Colorado Supreme Court Reverses Court of Appeals' Interpretation of Colorado Trust Fund Statute

Posted by Dimitri Adloff on May 10, 2013

Approximately two and a half years ago, I wrote about a broad interpretation placed on the Colorado trust fund statute by the Colorado Court of Appeals.  In a 2010 decision titled AC Excavating, Inc. v. Yale, the court determined that an LLC manager’s voluntary injection of funds into the general business account of a single purpose LLC constituted “funds disbursed to a contractor on a construction project,” which opened the LLC manager to liability under the Colorado trust fund statute because he used those funds to pay general business expenses rather than to pay subcontractors in full. 

This February, in Yale v. AC Excavating, Inc., the Colorado Supreme Court reversed the Court of Appeals’ decision.  While the Court agreed that the funds loaned by the LLC manager were “disbursed . . . to a contractor,” it disagreed with the Court of Appeals conclusion that the funds were disbursed “on a construction project.”  Looking at the totality of the circumstances, the Court determined that the funds were not disbursed on a construction project, but were instead disbursed as a “survival” loan to be used to finance general operations.  However, had the funds been earmarked for construction purposes, or disbursed pursuant a construction contract, the Court’s decision would have subjected the manager to trust fund liability.

The Court’s recent ruling is good news to developers and general contractors, but it is limited in scope.  While the decision allows owners of struggling companies to voluntarily inject new funds to meet general operational expenses, funds received on account of a particular construction project or pursuant to a construction contract (including a construction loan) are still very much subject to the requirements of the Colorado trust fund statute.  Therefore, contractors need to continue to maintain strict accounting practices to avoid liability.

Lawmakers Kill Lawsuit Limits on Condo Defects

Posted by Kaydee S. Myers on April 22, 2013

A proposed bill attempting to limit construction defects claims in transit-oriented developments died last week in the Colorado Senate Judiciary Committee by a vote of 2-3.  The proposed Senate Bill 13-052 (“SB 52”) provided that a construction professional would have a right to repair any claimed defect in a transit-oriented development.  The bill also would have prevented claims for “environmental conditions” arising out of transit-oriented development, such as noise, odors, light, vibrations and fumes caused by transit, commercial, public or retail uses.  Additionally, it would have required arbitration of claims in transit-oriented developments, unless all parties waived that requirement in writing.  Supporters of the bill argued that the current environment for construction defect litigation discourages condominiums in transit-oriented development, and, in order to encourage transit-oriented development, construction defect laws related to these areas should be scaled back.  As reported by the Denver Business Journal on April 17, 2013, the State Senator who proposed SB 52, is expected to continue his efforts to pursue construction defects tort reform next year.

Bill Introduced in Colorado Legislature Authorizing Local Governments to Form Job Creation Districts

Posted by Kimberly A. Martin on March 26, 2013

A bill that would create a mechanism for local governments in Colorado to form “job creation districts” is pending in the state legislature.  House Bill 13-1212, to be known as the “Job Creation District Act of 2013,” provides for an economic development tool that would be available to local governments to financially participate in and support an eligible project that generates jobs within an approved area of the jurisdictional boundaries of a local government.  The bill authorizes the governing body of a local government to create a local job creation authority, which authority would have the power to, among other matters, approve one or more job creation districts within the jurisdictional boundaries of the local government, receive and use certain sales, use, lodging and real and personal property taxes collected within the applicable district to finance improvements within such district area (tax increment financing) and issue bonds to finance those improvements.  The sales, use, lodging and real and personal property taxes available for use by an authority includes 90% of those tax revenues which exceed the amount of tax revenues generated within the district by all taxing authorities (excluding the state) for the 12-month period immediately preceding the creation of the district.  The bill provides that bonds issued by an authority and any interest thereon are “exempt from all taxes.”  The authority may receive and use such tax revenues for a maximum of 15 years after the creation of the district.  The bill sets forth the criteria for approval of an eligible project within a local job creation district, which generally includes creating a minimum number of new jobs paying a prescribed minimum salary, making a minimum capital investment within the district, evidencing a positive net fiscal impact to the state general fund and providing for sufficient increased tax revenues to fund the public improvements necessary to support the project.  While the legislation tracks Colorado Urban Renewal Law (Sections 31-25-101, et seq., C.R.S.) in certain respects, the approval criteria does not relate to any finding of a “blight area” or “slum area” with respect to the applicable district area as is required under Urban Renewal Law.  This bill provides for tax incentives only to the extent the boundaries of the local job creation district do not overlap any boundaries of an “enterprise zone” established pursuant to Section 39-30-103, C.R.S., an “urban renewal area” as defined in Section 31-25-103(8) C.R.S., or a “tourism or entertainment facility” as defined in Section 24-46-303, C.R.S.  Amendments to this bill have been proposed by the House Local Government Committee and referred to the House Finance Committee; however, the bill (including the proposed amendments) has not yet passed second reading in the House.

