Colorado billionaire Phil Anschutz and his wife, Nancy, are suing the Colorado Department of Revenue for a tax refund in a case that could have big financial consequences for the state.
The couple argue that due to changes to federal tax law made as part of Congress’ 2020 pandemic response bill, the CARES Act, Colorado’s tax law was changed as well, allowing him and his wife to claim a refund on their 2018 state income tax bill.
But lawyers with the Colorado Attorney General’s Office, which is representing the Department of Revenue in the case, argue the Anschutzes are pushing an unreasonable interpretation of Colorado’s tax laws, and are asking a judge to dismiss the lawsuit. The state’s lawyers also argue that if the court sides with the Anschutzes, it could sow fiscal chaos in how the state collects and refunds tax revenue.
Both the Colorado Department of Revenue and the Colorado Attorney General’s office declined to comment on the pending litigation. Lawyers for the Anschutzes did not respond to requests for comment.
The Anschutzes’ complaint launching the lawsuit, filed April 5 in Denver District Court, is under wraps after the judge in the case, J. Eric Elliff, granted a protective order on June 1 barring public access to the document and other information contained in court filings.
However, a redacted version of the state’s motion to dismiss the lawsuit and other court records shed light on the complex dispute about how federal and Colorado tax laws interact. Though the dollar amount of the refund the Anschutzes are seeking remains a secret, the total could be substantial, given Phil Anschutz’s enormous wealth and wide-ranging business interests.
Forbes ranked Phil Anschutz 50th on its 2020 list of wealthiest 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, as well as several Colorado media outlets, including The Gazette, based in Colorado Springs, and Colorado Politics. He’s also part owner of the Los Angeles Kings, and owns the stadium they play in, the Staples Center, in downtown Los Angeles through his Anschutz Entertainment Group.
He’s also known for his philanthropic giving — the University of Colorado medical campus bears his name after a hefty donation — and the National Western Stock Show named him “Citizen of the West” in 2015. He’s also a significant financial supporter of conservative causes and candidates.
The wealthy couple is being represented by the law firm of Lewis Roca Rothgerber Christie, whose attorneys say state tax officials wrongly denied their request for a refund.
The Anschutzes claimed a business loss in their 2018 tax return, but federal tax law at the time limited the amount in business losses that could be deducted from someone’s taxable income.
However, the CARES Act, passed in March 2020, included changes to federal tax law that suspended the limits on so-called “excess business losses,” not just for the 2020 tax year, but also the 2018 and 2019 tax years. Because Colorado’s income tax law incorporates changes to federal tax law, the Anschutzes claim in their lawsuit that those changes also apply for calculating taxable income for state purposes, including for previous tax years. The federal changes have created headaches for policymakers in other states with similar provisions incorporating federal tax law into their own tax codes.
The Anschutzes last year filed an amended tax return seeking a refund from the state. The Department of Revenue contends that changes to federal tax law are only incorporated prospectively — that is, they’re included as part of state law only on a forward looking basis.
Amid questions from taxpayers about how the changes to federal law under the CARES Act would affect Colorado, the department adopted emergency rules in June 2020 explicitly interpreting state law to mean that changes to federal law apply only on a prospective basis. Those rules were permanently adopted in September.
State lawyers argue that the rules reflect “the most reasonable statutory interpretation.” They also say their view best aligns with the Colorado Constitution.
For one, the interpretation that the law is only forward looking allows the state to maintain a balanced budget. In contrast, they say the Anschutzes’ interpretation “would empower the federal government to inadvertently sabotage Colorado’s carefully constructed budgets for years already passed.”
But state lawyers also warn of dire consequences for the Taxpayer’s Bill of Rights refund requirements should the court side with the Anschutzes. In 2019, for instance, the state had to refund hundreds of millions of dollars in revenue because of TABOR’s limits on government growth and spending.
The Anschutzes’ interpretation, the state’s lawyers argue, would mean Colorado shouldn’t have paid out as much in refunds, if anything at all, because the CARES Act changes would have reduced the state’s revenue for that tax year.
“But because the TABOR refunds have already been issued, they end up being an unwarranted windfall,” they wrote.
The Anschutzes’ lawyers make their own TABOR arguments, asserting that the Department of Revenue rule is either a tax increase, which would require voter approval at the ballot box, or a new definition of taxable income. But lawyers for the Attorney General’s Office counter that “the income tax rate is exactly the same rate at which the Anschutzes initially filed,” and that a department rule can only interpret the law, not create a new tax or set tax policy, so it can’t redefine taxable income.
Lawyers with the Attorney General’s Office also note that state lawmakers have agreed with the department’s interpretation, pointing to a measure, House Bill 1002, the Colorado General Assembly passed in January providing taxpayers a deduction that taxpayers like the Anschutzes could take in future years based on the changes in the CARES Act.