Feeling the Squeeze: Colorado Small Businesses Cope with Regulatory Overload

BY NATALIE ROONEY

Small Business Matters

Sometimes, new regulations sound great in theory, but create unintended consequences and endless red tape. That's especially true when multiple pieces of legislation hit small businesses in a short span of time. Can Colorado’s small businesses afford to keep their doors open, or will they be legislated out of existence?

Lynne Lehr-Buck CPA, CGMA, president of IntraScope Accounting Solutions, LLC, Highlands Ranch, has small business clients that are truly small businesses. “They’re just average people trying their best,” she says. “They’re good at what they do, but they’re not financially astute. They need help.”

The past year has dealt one regulatory blow after another to Colorado’s small businesses. Many of the new regulations took effect on Jan. 1, 2023. Even in Lehr-Buck’s own office, she feels the strain. “It’s just one thing after another,” she says. “I don’t know how people do this without someone to help them.”

The same frustrations are being felt all over Colorado. Brad Tafoya, CPA, CFP®, Registered Life Planner at Tafoya Barrett and Associates PC, Durango, works with a mix of smalltown clients: restaurants, Realtors, professional service firms, light manufacturers, and retailers, all of whom are feeling the regulatory squeeze. “It’s becoming more difficult and more expensive for small businesses to be sustainable and make a profit,” Tafoya says.

COLORADO’S REGULATORY LAUNDRY LIST

The list of regulations currently on small business owners’ plates includes:

Colorado SecureSavings

The new program provides a retirement solution to private-sector employers at no cost. All Colorado businesses with five or more employees (who have worked for a company for at least 180 days) that have been in business for two or more years will be required to register for the program if they don’t already offer a tax-qualified retirement savings plan to any employees.

Tafoya points out that even though employers aren’t required to contribute, they still must sign up so that employees can take part. “There’s still registration and paperwork involved for small businesses,” he says.

Colorado Family and Medical Leave Insurance

As of Jan. 1, under the Family and Medical Leave Insurance (FAMLI) program, Colorado employers and employees began paying into a state program that will allow workers at all private companies to take extended leave to care for themselves and/or a family member. Beginning in 2024, workers can begin requesting as much as 12 weeks of partially paid leave per year.

Tafoya says clients are trying to determine who is eligible and why. “They’ve had to stop and get their arms around this so they can sign up and do the right thing,” he says, adding that this comes on the heels of last year’s new sick-time rules.

Retail Delivery Fee

Effective July 1, 2022, Colorado began imposing a 27-cent retail delivery fee on all deliveries by motor vehicle to a location in Colorado with at least one item of tangible personal property subject to state sales or use tax.

The fee is generating a lot of questions from clients, Tafoya says. “A window installer called and asked if his customer orders a window, but the installer is bringing the window for installation, is he also considered to be delivering it?” Tafoya says. “Small businesses are being forced to focus on issues like this daily rather than running their business.”

Plastic shopping bag fee

As of Jan. 1, everyone pays 10 cents to use single-use plastic or paper bags in stores. The law does not apply to all bags. Restaurants, for example, are exempt, though it's possible that customers may still see a fee on their bills. The new law allows municipalities with an existing law to charge more for bags if the fees are already higher.

The fee is a precursor to 2024, when Colorado will officially ban single-use plastic bags.

Minimum wage increase

For 2023, the Colorado hourly minimum wage rate is $13.65, which is $1.09 higher than in 2022. It's the largest annual jump in the minimum wage in Colorado since 2007.

Denver has one of the nation’s highest statutory hourly minimum wages and the highest real minimum wage. Since Jan. 1, the city’s statutory hourly minimum wage increased to $17.29, second only to Seattle’s minimum wage of $18.69 per hour.

LEANING ON CPA s

Tafoya says clients are turning to their CPAs more than ever. “They’re specialists in their own industries, so they’re turning to us for help.”

Throw all of this on top of the fact that Colorado continues to decouple its state tax laws from the federal government, and Tafoya says it’s incredibly difficult not only for CPAs, but also for their business clients who might have previously been able to do some of their own tax return work. These days, it’s no longer feasible.

One notable example: in 2021 and 2022, meals were 100% deductible at the federal level, but Colorado isn’t following that portion of the tax code. “Very few clients understand that,” Tafoya says. “It puts more pressure on the small business and on us to gather that information. States are trying to make up for lost revenue and recapture dollars any way they can, and it’s happening at the expense of small business owners.”