Bill Concerning a Cap on Conservation Easement Income Tax Credits Passes Colorado House

Posted by Kimberly A. Martin on March 26, 2013

The Colorado legislature is considering a bill that would impose a cap on the aggregate amount of state income tax credits available annually to taxpayers for the donation of a conservation easement.  Currently, Section 39-22-522(2.5), C.R.S., provides that the Colorado Division of Real Estate may not issue state income tax credit certificates for conservation easement donations that exceed $22 million in each of the calendar years 2011 and 2012 and $34 million in the calendar year 2013.  Introduced on January 31, 2013, House Bill 13-1183 provides for an extension of the aggregate calendar-year income tax credit cap, limiting the total income tax credits that may be claimed by all taxpayers to $45 million in the calendar year 2014 and in each calendar year thereafter.  While the cap amount has been increased from the amount provided for in the prior calendar years 2011, 2012 and 2013, the legislation does not provide for any increase in the cap amount on a going forward basis—the calendar-year cap will remain at $45 million unless Section 39-22-522(2.5), C.R.S., is further amended by the legislature in the future.  If a cap is reached in any given calendar year, any additional income tax credit certificate applications received by the Division for the applicable year will be placed on a wait list for consideration the next available calendar year for which the Division has not issued income tax credit certificates in excess of the cap for such year.  Currently, there is no limit on the dollar amount of income tax credit certificate applications that may be waitlisted.  However, this bill introduces a $15 million wait list cap in any given calendar year.  Because the calendar year 2012 cap was reached, certain income tax credit certificate applications received by the Division in 2012 were waitlisted to the calendar year 2013, and, as of March 22, 2013, the Division has issued a total of $5,439,729 in income tax credit certificates for conservation easement donations.  Because income tax credit certificate applications are considered by the Division in the order received, it is advantageous for taxpayers to apply for such certificates sooner rather than later in the applicable calendar year if possible.  This bill passed on third reading on March 18, 2013 by vote of 51 to 13, and has been introduced in the Senate and assigned to the Senate Finance Committee.

Water rights issues taken up in Colorado legislature

Posted by Julie E. Gifford on March 26, 2013

It is well-established under Colorado water law that a water right owner is entitled to a right-of-way to build facilities on the private and public lands of others to transport water from its source to its place of use.  Colorado Constitution, Article XVI, § 7; C.R.S. § 37-86-102.

In 2012, the United States Forest Service issued Interim Directive 2709.11-2012-2, which requires that ski resorts with special use permits to operate their resorts on federal lands transfer their water rights to the Forest Service without compensation as a condition to the special use permit.  The National Ski Areas Association, Inc. filed a lawsuit against the Forest Service arguing that the directive constituted a taking of private property without due compensation.  In December 2012, the United States District Court for the District of Colorado vacated the Forest Service directive and ruled that the Forest Service violated federal law by not providing for public input prior to issuing the directive.  The Court did not rule on the takings claim.

