Have there been any notable recent developments concerning state and local taxation in your state, including any regulatory changes or case law?
The Colorado General Assembly enacted H.B. 1185 on June 4, 2018, which added C.R.S. §§ 39-22-303.6 and 24-46-105(5) and amended C.R.S. § 39-22-303.5, concerning market-based sourcing for corporate income tax apportionment. Most notably, the bill changed the sourcing rules for certain types of revenue for income tax years beginning on and after January 1, 2019.
Under this new system, receipts for the sale of services or from the sale, lease, license, or rental of intangible property are apportioned to Colorado based not on where the service is performed, but rather where the service is delivered. This aligns Colorado’s income tax laws with the United States’ shift to a more service-based economy; through market-based sourcing, service revenue is assigned to the state in which the service is delivered and is then most likely to subsequently be used. The bill’s effective date was August 8, 2018, subject to a referendum.
In two similar rulings, the Colorado Court of Appeals, in affirming the district court decisions, found that the taxpayer parent corporations could exclude domestic holding companies with no in-state property or payroll from their Colorado combined returns (see Oracle Corp. v. Dep’t of Revenue (Colo. Ct. App., No. 2017COA152, 11/30/17) and Agilent Techs., Inc. v. Dep’t of Revenue (Colo. Ct. App., No. 16CA0849, 11/02/17)). The appellate court focused on the interpretation of 39 Colo. Code Reg. § 22-303.12(c) in declining to adopt the Colorado Department of Revenue’s position limiting the regulation’s application to foreign sales corporations. In response to these cases, the department issued a notice stating that the regulation was intended to address only foreign sales corporations and that it should not apply to domestic holding companies with no foreign operations. The department warns taxpayers not to rely on the regulation until pending litigation on the issue is resolved (see Colo. Dep’t of Revenue Notice regarding Revenue Regulation 39-22-303(12)(c) (February 1, 2018)). Both cases are pending before the Colorado Supreme Court.
Since the beginning of 2018, the Colorado Department of Revenue has adopted and amended several regulations concerning Retail Marijuana Sales and Rules (1 CCR 212-2) and the licensing of Medical Marijuana Testing Facilities (1 CCR 212-1). Specifically, retail sales of marijuana, which were exempted from sales tax by L. 2017, S267, are subject to sales tax levied by any special district or other limited purpose government entity that imposed sales tax on the retail sale of marijuana before July 1, 2017 (L. 2018, S88) (see also L. 2018, S259 (clarifying that marijuana excise taxes are due when unprocessed marijuana is first sold or transferred between retain marijuana cultivation facilities at a rate of 5% of either the contract price or the average market price)).
As of July 30, 2018, retailers must meet new requirements to be relieved of liability for the collection of sales and use tax (1 CCR 201-2: Rule 39-26-105(3)). Rule 39-26-105 clarifies the requirements and conditions under which a retailer is eligible to deduct a retailer’s service fee from the sales tax that they remit (1 CCR 201-4).
What primary and secondary legislation governs the collection and remittance of taxes in your state?
Articles 21 to 29 of Title 39 of the Colorado Revised Statutes govern the collection and remittance of taxes in Colorado (see, for example, C.R.S. §§ 39-21-101 to -305 (regarding procedure and administration); C.R.S. §§ 39-22-101 to -5105 (regarding income tax); C.R.S. §§ 39-26-101 to -804 (regarding sales and use tax)).
What government authorities (at both state and local level) are charged with the collection and administration of taxes, and what are the extent of their powers?
The Colorado Department of Revenue administers the Colorado state-level tax system through the authority vested in the executive director by the Colorado General Assembly to require tax return filings, issue regulations, and conduct hearings regarding tax liability (see C.R.S. § 39-21-112 (detailing the duties and powers of the executive director)). The Colorado Department of Revenue also administers sales and use tax for certain local jurisdictions, including some cities, towns, counties, and districts. These local jurisdictions are generally referred to as “state-administered local jurisdictions” and are listed in Colorado Department of Revenue Publication 1002 (DR 1002). Other local jurisdictions administer their sales and use tax independent of the state-level rules. These jurisdictions are generally referred to as “home rule” jurisdictions and are also listed in DR 1002.
How would you describe the balance between taxes collected at state and local level?
The amount of sales and use tax collected in the aggregate at the local level (e.g., county, city, town, and district) often exceeds the amount collected at the state level. Income tax is imposed at the state level only. There are no local-level income taxes in Colorado.
Tax year and filing deadlines
What is the prescribed tax year in your state and what filing deadlines apply?
