With the state budget facing deep cuts that will affect many important programs on which all Coloradans rely to varying degrees, the pain will have to be shared by agencies, individuals and businesses throughout Colorado. In accordance with that unpleasant reality, the Legislature is trying to find ways to spread the burden of a tight budget around the state. Lawmakers' latest plan involves a reduction in the vendor fee that businesses are paid by the state for collecting sales tax. The idea is a good one, though it could be refined before it is finalized.
Under the current formula, businesses charge the state 3.33 percent of the state sales tax they collect - 2.6 percent of a total purchase. A measure approved by the Colorado House of Representatives on Tuesday would reduce that vendor fee percentage to 1.35 percent, but only for those businesses that have at least $10,000 in sales each month. That floor leaves the mom-and-pop merchants out of the fee reduction, and rightly so, but the $10,000 minimum may be too low.
An alternative measure, proposed by Rep. Jack Pommer, D-Boulder, would have capped the fee a business could collect at $5,000 annually, or $417 per month. That across-the-board capping plan may be a better model than the percentage adjustment in that it more fairly distributes the burden so the largest retailers would contribute a larger percentage of the total revenue the state keeps - about the same amount as the bill passed Monday, which was sponsored by Rep. Jerry Frangas, D-Denver. Both proposals will save the state about $13 million this year, and $39 million in fiscal year 2010.
While lawmakers that support Frangas' version of the bill float the argument that the money should be collected from a broader spectrum of businesses, those that gross $10,000 a month in sales are far more likely to rely on their vendor fees than those grossing 10 times that amount. Accordingly, it makes sense to target the big dogs - particularly given the relative simplicity of sales-tax reporting.
Because the vendor fee is paid for, essentially, filling out a reporting form that shows sales tax collected, there is an argument to be made for dissociating it from the amount of money earned, and instead instituting a flat fee. After all, it is difficult to justify paying Wal-Mart exponentially more for filling in the same boxes as did a T-shirt shop. Nevertheless, reducing the vendor fee, either by a percentage change or by capping it, offers the state a means for generating some more revenue. That is essential in today's climate.
Given the urgency and severity of the cutbacks Colorado - and all other states - are facing, finding ways to offset budgetary shortcomings takes a wide lens and a strong stomach. Reducing the vendor fee is a relatively painless way to retain a not insignificant pot of money, and the Legislature is right to explore the change. But in an economic environment when small- and medium-sized businesses are struggling to stay afloat, customers are limited and credit even more so, lawmakers are wise to carefully consider how best to retain revenue without unduly burdening the businesses that generate it. Focusing on the state's larger vendors seems a more appropriate means to that end.