colorado Springs and Colorado Politics. He is also a partner in the Los Angeles Kings and, through his Anschutz Entertainment Group, owns the Staples Center in downtown Los Angeles, where they play.
He is also known for his philanthropic donations – the University of Colorado medical campus is named after a major donation – and the 2015 National Western Stock Show named him “Citizen of the West”. He is also a major financial supporter of conservative causes and candidates.
The wealthy couple are represented by law firm Lewis Roca Rothgerber Christie, whose attorneys say state tax officials wrongly denied their refund application.
The Anschutzes claimed a business loss in their 2018 tax return, but federal tax law at that point limited the amount of business losses that could be deducted from a person’s taxable income.
However, the CARES law passed in March 2020 included changes to the federal tax law that suspended the limits for so-called “excessive corporate losses” not only for the 2020 tax year, but also for the 2018 and 2019 tax years. Because the Colorado Income Tax Act includes changes to federal tax law, the Anschutzes claim in their lawsuit that those changes also apply to the calculation of taxable income for state purposes, including previous tax years. The state changes have been a headache for policymakers in other states as similar provisions incorporate federal tax law into their own tax laws.
The Anschutzes filed an amended tax return last year and requested a refund from the state. The Treasury Department claims that changes to the federal tax law will only be incorporated prospectively – that is, they will only be incorporated into state law in a forward-looking manner.
In response to taxpayers’ questions about how federal law changes under CARES would affect Colorado, the department passed emergency rules in June 2020 that explicitly interpret state law so that changes to federal law are prospective only. These rules were finally adopted in September.
Prosecutors argue that the rules reflect “the most reasonable legal interpretation”. They also say their view aligns best with the Colorado Constitution.
On the one hand, the interpretation that the law is only forward-looking enables the state to maintain a balanced budget. In contrast, they say the Anschutz’s interpretation would “enable the federal government to inadvertently sabotage Colorado’s carefully prepared budgets for years past”.
But also public prosecutors warn of devastating consequences for the taxpayer’s reimbursement obligations, should the court take the side of the protection. For example, in 2019 the state had to repay hundreds of millions of dollars in revenue because TABOR limited the state’s growth and spending.
The state lawyers argue that the interpretation of the Anschutz would mean that Colorado shouldn’t have paid out as much in refunds, if at all, as the changes to the CARES Act would have reduced the state’s revenue for that tax year.
“But because the TABOR reimbursements have already been issued, they are an unjustified stroke of luck in the end,” they wrote.
The Anschutz attorneys make their own TABOR arguments, claiming that the Department of Revenue’s rule is either a tax increase that would require voter approval or a new definition of taxable income. But attorneys general counter that “the income tax rate is exactly the same as the Anschutz originally applied for,” and that a departmental regulation can only interpret the law, not create a new tax or set tax policy so it cannot recreate the taxable income define.
Attorneys-General also note that state lawmakers agreed to the department’s interpretation, pointing out a measure, House Bill 1002, passed by the Colorado General Assembly in January, that provides a deduction for taxpayers, taxpayers like the Anschutz in future years based on the changes in the CARES law.
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