The taxable year for the Colorado state income tax is the same as the taxpayer’s year for purposes of the federal income tax (C.R.S. § 39-22-111). The 2017 individual income tax return was due on April 17, 2018 (see Colorado Form 104: Instructions to Individual Income Tax Return (2017); Colo. Dept. of Rev., 2017 Income Tax Due Date).
C corporations are required to file Colorado Form 112: C Corporation Income Tax Return by the same date that the corresponding federal return is due (C.R.S. § 39-22-601(2); Colorado FYI General 15).
The tax return due date for partnerships is the 15th day of the fourth month after the close of the taxable year (C.R.S. § 39-22-601(5), -608(2)). Partnerships engaged in activities in Colorado that would cause a C corporation to be required to file a return must file Colorado Form 106: Pass-Through Entity and Composite Non-resident Income Tax Return on or before the 15th day of the fourth month after the close of the taxable year (C.R.S. § 39-22-601(5); -608(2); Colorado FYI General 15). Partnerships must also file Colorado Form DR 0107: Non-resident Partner, Shareholder, or Member Agreement, which is an agreement to timely file and pay Colorado income taxes for any non-resident partners (C.R.S. § 39-22-601(5)(e) and (f)). Colorado may require certain forms and schedules for partnership income tax returns (see C.R.S. § 39-22-601(5)).
Regarding sales and use taxation, returns and payments are generally due on the 20th day following the last day of the accounting period reported. How often the taxpayer is required to file a sales tax return depends on the sales volume (see DR 0099: Colorado Sales and Use Tax Guide). The rules for filing and payment for home rule jurisdictions are determined by each such jurisdiction and are independent of the state and state-administered jurisdiction.
How competitive is your state in terms of taxation in relation to other states? What is the government’s general policy and approach to taxation?
Colorado has a generally aggressive approach to taxation compared with other states. The Colorado Taxpayer’s Bill of Rights (TABOR), which is a Colorado constitutional amendment giving Coloradans the right to vote on state tax and spending increases, has contributed to this aggressive approach. TABOR limits the ability of Colorado jurisdictions to increase taxes without voter approval. Therefore, jurisdictions often resort to more aggressive interpretations of existing provisions in order to raise adequate revenue to fund public services.
Further, most state taxation systems rely on the principle that the need for public services drives the collection of tax revenue. Colorado, with the implementation of TABOR, follows a different approach: taxes are capped based on a formula that attempts to define the need for public services based on a defined amount of revenue.
Colorado’s state tax system relies heavily on income and capital gains taxes compared with other states.
Corporate income and franchise taxes
How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?
Colorado imposes its corporate income tax on a corporation’s net income, as defined. A corporation’s Colorado “net income” is generally considered to be its federal taxable income as adjusted by certain additions and subtractions (C.R.S. § 39-22-304(1); see C.R.S. § 39-22-303(10) regarding the allocation of foreign source income).
How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?
For tax years beginning prior to January 1, 2019, “business income” is the taxpayer’s net income arising from the transactions and activity in the regular course of its trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations (C.R.S. § 39-22-303.5(1)(a)). Income is business income unless it is clearly classifiable as non-business income (39 Colo. Code Regs. § 22-303.5.1(a)).
For tax years beginning on or after January 1, 2019, Colorado does not define “business income.” Instead, Colorado distinguishes between “apportionable income” and “non-apportionable income” (C.R.S. § 39-22-303.6(1)(a), (c)). Apportionable income includes:
- any income that would be allocable to Colorado under the Constitution, but is apportioned rather than allocated under Colorado law;
- all income that is apportionable under the Constitution and is not allocated under Colorado law, including:
- income arising from transactions and activity in the regular course of a taxpayer’s trade or business; and
- income arising from tangible and intangible property if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer’s trade or business (C.R.S. § 39-22-303.6(1)(a)).
Prior to January 1, 2019, taxpayers may make an irrevocable election, for a tax year, to treat all income as business income, by the extended due date of their tax returns (C.R.S. § 39-22-303.5(6)).
Colorado requires that certain items of non-business income are directly allocated to Colorado without apportionment, including:
- net rents and royalties from real property located in Colorado (C.R.S. § 39-22-303.5(5)(a));
- capital gains and losses from sales of real property located in Colorado (C.R.S. § 39-22-303.5(5)(c));
- interest and dividend income if the corporation’s commercial domicile is in Colorado (C.R.S. § 39-22-303.5(5)(f)); and
- patent and copyright royalties if and to the extent that the patent or copyright was used by the taxpayer in Colorado or that the patent or copyright is used by the taxpayer in a state in which the taxpayer is not taxable and the taxpayer’s commercial domicile is in Colorado (C.R.S. § 39-22-303.5(5)(g)).