Checking In With Clients

As Lehr-Buck received notices of the new regulations, she began reaching out to clients. “They’d ask what the heck it was all about,” she says. Immediate issues came to light: Accounting software wasn’t set up to handle the bag fee. “People aren’t charging for it because their software can’t do it.”

The same software issues apply to time-off policies that took effect a year ago. “Soft- effect on Jan. 1, 2022, for businesses with fewer than 16 employees), the delivery fee, the bag fee, Secure Savings, and the FAMLI program. “That’s five new regulations in 18 months,” she says. “All of this takes time when you’re running your own business and trying to figure it out. Most clients want to get things right, but it’s getting harder and harder for them.”

Increasing Expenses

Jimmy Lambatos was in the process of opening Jimmy’s Jersey Street Café in Denver’s Mayfair area right as the COVID-19 pandemic hit. With nearly four decades of restaurant experience under his belt, he’s no neophyte when it comes to the industry. After missing his original opening date by eight months and overcoming multiple challenges – from getting his liquor license to dealing with lease issues and finalizing permits – it seemed like the worst was behind him. But the hits just keep coming – this time from his own state legislators.

Lambatos stays on top of regulatory issues by reading restaurant trade publications and match it. This all makes for higher prices for the consumer.”

Despite the challenges, Lambatos is trying to comply with all of the changes. He does speak up when things just don’t make sense, like when he told the City of Denver that their rules for tipping during COVID were nonsensical.

Lambatos says he wishes legislators would consider the impact on individual industries before bundling everyone together in one group. “If state regulators had ever been in business for themselves or spent more time talking to industries that are in such need of help at this time, instead of just mandating rules and regulations, they’d better serve us.”

“LET BUSINESSES WORK IT OUT”

Lehr-Buck says the state government doesn’t need to tell her – or her clients – how to make decisions about their businesses. “I offer sick time and retirement because I want people to work for me,” she points out. “I want to be competitive. Let the market work it out. I don’t think they understand that all of this cuts into the bottom line of these small businesspeople.” ware can’t calculate giving one hour of sick time for 30 hours worked,” Lehr-Buck says. “Legislators are writing these laws without talking to business or software people. They’re sitting in a room and thinking it’s such a great idea to implement, but they don’t give people enough time to prepare.”

Lehr-Buck says the state information websites often leave small businesses more confused. “We now have four different websites to visit to do business in Colorado.”

Colorado business journals. He’s in charge of everything at the restaurant: purchasing, payroll, accounting, hiring, scheduling, and training, and he knows exactly what he makes by the second day of every month. The new minimum wage – which brings an 11% increase in labor costs – tops the list of Lambatos’ frustrations. “It’s major,” he says. “Just that is costing me an extra $100 a day.”

Tafoya would like to see legislators sit down with small business owners and talk about the impacts to both the business and its employees before taking action.

“I remember reading through the ballot initiatives and thinking, ‘Wow, this is just more regulation, and it’s going to make it harder.’

Those who don’t own businesses think these things are great, and they vote for it, but they don’t really understand it.”

A mini ice cream cone to end one’s meal is a tradition at Jimmy’s Jersey Street Café in Denver. Owner Jimmy Lambatos works hard to keep up with the flurry of regulatory demands placed on small business owners.

Restaurants with 45 employees – and by the way, the definition of an employee differs with every law – must notify every employee that he or she is now eligible to contribute to a retirement plan. That includes, for example, teenagers who work five hours a week. They must also explain to employees what an IRA is and that if they don’t opt out of the program they’re in by default, with money deducted accordingly from their wages.

Lehr-Buck ticks off the new regulations: the new paid sick days policy (which took

Lambatos says that state legislators don’t seem to understand how their actions impact the customer experience either. “Increased expenses mean increased food prices,” he says. “The government needs to take all of these things into consideration when they decide to do something.”

Lambatos also has concerns about the FAMLI program. “People get jobs in hospitality while they’re in school,” he says, adding that even though some people do make it a livelihood, it’s ultimately a transient industry. “Now they’re forcing the issue of paying for time off for family leave and having the employer

Looking down the road, Tafoya thinks it’s going to be harder and harder for small businesses to compete when faced with so many regulations and rules that take time out of running their day-to-day operations. “I want to pay my employees more, and they need to be able to make a good living, but I wonder about the sustainability of all of it,” he muses.

“We’re forced to do it to keep staff. It’s hard, and it’s only going to get harder. Most small businesses care about their employees and families and take very good care of them.

Let us figure out what is best together rather than burdening us with new regulations that most employees don’t even want.”