In response to this directive, Colorado Representative Jerry Sonnenberg (R-Sterling) is sponsoring House Joint Resolution 13-1004 and Colorado House of Representatives Bill 13-1013.  Unanimously approved by the House Agriculture, Livestock and Natural Resources Committee, HJR 13-1004 encourages the Forest Service to withdraw the 2012 directive stating that it is unconstitutional under Colorado water law’s doctrine of prior appropriation.  HJR 13-1004 also states that, in addition to imposing conditions on ski resort permits, the Forest Service has delayed issuing permits in connection with ranching activities in Colorado in order to pursue obtaining water rights.  At a March Committee hearing, the Forest Service’s Daniel Jirion told the Committee that the Forest Service would begin a public process to develop a directive regarding water rights on federal lands this spring and that the Forest Service “fully supports” the ski industry and Colorado water laws.

HB 13-1013 would amend C.R.S. 37-86-102 to prohibit the federal government from demanding that a water right owner transfer to the government a partial or joint ownership interest in a water right as a condition to the government’s granting of right-of-way or special use permit.  HB 13-1013, as currently amended, has support from the Colorado Farm Bureau, Colorado Water Congress and Colorado Counties, Inc.  The Agriculture, Livestock and Natural Resources Committee has referred the bill to the House Committee on Appropriations.

New Pilot Program for Property Tax Protests in the City and County of Denver

Posted by Dimitri Adloff on March 22, 2013

6629120915_556a318093_m.jpgThe Colorado legislature recently passed HB-13-1113, which was signed into law on March 8, 2013. This act creates a pilot program for an alternative property tax valuation protest and appeal procedure for the City and County of Denver. Though the bill has been signed into law, the pilot program will not actually go into effect unless the governing body of the City and County of Denver elects to use the pilot program. This election must be made prior to May 1st of the year in which the program is to take effect. If the election is made, property owners in Denver can expect several changes to the protest and appeal procedures.

First, the pilot program expands the timeframe within which property owners can file their objections. Traditionally, the Assessor mails property valuations by May 1st and the deadline to file a protest is June 1st. Under the pilot program, property owners in Denver will have until November 15th to file a protest.

Second, the pilot program eliminates the first step in the standard protest and appeal process. Under standard procedures, property owners must submit their initial protest to the Assessor. If the Assessor denies the protest, then property owners must appeal the decision to the Board of Equalization. The Denver pilot program requires landowners to file the initial protest directly with the Board of Equalization (referred to in the act as the Board of County Commissioners), which is then required to hold hearing. In most cases, the Board of Equalization will ppoint a qualified referee (likely an appraiser) to conduct the hearing. However, the Assessor is not entirely eliminated from the process. Under the pilot program, the Board of Equalization can give the Assessor authority to settle protests directly with property owners through mutual agreements prior to the hearing.

Upon first blush, these changes appear to provide property owners with additional time and a more streamlined process that encourages settlement. However, upon closer reading, the additional grant of time to file a protest might be misleading. The pilot program requires the Board of Equalization to make a determination on a tax protest within six months of its filing. The pilot program further provides that all protests that are not determined prior to December 1st will be treated as petitions for an abatement and will be governed by Colorado Revised Statutes, § 39-10-114. Therefore, to avoid having their tax protest treated as an abatement petition, property owners still have to file their objection prior to June 1st. Otherwise, the Board of Equalization can delay issuing a ruling until after December 1st of that year and treat the protest as an abatement petition.

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UPDATE: Colorado Legislature Has Passed Act Increasing Threshold Amount for Representation of Closely Held Entities by Non-attorneys

Posted by Dimitri Adloff on March 20, 2013

Earlier this month I wrote about a proposed bill that would increase the threshold amount in C.R.S. § 13-1-127(2) (the statute that allows non-attorneys to represent closely held companies in court) from $10,000 to $15,000.  HB-13-1052 has passed and was signed into law by the Governor on March 15, 2013.