Colorado has powers to adjust transfers between related entities similar to the powers granted under I.R.C. § 482. In the case of two or more C corporations, whether domestic or foreign, owned or controlled directly or indirectly by the same interests, the executive director may, to avoid abuse, on a fair and impartial basis, distribute or allocate the gross income and deductions between or among such C corporations in order to clearly reflect income (C.R.S. § 39-22-303(6)).
How is nexus determined for corporate income tax purposes?
Domestic and foreign corporations doing business in Colorado are taxed on net income derived from in-state sources (C.R.S. § 39-22-301(1)). A corporation will be considered to be “doing business in Colorado” whenever the minimum nexus standards of Public Law 86-272 are exceeded and the business entity has substantial nexus with Colorado (Colo. Code Regs. § 39-22-301.1(1)). A corporation is not required to have a physical presence in the state before it can be subject to corporate income tax. Instead, Colorado uses a factor-based nexus standard, under which corporations (excluding those corporations whose activities are protected under Pub. L. No. 86-272) are deemed to have substantial nexus and are subject to corporate income tax if specific thresholds are exceeded during a tax period. Specifically, a taxpayer has substantial nexus in Colorado if the taxpayer exceeds:
- $50,000 of property;
- $50,000 of payroll;
- $500,000 of sales; or
- 25% of total property, total payroll, or total sales in the state (C.R.S. § 39-22-301(1)(d); see 39 Colo. Code Regs. § 39-22-301.1(1) (regarding the application of this test)).
While Colorado has not officially adopted an economic presence standard for corporate income tax purposes, it effectively imposes one by way of the factor presence test, which includes a bright line sales factor test. A corporation is also deemed to have substantial nexus with Colorado if it is organized or commercially domiciled in Colorado (39 Colo. Code Regs. § 22-301.1(2)(a)).
Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?
Colorado effectively recognizes affiliated nexus through its combined reporting regime, which is described in detail below in the “Filing requirements” section (see C.R.S. 39-22-303). For example, if corporation A has nexus in Colorado and corporation B would not have nexus on its own, but meets the criteria of being affiliated with corporation A – including possessing three of the six unity test factors – then corporation B may be required to file a combined return with corporation A.
In the sales and use tax arena, Colorado has affiliate nexus presumptions regarding component members of a controlled group and persons who enter into agreements regarding their Colorado sales (C.R.S. § 39-26-102(3)(e)(I), -102(3)(d)(I)). Colorado presumes that a retailer is “doing business with Colorado” if it is part of a controlled group of corporations and the group has a member with a physical presence in Colorado that does one of the activities as defined in C.R.S. § 39-26-101(3), such as a member that sells under the same or a similar business name tangible personal property or taxable services similar to that sold by the person against whom the presumption is asserted. However, the presumption may be rebutted by showing that the component member with a physical presence did not engage in any activities that are constitutionally sufficient to establish nexus in Colorado. Further, there are specific industries in which the presumption of physical presence does not apply, such as advertising arrangements (C.R.S. § 39-26-102(3)(e)(III)(A)).
What are the applicable corporate income tax rates?
For tax year 2018, the Colorado corporate income tax rate is 4.63% (C.R.S. § 39-22-301(1)(d)).
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
The starting point for determining Colorado taxable income is federal taxable income as reported on Line 30 of a corporation’s federal income tax return. Colorado conforms to the Internal Revenue Code (IRC) on a rolling basis, so any deductions (e.g., depreciation) taken on the federal return need not be modified for determining Colorado net income (Colorado Form 112: Instructions to C Corporation Income Tax Return).
Colorado permits taxpayers to prioritize credits in the order of their choice. Many credits are available in Colorado—for example:
- the new investment tax credit;
- the employer childcare facility investment credit;
- the Colorado job growth incentive credit;
- the preservation of historic structures credit; and
- the low-income housing credit (C.R.S. § 39-22-507.6; see DR 0112CR).
What filing requirements and procedures apply? Are there special filing requirements for groups of company?
Colorado requires C corporations to file Colorado Form 112: C Corporation Income Tax Return by the same date that the corresponding federal return is due, which is the 15th day of the fourth month after the end of the tax year (C.R.S. § 39-22-601(2), -608(2)).
An affiliated group of corporations, as defined in IRC § 1504, has four possible filing alternatives in Colorado:
- combined; and
Each corporation in an affiliated group may file a separate return so long as the corporation does not elect to be part of a consolidated return or meet the mandatory combined reporting rules.
