Appendix A - Task Order One_ Background and Scope of Work - Modification 1.pdf

Appendix A - Task Order One: Background and Scope of Work - Modification 1

DQ 2027000036 Department of Revenue - Identification of Administrative Costs

I. Background

Colorado House Bill HB26-1059 (Cost Recovery Cash Fund Consolidation) enacted a structural change by repealing individual administrative cost funds and consolidating the Department of Revenue’s fee retention mechanisms into a single Cost Recovery Cash Fund under C.R.S. § 24-35-123.

The four (4) consolidated cash funds include:

1. Prepaid Wireless 911 Charge

2. Oil and Gas Production Fees (Clean Transit & Wildlife and Land

Remediation)

3. Enterprise Per Ride Fees

4. Retail Delivery Fees (including Enterprise Retail Delivery Fees)

HB26-1059 requires the State to submit an annual report starting November 1, 2027, to the joint budget committee with information about the costs associated with collecting, administering, and enforcing the fees and, where applicable, the specific tasks that contribute significantly to the fee collection workload. This activity-based cost study will serve as the legal and empirical foundation for this upcoming reporting requirement and the subsequent Fiscal

Year 2027-28 (July 1, 2027-June 30, 2028) fee schedules.

II. Scope of Work

A. General

The vendor will provide a comprehensive activity-based cost study to capture all applicable direct, incremental, system, and administrative costs across all relevant internal divisions to establish legally defensible cost-recovery amounts and percentage rates for the following four consolidated cash funds:

Appendix A - Task Order One Background and Scope of Work 1

1. Prepaid Wireless 911 Charge

a) Statutory Reference: C.R.S. § 29-11-102.5 (Part 1 of Article

11 of Title 29)

b) Legislative Origin: Established via SB10-120

c) Description: Imposed as a flat fee on retail transactions of prepaid wireless telecommunications services to defray the reasonable costs of emergency telephone services.

2. Oil and Gas Production Fees (Clean Transit & Wildlife and Land

Remediation)

a) Statutory Reference: C.R.S. § 33-61-104 (Collection administration), C.R.S. § 33-61-103 (Wildlife fee), and

C.R.S. § 43-4-1204 (Clean transit fee)

b) Legislative Origin: Established via SB24-230

c) Description: Quarterly fees paid by oil and gas producers based on market spot prices to fund clean transit programs and ecosystem mitigation.

3. Enterprise Per Ride Fees

a) Statutory Reference: C.R.S. § 40-10.1-607.5

b) Legislative Origin: Established via SB21-260

c) Description: Incorporates the Clean Fleet Per Ride Fee and the Air Pollution Mitigation Per Ride Fee levied on prearranged rides requested through Transportation

Network Companies (TNCs like Uber/Lyft).

4. Retail Delivery Fees (including Enterprise Retail Delivery Fees)

a) Statutory Reference: C.R.S. § 43-4-218

b) Legislative Origin: Established via SB21-260.

c) Description: Fees collected on retail deliveries by motor vehicle containing at least one item of tangible personal property subject to state sales or use tax.

The vendor will conduct an exhaustive review of the end-to-end collection, processing, compliance, and remittance pipelines in order to

Appendix A - Task Order One Background and Scope of Work 2 perform a comprehensive analysis of actual costs of administration by the State.

The vendor will map processes and gather labor matrices across all operating units, including but not limited to:

1. Executive Director’s Office

2. Taxation and Compliance Division

3. Taxpayer Service Division

4. Tax Conferee/Office of Appeals

5. Tax Policy Unit

The sections in the Tax division that might complete work related to these fees would include the Call Center, Discovery, Field Audit, Conferee, Collections, Tax Policy, Business Tax Processing, Administration, Research & Legislative Services, and IT Systems. Each section has tenured subject-matter experts. Discrete business processes include department wide administrative sections with a direct cost associated with the administration of the fees in question. The primary impacted processes are within the Executive Director’s Office, Financial

Services (Accounting, Budget, Deposit Control, Procurement). Financial

Services has multiple subject matter experts who will be heavily involved with the study. It is assumed an interview or walkthrough will be conducted at least once with each section in the Tax division in addition to Financial Services.

The vendor will map administrative workflows within the State’s taxation software (GenTax) via standard observational interviews and process walkthroughs. The vendor will not be granted direct, unmonitored database access to Federal Tax Information (FTI) or

Personally Identifiable Information (PII).

Appendix A - Task Order One Background and Scope of Work 3

B. Key Tasks

The State has identified the following key tasks:

1. Statutory Authority Verification

a) Review and verify Colorado Revised Statutes (C.R.S.)

governing each cash fund.

b) Document explicit legal limitations on cost recovery (e.g., distinguishing statutory caps like 3%).

c) Assess which processes (such as specialized enforcement, compliance audits, or administrative appeals) are legally allowed to be included in the cost-recovery baseline per fee type.

2. Cost Modeling & Methodology Development

a) Build a cost model matching current authorized appropriations and personnel costs against historical operational demand volumes.

b) Deploy labor allocation matrices by job title, validating total estimated effort against net available working hours.

c) Formulate rules to allocate operating expenses proportionally alongside labor baselines, identifying exceptions where direct asset usage applies.

d) Identify system modification costs to the Tax system to apply against each tax and fee. Each fee has different statutory authority for fee changes, so specific system costs will vary and apply to each fee. In addition, verify a standard rate of ongoing maintenance and support system costs to apply to each fee.

Appendix A - Task Order One Background and Scope of Work 4

e) Evaluate and determine where cost of administration will exclude broad, agency-wide indirect overhead (e.g., statewide central services allocations).

3. Annual Adjustment Framework

a) Create an ongoing mechanism and mathematical structure allowing the State to adjust cost-recovery figures annually based on the Consumer Price Index (CPI) and number of accounts open and returns filed in Gentax. This framework will serve as the adjustment standard during interim years until a subsequent cost study is commissioned.

b) Define the specific thresholds (e.g., a specific percentage shift in staffing levels, deployment of a new tax processing system, or introduction of a certain number of new special districts) that would render the CPI-adjusted interim rates obsolete and trigger the technical necessity for a new comprehensive study.

C. Final Deliverable

The final expected deliverable is a narrative report including:

comprehensive list of all charges reviewed, total fee collections, current cost of administration amounts charged, total administrative cost of providing each fee, recommended adjustments to each charge, summary cost analysis for each fee, and established mechanism(s) to adjust cost-recovery figures annually based on the Consumer Price Index (CPI) and number of accounts open and returns filed in Gentax. A slide deck for presentation of findings may be requested.

To establish cost recovery amounts for upcoming years until a new study is recommended, the State requires a narrative report detailing actual costs alongside a documented methodology. While supplemental financial modeling is permitted, it is not mandatory. The selected vendor

Appendix A - Task Order One Background and Scope of Work 5 will determine the most suitable strategy for estimating annual cost increases, which may utilize metrics such as:

● Changes in the Consumer Price Index

● The annual volume of tax returns processed by the system

● The total number of active taxpayer accounts

“Consumer Price Index” refers to the CPI specific to the

Denver-Aurora-Lakewood area.

"Accounts open" describes GenTax taxpayer accounts designated for submitting each specific fee.

The term "returns filed" denotes the total quantity of tax returns submitted per fee throughout each designated reporting period.

D. State Resources

The State will

1. Conduct background checks

2. Provide reasonable access to staff for observational interviews and process walkthroughs

E. Timeline

The vendor will provide the completed report before June 2027.

F. Vendor Personnel Capacity

The vendor will provide adequate personnel resources to complete the project.

Appendix A - Task Order One Background and Scope of Work 6