Corporate Income Tax Letter Rulings

Sourcing of Sales to the U.S. Government of Property Stored by the Seller in Colorado - Published September 6, 2024

Company’s receipts from sales of property to the U.S. Government, as described in this ruling and made under the contract covered by the ruling, are not in Colorado under section 39-22-303.6(5), C.R.S., for corporate income tax purposes.

Employee Retention Credits - Published August 2, 2024

Wages, the deduction of which was disallowed under section 3134(e) of the Internal Revenue Code, may be subtracted from federal taxable income.

Exclusion of Gain from Apportionment Factor

The gross receipts from the sale of real estate are not included in the receipts factor for purposes of apportioning income under section 39-22-303.6(4)(a), C.R.S.

Employee Retention Credits

Wages, the deduction of which was disallowed under section 3134(e) of the Internal Revenue Code, may be subtracted from federal taxable income.

Refund limitation for conservation easement credits from donations made by pass-through entities

This letter discusses the statutory limit for conservation easement tax credits in the event a refund is claimed for the credit and how that limit applies to a credit allowed for a donation made by a pass-through entity.

Colorado Nexus for Out-of-State Pass-Through Entity

When determining nexus for a partnership rendering management, distribution, or administration services to a registered investment company, the sales threshold amounts are computed and sourced in accordance with section 39-22-303.7(2), C.R.S., and 1 CCR 201-1, Rule 39-22-303.7-2.

Enterprise Zone Investment Tax Credit

A company's sale of a portion of the equity interest in a limited liability company to passive investors does not, by itself, disqualify the company from claiming enterprise zone investment tax credits.

Sourcing of Guaranteed Payments

A guaranteed payment for services to a nonresident partner is not part of the partner's distributive share and, therefore, it is sourced pursuant to section 39-22-109(2)(a)(II), C.R.S.  Sections 39-22-109(2)(a)(III) and 39-22-203, C.R.S., do not apply because they apply only to distributive shares.

Conservation Easement Tax Credit

Mutual ditch companies are nonprofit corporations that qualify for the conservation easement tax credit. However, a ditch company whose shareholders include one or more state governmental entities is ineligible to claim any portion of a conservation easement tax credit. A “state governmental entity” includes the state and its political subdivisions.

Transferable Tax Credit Program

This letter addresses the transferable income tax credits in section 24-46-104.3, and specifically how the transfer of eligible Enterprise Zone credits are treated by the Department.

Affordable Housing Tax Credit

A partnership investing in Colorado's Affordable Housing Tax Credit program seeks to transfer credits to eligible qualified taxpayers of the partnership.

Refundable Enterprise Zone Renewable Energy Credits

Taxpayer can annually claim a refund of the renewable energy investment tax credit of up to $750,000 pursuant to §39-30-104(2.6), C.R.S. until the refund is fully utilized, assuming Taxpayer is entitled to claim a refund of that amount in the enterprise zone renewable energy investment tax credit.

Apportionment of Income on a Combined Report

All corporations meeting the requirements to be included in an affiliated group must be included in the combined corporate income tax return. The affiliated group may calculate its combined income tax liability using the methodology outlined in Department Private Letter Ruling PLR-11-002 and PLR-15-005.

Treatment of Gain Realized from the Sales of Ownership Interest in an LLC

The sale of Company's ownership interest in an LLC is intangible personal property. The LLC was formed in furtherance of the purpose of Company, and therefore the gain realized from the sale of the LLC is business income. Where Company's pass-through income generated from the LLC is business income for Colorado tax purposes, than Company's distributive share of the LLC's gross sales are Company's own gross sales.

Credit for Taxes Paid to Another State

Taxpayers are entitled to a credit for taxes paid to Ohio on income that Colorado sources to Ohio. Taxpayers determine the amount of income sourced to Ohio by using an average of the limited liability company’s apportionment ratios for the three tax years immediately preceding the tax year in which the husband’s interest in the limited liability company was sold.

Acquisition and Restructuring Transaction

Both the partnership income received by the corporate partner and the gain the corporate partner realized from the sale of its interest in the partnership are business income for the corporate partner. Based on multiple factors appertaining to the sale, the gain from the sale is excluded from the corporate partner’s apportionment factor in determining its Colorado tax.

LLC Employee in Colorado

If company does not fall within the protection of P.L 86-272, members of the S corporation must file a Colorado income tax return if the S Corporation has substantial nexus with Colorado.

