DENVER – Off-shore tax havens allow multi-national corporations to legally shield their profits from U.S. and state income taxes, but Democrats in the Colorado House want to ask voters to close the loophole by changing state tax code.

House Bill 1275 passed in the House on second reading Monday over the objections of Republicans, who said the bill would chase corporations out of Colorado to states where they could avoid paying income tax by sheltering revenue in overseas tax havens.

“This bill levels the playing field between those 500,000 companies that pay state income tax and those 200 or 300 that do not,” Rep. Mike Foote, D-Lafayette, said. “House Bill 1275 simply says taxes should be paid where profits are made.”

Colorado law uses a “waters edge” policy for taxing profits, and if a company reports 80 percent or more of its property and payroll are outside of the U.S. it doesn’t have to file a “combined report” that allows the state to tax the portion of revenue generated in Colorado.

Foote’s bill, which he co-sponsored with Rep. Brittany Pettersen, D-Lakewood, would require those companies to file a combined report if they are located in a tax haven country.

“Here’s something that is absolutely amazing about Bermuda,” Foote said when the bill was heard on the House floor Monday. “Even though their gross domestic product is $6 billion, roughly the size of Cheyenne, Wyo., if you were to add up all of the profits, not sales, but profits supposedly attributed to Bermudians by Fortune 500 publicly traded companies, that figure only would equal $94 billion.”

Foote said the favorable tax environment in Bermuda encourages some companies to attribute profits made in the United States to shell corporations headquartered in the small Atlantic island.

Rep. Kevin Priola, R-Brighton, said the bill is an effort to increase state revenue to help pay for overspending done by previous lawmakers.

“Employers in this state already pay a higher property tax, a higher payroll tax,” Priola said. “I submit some, maybe all, will leave this state and they will still pay property taxes, they will still pay payroll taxes, but they won’t feel like they have to get a pass from the Department of Revenue to justify their international dealings.”

Under the bill, the Department of Revenue would create a list of countries that are “tax havens” and require corporations assigning profits to those countries to file a combined income tax report. That report tries to capture the proportion of revenue that is generated in Colorado and tax it by 4.63 percent.

Pettersen said that amount is insignificant to large corporations that use tax havens to avoid the much-larger federal corporate income tax, which is closer to 30 percent.

Both Pettersen and Foote declined to specifically name companies they suspect have tax shelters.

“This isn’t about naming and blaming,” Pettersen said.

The bill must pass the House on third reading before it heads to the Senate, where will likely die because Republicans hold a majority in that chamber.

But if it passes the Senate and is signed into law by the governor, it would refer the issue to voters in November.

According to the fiscal note put together by nonpartisan staff at the General Assembly, the change in law could generate up to $20 million in fiscal year 2016-17 and $70 million in fiscal year 2018-19.

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Contact Megan Schrader: 286-0644

Twitter @CapitolSchrader