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Lakewood staff estimate up to $42.1M in telecom tax refunds after court ruling; council authorizes budget moves to start payouts
Summary
Following a Colorado court ruling that invalidated city telecom tax amendments as TABOR revenue, staff told council they identified 177 businesses and estimate up to $42.1 million in refunds (about $29M principal plus $13.1M interest). Council approved the refund resolution and a supplemental budget ordinance to enable payouts and transfers from the TABOR fund and general fund.
Lakewood finance staff presented council with the legal and fiscal consequences of a court decision finding that amendments to the city’s business‑and‑occupation (B&O) telecommunications tax implemented in 1996 and 2015 were invalid under Colorado’s Taxpayer Bill of Rights (TABOR). The ruling requires the city to refund taxes collected pursuant to those ordinances for the 4‑year pre‑lawsuit window and to adjust prior TABOR transfers.
Staff identified 177 businesses that remitted B&O tax during the relevant period and mailed letters to their registered agents on Dec. 3, giving a 60‑day response window. As of the presentation, 23 businesses had provided the information necessary to verify refunds, representing an estimated $9.9 million in refunds for that subset. Staff estimated a total potential liability of about $42.1 million, composed of roughly $29.0 million in collected B&O revenue plus approximately $13.1 million in 10% interest covering the statutory refund period (2018–2025 as defined by litigation timelines). Staff also reported interest continues to accrue — roughly $240,000 per month — until refunds are finalized.
Because B&O revenue had historically been included in the city’s TABOR retained revenue calculations, staff recommended transferring up to $29 million from the TABOR fund back to the general fund to correct the allocations, and paying the interest portion from general fund reserves and 2025 savings; staff identified candidate projects and timing adjustments (parks acquisitions, traffic signals, grant matches) where one‑time funding could be delayed to preserve core operations.
Council asked detailed procedural questions: whether refunded amounts should be sought back from businesses that had passed the fee to customers (staff said that remedy lies between businesses and their customers), how many companies might not respond or be out of business (staff said unresolved cases will be tracked and legal options explored), and what timeline will be used for returning to court or closing the consulting process. The city attorney explained outside counsel and appellate work that had informed the city’s legal strategy.
Council approved Resolution R‑2026‑7 (authorizing refunds under Colorado Constitution Art. X §20) and on second reading adopted Ordinance O‑2026‑1, a supplemental appropriation to allow the refund process to begin and the necessary transfers; both votes were unanimous (11–0). Staff committed to returning with a detailed list of proposed budget adjustments and with guidance on how unresolved or unresponsive business cases will be handled.