Income Tax Nexus of Franchisor

Discussion of what items of a franchisor's income would likely be considered in the sales calculation to determine whether company has substantial nexus for income tax purposes.

Apportionment of Combined Report's Income

All corporations meeting the requirements to be included in an affiliated group must be included in the combined corporate income tax return. The affiliated group may calculate its combined income tax liability using the methodology outlined in Department Private Letter Ruling PLR-11-002 for tax years 2014 and prior; however, once adopted by the Department, Affiliated Group must calculate its combined income tax liability using the methodology that will be adopted by the Department in amended Department Regulation 1 CCR 201-2, 39-22-303(11)(c).

Apportionment of Corporate Income Tax

Company, which primarily performs services which it consumes, is akin to a service provider and must apportion its gross receipts based on where the costs to perform the service are incurred rather than the Company’s commercial domicile.

S Corporation Colorado Source of Income

Subchapter S corporations are not subject to Colorado income tax. A Subchapter S corporation is not required to register an income tax account or withholding account with the Department. A Subchapter S shareholder may have an obligation to file an income tax return and pay Colorado income taxes if the person is a resident, or, if not a resident, the nonresident has any income from the sources described in §39-22-109. C.R.S.

Separate Accounting

The Department does not generally allow taxpayers to use separate accounting for an alternative apportionment methodology without extensive and sufficient demonstration as to why separate accounting more fairly reflects taxpayer's business.

Alternative Apportionment

Company may file under an alternative method of apportionment as described in the letter.

Digital Imagery

A static digital image sold under the various methods to various customers is the sale of tangible personal property for purposes of Colorado income tax apportionment. The sale is not a Colorado sale if the destination of the product is not in Colorado and Company is taxable in the destination state. Regardless of whether the destination state treats the sale of digital images to the federal government as sourced to the origination state (Colorado), Company must source a sale to the federal government to the destination state for Colorado apportionment purposes.

C Corporation Income Tax Return

A company engaged only in the solicitation of orders for other companies is liable for income tax if it has nexus in Colorado. Public Law 86-272 does not apply because company is engaged in a service and not the sale of tangible personal property.

Public Law 86-272

A company will exceed the protections of P.L. 86-272 if an employee participates in activities that are considered more than activities closely related to solicitations. A company whose employee regularly accepts returns on behalf of company or regularly handles warranty claims will likely be viewed as having engaged in activities that exceed those protected by P.L. 86-272 and, therefore, subject the company to a Colorado income tax filing obligation.

Colorado Source Income

Out-of-state accounting firm, which has a non-resident employee working remotely in Colorado, has nexus in Colorado if the employee's income exceeds $50,000, and, thus, the firm must allocate income to Colorado based on where the cost to perform the service is incurred.

Net Capital Gain from the Sale of Business Assets

Taxpayer, a limited liability company, and its members cannot subtract from Colorado taxable income net capital gain resulting from the sale of the Taxpayer’s goodwill because the sale did not qualify as a sale of a ownership interest.

Training Classes for Corporations

The provision of education and training is generally a non-taxable service. If tangible personal property is transferred from the educational service provider to the student, this may change the tax obligation. Company may need to remit income tax if it has sufficient nexus to be considered to be doing business in Colorado.

Financial and Non-Financial Institutions File Combined Report

Affiliated corporations must file a combined report that includes both affiliated financial and non-financial institutions.

Apportionment of Income for Debit Card Company

Debit card company is a financial institution and must apportion income based on market approach.

Employee in Colorado Providing Service to Clients Outside Colorado 

A corporation must apportion to Colorado some of its income generated from services provided to customers outside Colorado because a portion of the cost of providing that service was incurred in Colorado.

Income Tax Nexus

Company, whose only contact with Colorado is to make drop shipments of goods to recipients located in Colorado and to maintain a warehouse in Colorado, has nexus with Colorado for income tax purposes and is not protected by PL 86-272.

Tax Returns and Remittance Requirements by Agent / Income Tax for Industrial Banks

Sales tax license and registration must be under taxpayer's name, not agent of taxpayer who invoices and collects tax from lessees. Sale of finance lease accelerates sales tax obligation. General discussion of income tax regarding industrial banks.

Insurance Company Income Tax Nexus

Insurance company does not create nexus if only contact is to register with the Secretary of State to do business in Colorado, but may have nexus if insurance law requires taxpayer to administer claims in state.

Insurance Company Subject  to Gross Premium Tax

An insurance company is exempt from income tax because it is not "subject to" the gross premium tax, even though it is also exempt from gross premium tax.