 

Legislature considering expanded tool to keep jobs in Colorado

Posted by Julie E. Gifford on March 18, 2013

Colorado law currently gives local governments (including counties, municipalities and special districts) the power to negotiate business incentive agreements with new or expanding businesses, giving local governments a valuable tool to attract and keep businesses and stimulate economic growth and job creation within their respective jurisdiction.  These incentive agreements may provide for a rebate of up to 100% of the business personal property tax for a new or expanding business for a period not to exceed 10 years.  C.R.S. §§ 30-11-123 (counties), 31-115-903 (municipalities) and 32-1-1702 (special districts).

HB 13-1206, introduced in the Colorado House of Representatives this session, seeks to expand the power of local governments to negotiate such business incentive agreements with businesses that are considering relocating to another state.  The bill requires that the local government has “verifiable documentation” that there is a substantial risk that the business will relocate out of the state.  “Verifiable documentation” must include information that the business could “reasonably and efficiently relocate” out of the state and that at least one other state is being considered by the business.

This bill fits squarely within the goals of current law to stimulate economic growth and job creation and gives local governments another valuable tool to keep jobs in Colorado.  The bill recently passed the Colorado House of Representatives.

Bill Introduced to Allow Third Party Parking Facilities at Transit Stops

Posted by Amy Hansen on March 12, 2013

An interesting transit bill is pending in the Colorado legislature that could have a significant impact on transit oriented developments in the Denver area.  Senate Bill 13-027 provides that a public or private entity may lease, own or operate a public parking lot or structure at or near a mass transit station, and that any such parking lot or structure is not considered an RTD “district parking facility” unless that third party and RTD have a contractual agreement regarding the operation of the parking facility that provides RTD shares in the revenues from that facility.  Section 32-9-119.9, C.R.S., currently restricts RTD’s ability to charge for parking at “district parking facilities” to those circumstances when someone parks for more than 24 hours, when someone who resides outside the RTD boundaries parks in a district parking facility, or for reserved parking spaces.  To carve out these third-party leased, owned or operated parking facilities from the definition of “district parking facility” would effectively allow these third parties to charge for parking in their facilities without restriction.   For TOD developers who are faced with building structured parking as part of their projects to support light rail expansion, the ability to charge for parking in these structures would greatly assist in financing the cost of construction.   This bill passed on third reading in the Senate and has been assigned to the House Committee on Transportation & Energy.

Colorado Legislature Considering Increasing Threshold Amount for Representation of Closely Held Entities by Non-attorneys

Posted by Dimitri Adloff on March 04, 2013

Lady Justice.jpgIt is a general rule that corporate entities cannot represent themselves in court, but must hire an attorney.  Colorado has a limited exception to this rule (C.R.S. § 13-1-127(2)) that allows non-attorney officers of closely held entities to represent their company, in court, for matters that do not exceed $10,000.  This allows small companies to handle relatively small disputes for which it often does not make economic sense to have an attorney enter an appearance.  These can include minor disputes between a landlord and a tenant, breach of contract claims, failure to pay for goods, and other similar matters.  Given the amounts at issue, in many cases, it can cost more for an attorney to deal with the problem than to simply accept the loss.  Even $10,000 is a small amount considering that attorneys’ fees and costs can quickly rise into the tens of thousands of dollars as a case begins to go through discovery and motions practice. 

To address this problem, the Colorado House of Representatives recently passed a bi-partisan bill (HB-13-1052) that would increase the threshold amount in C.R.S. § 13-1-127(2), for the first time since 1991, from $10,000 to $15,000.  This would be a positive, albeit small, change that would recognize how the increased costs of litigation make it difficult for small companies to protect their interests within the court system.  The bill is currently before the Colorado Senate and was recently approved by the Senate Judiciary Committee to be placed on the Senate calendar for a vote.

Photo: Josh May (flickr)