An affiliated group of C corporations may elect to file a single consolidated income tax return rather than filing separate returns for each corporation (C.R.S. § 39-22-303(11)(d); -305; Colo. Code Regs. § 39-22-305(1)). A consolidated Colorado corporate income tax return may be filed for those corporations that are members of an affiliated group of corporations, as defined in IRC § 1504, and are doing business in Colorado (see Colo. Code Regs. § 39-22-305(2)). The net income of all of the corporations included in the consolidated return will be computed using one apportionment method, by means of consolidated factors computed with only those assets, liabilities, income, or expenses of those corporations included in the return.
The making of a consolidated return requires all corporations, which at any time during the taxable year have been members of the affiliated group, to consent to be included in such return. The making of a consolidated return will be considered as such consent (see Colorado FYI Tax Publication No. Income 60, 10/1/2009). Such election will be binding for the year initially elected plus the three subsequent years unless written permission is obtained from the executive director to cease filing consolidated returns. The Colorado income tax liability for an affiliated group of corporations making a consolidated return is based only on the net income of those members of the affiliated group having nexus in Colorado and for which a tax is imposed under C.R.S. § 39-22-301 for that year.
All corporations in an affiliated group that meet certain criteria, as described below, must file a combined return (C.R.S. § 39-22-303(11), (12)). A combined return is an income tax return filed for the includible members of an affiliated group of corporations. A corporation is considered “includible” if:
- an average of 20% of its property and payroll factors as determined under the Multistate Tax Compact (C.R.S. § 24-60-1301) is assigned to locations within the United States;
- it is a member of a group in which more than 50% of the voting power of all classes of stock and more than 50% of each class of the non-voting stock is owned by a parent corporation or another member of the group (C.R.S. § 39-22-303(12)(a)); and
- it meets three or more of the six-part test of unity concerning intercompany connections and transactions for the current and two preceding tax years (see C.R.S. § 39-22-303(11)(a); Colo. Code Regs. § 39-22-303.11(a)(3); Colorado FYI Tax Publication No. Income 60, 10/01/2009).
As stated above, all corporations in an affiliated group that meet three of the six tests of unity for the current and two preceding tax years must file a combined return. However, if one of these corporations is part of an affiliated group that also includes one or more corporations that do not meet three of the six tests of unity, that affiliated group may also be included in a combined and consolidated return if they meet the requirements for inclusion in a consolidated return.
Corporate franchise tax
Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?
Colorado does not impose a corporate franchise tax.
If your state imposes a corporate franchise tax, please stipulate:
1.The applicable tax base.
3.Any exemptions or deductions.
Personal income taxes
How is taxable personal income determined in your state?
Colorado imposes a tax on the federal taxable income of every individual (C.R.S. 39-22-104). Colorado defines modified adjusted gross income as the federal adjusted gross income plus or minus some of the additions and subtractions to federal taxable income that are reported on the Colorado Form 104: Instructions to Individual Income Tax Return (2017). Certain items must be added to federal taxable income, including lump-sum distributions other than from pensions, and certain items may be subtracted from federal taxable gross income, including individual retirement arrangement contributions (C.R.S. §39-22-104(3)(a) to (k) (regarding additions), -104(4)(a) to (x) (regarding subtractions)).
Under what circumstances is an individual deemed resident in your state for personal income tax purposes?
Colorado collects tax on Colorado income from residents and tax on Colorado source income for non-residents (C.R.S. §39-22-103(8)(a), -109).
Colorado defines a “resident” as a natural person who:
- is domiciled in Colorado or maintains a permanent place of abode in Colorado; and
- spends in the aggregate more than six months of the taxable year in Colorado (C.R.S. § 39-22-103(8); 39 Colo. Code Regs. § 22-103(8)(a)).
There are two tests for determining residency. The first test focuses on “domicile,” which is determined by evaluating various factors, such as the intent to establish a domicile, the location of family, the type of real estate ownership, and voter registration (see 39 Colo. Code Regs. §§ 22-103(8)(a)(2)(b), (c), -(8)(a)(3)(c)). The second test, called the “statutory residence rule” or “six-month rule,” provides that a taxpayer is a Colorado resident if it has a “permanent place of abode” in Colorado and is physically in the state for more than six months of the year (39 Colo. Code Regs. § 22-103(8)(a)(3)).
What are the applicable personal income tax rates?
Colorado’s income tax rate for individuals, estates and trusts is 4.63% of federal taxable income (C.R.S. § 39-22-104(1.7)).
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
Colorado does not offer standard or itemized deductions because taxpayers’ federal taxable income is the starting point for determining their income tax liability. Taxpayers who itemize deductions on their federal tax returns must add back on the Colorado return any state income tax included in their federal deductions (see C.R.S. § 39-22-104(3)(d); Colorado Form 104: Individual Income Tax Return; Colorado FYI Income 4). As discussed above, Colorado law imposes certain additions and subtractions to federal taxable income that may modify the ultimate taxable income figure.
