December 7, 2013

Introduction

Nathan Associates Inc. was engaged by Common Sense Policy Roundtable to examine the economic impacts associated with removing Colorado’s fiduciary tax on resident trusts.
While nearby states have no taxes on trusts, Colorado’s trust tax laws are unfavorable for setting up and managing trusts. Indeed, estate planners have been advised to avoid Colorado-based trustees. This is borne out by the following empirical observations:

• The state’s fiduciary tax has contributed to a decline in Colorado’s trust business.
• The number of trust accounts in Colorado has declined over the past decade with the state losing an average of approximately 500 accounts a year.
• Colorado is losing trust business to more competitive states. Since 2001, Colorado has lost 60 percent of its trust accounts and 6 percent of its assets. Over the same period, the states of South Dakota, Texas, and Wyoming combined have seen the number of trust accounts more than triple and their trust assets quadruple.
• Eliminating the fiduciary tax would not noticeably affect the state budget. In 2012, fiduciary tax collections provided only $26 million of revenues for the state, accounting for less than one-half of one percent of total state collections.

Our analysis is based on the assumption that removing the tax would reverse the decline in the Colorado trust industry and boost growth in trust assets over the next decade. We employ a widely used model to calculate the impacts each year as Colorado trust assets are anticipated to grow. We also calculate the net fiscal impacts, with the following results after a decade.

• 9,330 to 21,755 more full- and part-time jobs.
• $1.68 billion to $3.90 billion in additional economic activity.
• $440 million to $1.03 billion in additional payroll and self-employment income.
• Eliminating the tax would “pay for itself” with increased tax collections relatively quickly.

Thus, if the state can attract sufficient trust assets by eliminating its fiduciary tax on resident trusts, the Colorado economy would experience improved employment and incomes over the next decade…