C.R.S. § 39-22-303.5 — Single-factor apportionment of business income - allocation of nonbusiness income - rules - definitions

(1) As used in this section, unless the context otherwise requires: (a) Business income means the net income of the taxpayer arising from the transactions and activity in the regular course of a taxpayer's 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. For purposes of administration of this section, the income of the taxpayer is business income unless clearly classifiable as nonbusiness income. (b) Commercial domicile means the principal place from which the trade or business of the taxpayer is directed or managed. (c) Nonbusiness income means all income other than business income. (d) Sales means all gross receipts of the taxpayer not allocated under subsection (5) of this section and not otherwise excluded from the calculation of net income; except that, for the sale of intangible property, sales means the gain from the sale and not the gross receipts. (e) State means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof. (f) Taxpayer means a C corporation or any nonresident individual, nonresident partner, or S corporation that is permitted or required pursuant to another provision of law to apportion and allocate revenue pursuant to this section. (2) (a) For income tax years commencing prior to January 1, 2009, a taxpayer shall apportion and allocate income pursuant to section 24-60-1301, C.R.S., or apportion income pursuant to section 39-22-303, as those sections existed immediately prior to January 1, 2009. (b) For income tax years commencing on or after January 1, 2009, but prior to January 1, 2019, a taxpayer shall apportion and allocate the taxpayer's entire net income as provided in this section. (3) (a) If a taxpayer has no income from business activity outside of Colorado, the taxpayer's entire net income shall be allocated to Colorado. (b) A taxpayer having income from business activity that is taxable both within and without Colorado shall apportion and allocate the taxpayer's net income as provided in this section. (c) For purposes of apportionment and allocation of income under this section, a taxpayer is taxable in another state if: (I) In that state, the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, a corporate stock tax, or any similar tax; or (II) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state subjects the taxpayer to such tax. (4) (a) A taxpayer's business income shall be apportioned to Colorado by multiplying such business income by a fraction, the numerator of which is the total sales of the taxpayer in Colorado during the tax period and the denominator of which is the total sales of the taxpayer everywhere during the tax period. (b) Sales of tangible personal property, including gross receipts from leases and other uses of tangible personal property, are in Colorado if: (I) The property is delivered or shipped to a purchaser in Colorado regardless of the f.o.b. point or other conditions of the sale; or (II) The property is shipped from an office, store, warehouse, factory, or other place of storage in Colorado and the taxpayer is not taxable in the state to which the property is shipped. (c) Sales, other than sales of tangible personal property, are in Colorado as follows: (I) Revenue from services rendered in Colorado; (II) Rents and royalties from real property located in Colorado; (III) Gross proceeds from the sale of real property located in Colorado; (IV) Interest and dividend income to the extent included in taxable income, if the taxpayer's commercial domicile is in Colorado; (V) Gain from the sale of intangible property if the taxpayer's commercial domicile is in Colorado; (VI) Patent and copyright royalties, if and to the extent that: (A) The patent or copyright is utilized by the payer in Colorado; or (B) The patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in Colorado; and (VII) Revenue from the performance of purely personal services, if the income-producing activity is performed in Colorado. (d) Notwithstanding any other provision of this subsection (4), in apportioning the income of a taxpayer engaged in the business of publishing magazines or periodicals either through print or electronic media, sales related to advertising in magazines or periodicals shall be part of the taxpayer's total sales in Colorado only to the extent that such magazines or periodicals are delivered within Colorado. The determination of the extent to which magazines or periodicals are delivered within Colorado shall be based upon the ratio that the delivery of magazines or periodicals by such taxpayer or tax-reporting entity in Colorado bears to the total delivery of magazines and periodicals by such taxpayer or tax-reporting entity. (e) Notwithstanding any other provision of law, no foreign source income that is included in taxable income shall be included as sales of the taxpayer in Colorado for purposes of apportioning business income pursuant to this subsection (4). (f) For purposes of subparagraph (VI) of paragraph (c) of this subsection (4) and paragraph (g) of subsection (5) of this section: (I) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If the basis of the receipts from the patent royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located. (II) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located. (5) A taxpayer's rents and royalties from real or tangible personal property, capital gains, interest, dividends, patent or copyright royalties, or other income, to the extent that they constitute nonbusiness income, shall be allocated as follows: (a) Net rents and royalties from real property located in Colorado shall be allocated to Colorado; (b) (I) Net rents and royalties from tangible personal property shall be allocated to Colorado: (A) If and to the extent that the property is utilized in Colorado; or (B) In their entirety if the taxpayer's commercial domicile is in Colorado and the taxpayer is not organized under the laws of, or taxable in, the state in which the property is utilized. (II) For purposes of this paragraph (b), the extent of utilization of tangible personal property in Colorado shall be determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in Colorado during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property shall be utilized in the state in which the property was located at the time the rental or royalty payer obtained possession. (c) Capital gains and losses from sales of real property located in Colorado shall be allocated to Colorado; (d) Capital gains and losses from sales of tangible personal property shall be allocated to Colorado if: (I) The property had a situs in Colorado at the time of the sale; or (II) The taxpayer's commercial domicile is in Colorado and the taxpayer is not taxable in the state in which the property had a situs; (e) Capital gains and losses from sales of intangible property shall be allocated to Colorado if the taxpayer's commercial domicile is in Colorado; (f) Interest and dividends shall be allocated to Colorado if the taxpayer's commercial domicile is in Colorado; (g) Patent and copyright royalties shall be allocated to Colorado if and to the extent that: (I) The patent or copyright is utilized by the payer in Colorado; or (II) The patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in Colorado; and (h) Nonbusiness income that is not otherwise allocated pursuant to this subsection (5) shall be allocated pursuant to subsection (7) of this section. (6) Notwithstanding any other provision of this section, for each taxable year commencing on or after January 1, 2009, but prior to January 1, 2019, a taxpayer may elect to treat all income as business income. This election shall be made in accordance with rules adopted by the department of revenue and shall be made by the extended due date of the tax return. Once made, the election shall be irrevocable for such tax year. (7) (a) In the case of certain industries where unusual factual situations produce inequitable results under the apportionment and allocation provisions of this section, the executive director shall promulgate rules for determining the apportionment and allocation factors for each such industry, but such rules shall be applied uniformly. (b) If the apportionment and allocation provisions of this section do not fairly represent the extent of the taxpayer's activities in Colorado, the taxpayer may petition for, or the executive director may require, with respect to all or any part of the taxpayer's business activities, if reasonable: (I) Separate accounting; (II) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in Colorado; or (III) The employment of any other method to effectuate an equitable apportionment or allocation of the taxpayer's income, fairly calculated to determine the net income derived from or attributable to sources in Colorado. (c) If the executive director requires the taxpayer to change its present method of reporting, the executive director shall notify the taxpayer in writing of the reason for the required change. The notice shall be made by first-class mail as set forth in section 39-21-105.5 and shall be sufficiently particular to give the taxpayer adequate information as to the reasons for the change so that the taxpayer may frame an answer for and defend its present method of reporting if it decides to appeal. (d) The department of revenue, from time to time, shall publish all rulings of general public interest with respect to any application of the provisions of this subsection (7). (e) If requested by the director of research of the legislative council, the executive director shall require taxpayers to provide additional information related to apportionment and allocation of income to support an income tax return for the purpose of providing such information to legislative council staff to improve the accuracy of fiscal notes and reports to the legislature. The executive director shall aggregate such additional information so as to preserve the confidentiality of the taxpayer's information and comply with section 39-21-113. (8) A bank, savings and loan, credit union, or other taxpayer making or purchasing loans whose only business activity within Colorado is the ownership of property acquired through the process of foreclosure, or was obtained through a procedure exercised in lieu of the entity exercising its right to foreclose, which property is later disposed of within twenty-four months after obtaining ownership, shall directly allocate net income for such property during such time and any gains or losses realized from the sale of such foreclosed property to the state where the property is located. Such limited activities shall not render a bank, savings and loan, credit union, or other entity subject to the other allocation and apportionment provisions of this section. (9) The executive director shall promulgate rules in accordance with article 4 of title 24, C.R.S., to apply and administer the provisions of this section. Any rules that the executive director promulgated in order to apply and administer section 39-22-303 or 24-60-1301, C.R.S., that may be used to apply and administer the provisions of this section, including provisions to apply and administer the sales factor for special industries, which are set forth in 1 CCR 201-2, shall continue to be in effect unless inconsistent with the provisions of this section or specifically withdrawn by the executive director. (10) On or before January 1, 2014, the director of the office of economic development shall prepare a report describing the economic impacts related to apportionment and allocation of taxable income pursuant to this section and deliver the report to the finance committees of the senate and house of representatives, or any successor committees. Source: L. 2008: Entire section added, p. 958, § 8, effective January 1, 2009. L. 2010: IP(4)(f) amended, (HB 10-1422), ch. 419, p. 2121, § 174, effective August 11. L. 2018: (2)(b) and (6) amended, (HB 18-1185), ch. 369, p. 2231, § 3, effective August 8. Cross references: For the legislative declaration in HB 18-1185, see section 1 of chapter 369, Session Laws of Colorado 2018.