Colorado does not grant a Colorado personal exemption to resident taxpayers (C.R.S. § 39-22-106).
Colorado offers a credit for income taxes paid to another state or country (C.R.S. § 39-22-108; 39 Colo. Code Regs. § 22-108). Taxpayers may claim a credit for taxes paid to another state only on income sourced within the other state.
Colorado also offers credits for miscellaneous purposes, such as for economic development incentives, low-income credits, and environmental incentives.
What filing requirements and procedures apply?
The Colorado Individual Income Tax Form 104 is due on the 15th day of the fourth month following the close of the taxable year (C.R.S. § 39-22-608(2); Colorado Form 104: Instructions to Individual Income Tax Return).
What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (e.g., withholding)?
Colorado employers must withhold taxes from wages paid to an employee who is a Colorado resident or a non-resident of Colorado working in Colorado if such wages are subject to federal income tax withholding (see C.R.S. § 39-22-604(3); 39 Colo. Code Regs. § 22-604; see also Colo. Dept. of Rev., Colorado Income Tax Withholding Tables for Employers, effective Jan. 2017).
Sales and use taxes
What goods are subject to sales and use tax in your state (at both state and local level)?
All tangible personal property sold or used in Colorado is subject to Colorado sales and use tax unless a specific exemption applies (C.R.S. § 39-26-104(1)(a)). Colorado imposes a state sales tax on the purchase price of tangible personal property and a use tax on the acquisition cost for the privilege of storing, using or consuming any article of tangible personal property purchased at retail price (C.R.S. § 39-26-106(1)(a)(II), -26-202). Colorado defines “tangible personal property” as all goods, wares, merchandise, products and commodities, and all tangible or corporeal things and substances which are dealt in, capable of being processed and exchanged, except newspapers. Colorado provides that “intangible personal property,” which constitutes mere rights or action having no intrinsic value, such as contracts, deeds, mortgages, is excluded from the definition of “tangible personal property” (39 Colo. Code Regs. § 26-102.15).
What is the state sales tax rate?
Colorado imposes a uniform state sales and use tax across the state at a rate of 2.9% (C.R.S. § 39-26-106(1)(a)(II)). In 2018, localities imposed sales and use tax at rates ranging from 0% to 7.25% (see Colorado Dept. of Rev., Colorado Sales/Use Tax Rates).
What is the range of local sales tax rates levied in your state?
Colorado permits local jurisdictions to impose local sales and use taxes, the rate of which varies by jurisdiction. Cities, counties, and special districts may levy sales and use taxes on approval by a majority of the registered electors of the county voting on such a proposal (C.R.S. § 29-2-102 (for municipalities); C.R.S. § 29-2-103 (for counties)).
There are two types of local taxing jurisdictions:
- state-administered jurisdictions; and
- home rule jurisdictions.
If a jurisdiction—including a county, city, or special taxing district—is state-administered, the Colorado legislature has authorized by statute the imposition of a sales and use tax which is administered by the Colorado Department of Revenue (see Colorado FYI General 5; Colorado Dept. of Rev., Form DR 1002). Home rule jurisdictions, on the other hand, are municipalities organized under Article XX of the Colorado state constitution. Home rule jurisdictions are permitted by the Colorado constitution to impose, administer, or enforce any local sales and use tax without being affected or limited by acts of the Colorado state legislature (except for those acts specifically dealing with home rule jurisdictions) (C.R.S. § 29-2-107(1)). The Colorado Department of Revenue publishes the sales and use tax rates twice a year for state-administered and home rule jurisdictions in DR 1002.
What goods are exempt from sales and use tax?
All retail sales of tangible personal property are subject to tax unless specifically exempted. Sections 701 to 729 of Article 26 of Title 39 of the Colorado Revised Statutes lists the various goods, services, and transactions that are exempt from sales and use taxes. For example, prescription drugs, insulin and insulin supplies, and medical supplies prescribed by a doctor are exempt from state and state-collected local sales taxes (see DR 0099: Colorado Sales and Use Tax General Information and Reference Guide). The seller has the burden of proving that a transaction is properly exempted (see Instructions for State of Colorado Affidavit of Exempt Sale).
Are any services taxed?
Unlike sales of tangible personal property that are generally presumed taxable, sales of services are exempted unless specifically designated as taxable (C.R.S. § 39-26-104(1)(a); C.R.S. § 39-26-202(1); 39 Colo. Code Regs. § 26-102.9). Those services specifically designated as taxable include:
- telephone and telegraph services;
- gas and electric service sold for commercial consumption and not for resale;
- food and drink services; and
- rooms or accommodation.
The main factor in determining whether a particular transaction involves selling or transferring tangible personal property incidental to performing a service is the true object of the contract (Colo. Code Regs. § 1 CCR 201-5:SR-40; Colorado FYI Tax Publication No. Sales 52, 12/01/1993).
What filing requirements and procedures apply?
Any taxpayer required to pay or collect and remit sales and use taxes must file a return and accompanying payment with the Colorado Department of Revenue’s executive director. Generally, returns must be filed online or postmarked on or before the 20th day of the month following the reporting period. How often a taxpayer is required to file a sales tax return depends on the sales volume:
- If the sales tax collected is $15 or less per month, an annual filing requirement applies;
- If the sales tax collected is less than $300 per month, a quarterly filing requirement applies; and
- If the sales tax collected is $300 per month or more, a monthly filing requirement applies (see DR 0099: Colorado Sales and Use Tax General Information and Reference Guide, Page 5).
Unless an exception applies, every retailer, for example, must file a monthly return to the Colorado Department of Revenue before the 20th day of each month for the preceding calendar month in which the tax accrued (C.R.S. § 39-26-105(1); C.R.S. § 39-26-204(3); 39 Colo. Code Regs. § 26-105.1). Sales tax returns can be filed online or by filing form DR 0100: Colorado Retail Sales Tax Return. A sales tax return is due for every period, even if no tax has been collected or is due.
The consumer use tax is a complement to the sales tax. It is payable to the state when sales tax is due but has not been collected on purchases that did not include sales tax, such as those made over the Internet, by mail order or by telephone or from out-of-state vendors if the item is sold, leased or delivered in Colorado for use, storage, distribution or consumption in the state (see FYI General 10: Consumer Use Tax). Use taxes are reported in the state column of form DR 0252: Consumer Use Tax Return. Business consumer use tax is paid annually if the total use tax owed is less than $300 per year. If the total use tax owed exceeds $300 at the end of any month, the return is due monthly (see DR 0099: Colorado Sales and Use Tax General Information and Reference Guide, Page 7).
State retailer’s use taxes are reported in the state column of form DR 0173: Retailer’s Use Tax Return. A retailer’s use tax return is due every period, even if no tax has been collected or no tax is due. How often a retailer must file a use return depends on the sales volume, which mirrors the thresholds for filing a sales tax return.
How is the value of property assessed for tax purposes in your state? Which types of property are subject to tax?
County assessors are responsible for listing and valuing most real and personal property. They list and value all real property on a two-year reappraisal cycle, where property is valued every odd-numbered year. Personal property is valued each year, with assessments being based on schedules or statements filed by taxpayers (C.R.S §§ 39-1-103(5)(a), -104; §§39-5-101, -107(1), -108; § 39-10-102).
What is the state property tax rate?
Colorado does not currently impose a property tax for state purposes (see Colorado Dept. of Local Affairs, 2013 Annual Report: Certification of Levies and Revenues by County).
What is the range of local property tax rates levied in your state?
Counties, cities, and districts in Colorado levy different tax rates based on the needs of each locality and the assessed valuation of property in that county, city, or district. Each locality calculates a tax rate based on how much revenue the locality needs to raise. The tax must first be certified by the Board of County Commissioners. After that, the board levies the tax and certifies it to:
- the assessor;
- the administrator;
- the division of local government; and
- the department of education.
All of the tax rates applicable to an individual property are combined to equal a total tax rate, and the property’s assessed value is multiplied by the total tax rate to determine the taxes due (see Colo. Const. Art. X, § 3(1)(b); C.R.S. § 39-1-104.2(3)(n); C.R.S. § 39-1-104, -111; C.R.S. § 39-5-128). The Colorado Department of Local Affairs provides an annual report providing the taxes imposed by each county, city, and district in that year (see Colorado Dept. of Local Affairs, 2013 Annual Report: Certification of Levies and Revenues by County).
Taxable property in Colorado is assessed at 29% of its actual value. However, residential property is limited to an assessment rate of 21% of its actual value. This rate is adjusted every two years by the Colorado General Assembly. Currently, residential real property is valued for assessment at 7.2% of its actual value (C.R.S. §§ 39-1-104(1), (1.5); § 39-1-111).
Exemptions and deductions
What exemptions and deductions are available?
Property is not exempt from taxation unless it is specified as exempt in the Colorado state constitution, which details full and partial exemptions based on the property type or on the individual or organization that holds the property (Colo. Const. Art. X). Specified classes of personal property, public property, and property used for religious worship, school, and charitable purposes are completely exempt from property taxation. Colorado offers homestead exemptions for qualified owners, such as those aged 65 and over, disabled veterans, and their surviving spouses.
What filing requirements and procedures apply?
Property taxes are due on January 1 of the year following the tax levy and become delinquent on June 16 of that year (C.R.S. § 39-10-102). Taxpayers may elect to pay the tax in two installments, the first of which is due by the last day of February and the second by June 15 (C.R.S. § 39-10-104.5). The administrator provides all of the forms necessary for property valuation, assessment, and collection, which can all be found on the Division of Taxation’s website (see C.R.S. § 39-2-109, Colo. Dept. of Rev., Div. of Tax., “Forms”). The county treasurer will accept payment of taxes by any person at any time after receiving the tax list and warrant from the assessor (C.R.S. § 39-10-102(2)).
Real estate transfer tax
How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?
Every person offering for recording in the office of the county clerk and recorder any deed or instrument in writing in which title to real property situated in the state is granted or conveyed is liable for a documentary fee (C.R.S. § 39-13-102(1)). The documentary fee is levied when the total consideration paid by the purchaser exceeds $500, inclusive of the amount of any lien or encumbrance against the real property being conveyed (C.R.S. § 39-13-102(2)(b)). The fee is calculated at the rate of $0.01 for each $100, or major fraction, of the total consideration paid by the purchaser. Colorado provides for several exemptions from the transfer tax, which are listed in C.R.S. § 39-13-104. The conveyance documents subject to the documentary fee must be accompanied by a real property transfer declaration (TD-1000), which must be completed and signed by the grantor or grantee (C.R.S. § 39-14-102(1)(a)). The fee is payable and collected by the county clerk and recorder at the time of recording (C.R.S. § 39-13-102 (1), (3)).
Unclaimed and abandoned property
Reporting and remittance
Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?
Generally, all intangible property that has remained unclaimed by the owner for more than five years after it became payable or distributable is presumed abandoned (C.R.S. § 38-13-103). The state may presume that intangible property is abandoned if several conditions are met, such as that the last-known address of the apparent owner is in Colorado and the transaction out of which the property arose occurred in Colorado (C.R.S. §§ 38-13-104). The period for when a type of property becomes “dormant” and subject to unclaimed property rules varies based on the type of property involved (see C.R.S. §§ 38-13-103 to 108 for various dormancy periods).
If a person is the holder of any tangible or intangible property that is presumed to be abandoned and subject to custody by the state, the holder must send written notice to the apparent owner’s last-known address, informing such owner that the holder is in possession of the property. If the value of the property is $25 or more, the holder must report to the administrator concerning the nature of the unclaimed property (C.R.S. § 38-13-110(2)). Unclaimed property reports must be filed by November 1 of each year (C.R.S. § 38-13-110(4)(a)). Holders of unclaimed property file a report using Colorado Forms A and B: Reports of Unclaimed Property. The holder is required to pay or deliver to the administrator the abandoned property at the time the report is filed (C.R.S. §38-13-112).
Once the property has been paid or delivered to the administrator, the state assumes custody and responsibility for the safekeeping of the property and the holder is relieved of all liability to the extent of the value of the property paid or delivered to the state (C.R.S. § 38-13-113).
Colorado is not aggressive in its enforcement of its rights to unclaimed property.
Excise and other indirect taxes
What excise taxes are levied in your state, including applicable goods, rates, and filing formalities?
Taxable good or service
Cigarettes and tobacco products
C.R.S. § 39-28-103; § 39-28.5-102; §39-28.5-104; § 39-28-102
C.R.S. § 12-47-503(1)(a); § 12-47-53(1)(c); § 12-47-503(1)(b)(II)
Annual specific ownership tax on the taxable value of motor vehicles (in lieu of personal property tax) for the period which the individual owns the vehicle.
The rate assessed on the original taxable value decreases the first four years of the vehicle’s service, maintains the same for the fifth through the ninth years of service, and then reduces to a minimum for the 10th and later years of service.
C.R.S. § 42-3-106; § 42-3-107; § 42-3-304
Fuels and minerals
Petroleum storage tank fees, environmental response surcharges, and oil and gas conservation taxes are imposed on certain operators or owners.
Severance taxes are imposed on oil or gas, molybdenum, coal, oil shale, and metallic minerals.
C.R.S. §§ 39-27-102, 39-27-101, 39-27-102.5; §§ 8-20.5-102, 8-20-206.5, 34-60-122, 34-60-124; §§ 39-29-105, 39-29-104, 39-29-106(1), 39-29-102(1), 39-29-107(1), 39-29-103(1)
The Colorado Public Utilities Commission fee is imposed on all public utilities except motor vehicle carriers subject to the passenger-mile tax. The fee is set on or before June 1 of each year based on the aggregate amount of gross operating revenues of all of the public utilities that filed reports by May 15.
C.R.S. § 40-2-109
Colorado imposes an insurance premiums tax on all insurers doing business in the state based on the gross amount of premiums collected or contracted for on policies or insurance contracts covering in-state property or risks.
The rules vary for captive insurers and mutual protective associations.
C.R.S. §§ 10-1-102(4), 10-3-209, 10-6-128(2), 10-12-104
Colorado has permanently banned internet taxation.
C.R.S. §§ 29-1-1001
Other indirect taxes
Are any other indirect taxes levied in your state?
See the above table.
Do any other taxes apply to businesses in your state? If so, please include applicable tax bases, rates, exemptions/deductions, and filing formalities.
The secretary of state charges various fees for processing certain administrative tasks (e.g., the issuance of certificates and business filings) for business entities, including corporations, partnerships, and limited liability companies. The fees vary depending on the nature of the task and the type of entity making the request.
Miscellaneous taxes and fees are imposed, such as:
- a healthcare provider tax (C.R.S. § 25.5-4-402.4);
- a gaming tax (C.R.S. § 12-47.1-601, Colo. Code Regs. § 1 CCR 2017-1(47.1-1401));
- a horse racing tax (C.R.S. § 12-60-701, 705);
- a greyhound racing tax (C.R.S. § 12-60-701, 705);
- a hazardous waste tax (C.R.S. § 25-15-302; Colo. Code Regs. § 6 CCR 1007-3:262.13(a), 3:100.31);
- a solid waste tax (C.R.S. § 25-16-104.5);
- a tire recycling fee (C.R.S. § 30-20-1403);
- an environmental response surcharge (C.R.S. § 8-20-206.5);
- a radioactive waste fee (C.R.S. § 24-60-2202); and
- a bail bond tax (C.R.S. § 12-7-111, § 10-3-209(1)).
Municipalities can license, regulate, and tax businesses in their jurisdiction, but Colorado reserves certain activities to tax and regulate itself, including:
- alcoholic beverage regulation;
- the taxation and licensing of cigarette and tobacco product importation and sale; and
- motor vehicle licensing and taxation (C.R.S. § 3l-15-501).
Does your state offer any tax incentive schemes to attract businesses and promote investment?
Colorado provides many tax credits, incentives, and programs to attract business and promote investment. The New Colorado Investment Credit is available to corporate taxpayers that invest in certain property located in Colorado (C.R.S. § 39-22-507.6). Taxpayers establishing new business facilities or expanding existing business facilities in Colorado are eligible for a tax credit (C.R.S. § 30-11-123).
Enterprise Zone Tax Credits encourage businesses to locate and expand in designated economically distressed areas of the state. The Job Growth Incentive Tax Credit is a performance-based program for businesses that pursue job creation projects in the state (see C.R.S. § 39-30-104(4)). The Job Growth Incentive Tax Credit-Higher Education Partnership is a program for businesses partnering with state higher education institutions to support job growth, academic development, and economic expansion. Taxpayers which provide eligible services for their employees who receive public assistance are eligible for a tax credit (C.R.S. § 39-22-521).
Businesses that create jobs in Colorado are eligible for a tax credit (C.R.S. § 39-22-531). The Strategic Fund Incentive is a performance-based program that encourages recruitment, retention, and economic growth by supporting Colorado Economic Development Commission-approved businesses that have created and maintained permanent net new jobs for one year. Colorado FIRST is a job training program that focuses on companies relocating to or expanding in Colorado and provides funds only to net new hires.
What tax compliance procedures and best practices should businesses operating in your state be aware of?
The Colorado Department of Revenue publishes many resources to help businesses (and other taxpayers) comply with local tax rules. Specifically for corporations, the Colorado Department of Revenue most recently published its Best Practices Guide for preparing income tax returns, including a list of new credits and subtractions and information on payment and filing of consumer use tax for businesses.
The DR 0800, published by the Colorado Department of Revenue, provides an updated list of location and jurisdiction codes for filing sales tax returns.
What strategic planning considerations should businesses operating in your state bear in mind to optimize tax efficiency?
Colorado is one of the few states in the United States with local administration of sales and use tax. Home rule jurisdictions may, and frequently do, set their own definitions, exemptions, and compliance obligations. In national surveys, Colorado frequently ranks among the most difficult states for multistate taxpayers to conduct business in. Unless and until Colorado creates processes for central administration to facilitate single returns and payments, single audits, and uniformity for tax appeals, businesses should consult with their tax and legal professionals.