39-22-110 - Apportionment of Tax for Part-Year Residents and Nonresident Individuals

Basis and Purpose. The basis for this rule is § 39-21-112(1), § 39-22-110, § 39-22-104, § 39-22-323, § 39-22-326, § 39-22-504, and § 39-22-518, C.R.S. The purpose of this rule is to clarify the apportionment of Colorado tax for part-year residents and nonresidents. This rule provides guidance for such apportionment regarding the treatment of federal adjustments to gross income, Colorado additions to income, and Colorado subtractions to income.

(1) Computation of Colorado Income Tax. Colorado income tax of a part-year resident individual is the Colorado income tax calculated as if taxpayer was a full-year Colorado resident (referred to as the "tentative" Colorado income tax) multiplied by the ratio of the Colorado modified federal adjusted gross income divided by the modified federal adjusted gross income ("Ratio"). The Ratio can be greater than one hundred percent and cannot be less than zero.

(a) Modified Federal Adjusted Gross Income (Ratio's denominator). The modified federal adjusted gross income is the taxpayer's federal adjusted gross income modified by the following additions and subtractions:

(i) Additions.

(A) All additions set forth in § 39-22-104(3), C.R.S., except as noted, are added to federal adjusted gross income. The state income tax addback (§ 39-22-104(3)(d), C.R.S.), the gross conservation easement deduction addback (§ 39-22-104(3)(g), C.R.S.) (both of which are discussed in paragraph (1)(a)(iii), below), and the addition described in § 39-22-104(3)(c), C.R.S. are not added to federal adjusted gross income.

(B) Any net operating loss carryforward or carryback deducted in the calculation of the taxpayer's federal adjusted gross income that is not allocated to Colorado pursuant to § 39-22-504(1), C.R.S. is added to federal adjusted gross income.

(C) Shareholder's share of Subchapter S corporation's additions described in § 39-22-323, C.R.S., including the modifications described in §§ 39-22-304 (e.g., foreign tax addition) and 39-22-104, C.R.S. See § 39-22-326, C.R.S. for determining the part-year resident shareholder's income attributable to Colorado is added to federal adjusted gross income.

(ii) Subtractions.

(A) All subtractions set forth in § 39-22-104(4), C.R.S., except as noted are subtracted from federal adjusted gross income. The charitable contribution subtraction (§ 39-22-104(4)(m), C.R.S.) and marriage penalty subtraction (§ 39-22-104(4)(j), C.R.S.) (both of which are discussed in paragraph (1)(a)(iii), below) are not subtracted from federal adjusted gross income.

(B) Railroad retirement benefits are subtracted from federal adjusted gross income. See Department Rule 39-22-104(4)(f) Pension and Annuity Subtraction for additional information.

(C) Colorado net capital gains (§ 39-22-518, C.R.S.) are subtracted from federal adjusted gross income.

(D) Income of a tribal member who lives on a tribal reservation and recognized income on a tribal reservation is subtracted from federal adjusted gross income. McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1973).

(E) Foreign source income of an export taxpayer (§ 39-22-206, C.R.S.) is subtracted from federal adjusted gross income.

(F) Shareholder's share of Subchapter S corporation's subtractions described in § 39-22-323, C.R.S., including modifications pursuant to §§ 39-22-304 and 39-22-104, C.R.S. are subtracted from federal adjusted gross income. See § 39-22-326, C.R.S. for determining the part-year resident shareholder's income attributable to Colorado.

(iii) Certain additions and subtractions listed in § 39-22-104, C.R.S. and listed below are not included in the calculation of the Ratio. The Ratio is based on the taxpayer's federal adjusted gross income. Most modifications in subsection § 39-22-104, C.R.S. (listed in subparagraph (1)(a), above) relate to federal tax items that are used to calculate federal adjusted gross income. However, certain other state modifications in subsection 104 (listed below) relate to federal tax items that are "below-the-line" adjustments and are not used to compute federal adjusted income. Therefore, adding or subtracting the modifications listed below to compute the Ratio would be improper. State modifications not included in the calculation of the Ratio are:

(A) State income tax addback for state income tax claimed as an itemized deduction (§ 39-22-104(3)(d), C.R.S.).

(B) Gross conservation easement addback (§ 39-22-104(3)(g), C.R.S.).

(C) Charitable contribution subtraction (§ 39-22-104(4)(m), C.R.S.).

(D) Marriage penalty subtraction described in § 39-22-104(4)(j), C.R.S.

(b) Colorado Modified Federal Adjusted Gross Income (Ratio's Numerator). The Colorado modified federal adjusted gross income is that portion of taxpayer's federal gross income that is earned during the period of the year when a taxpayer was a resident plus Colorado-sourced income earned when taxpayer was not a resident (see Department Rule 39-22-109 for rules regarding Colorado-source income of a nonresident), and (1) reduced by federal "above-the-line" adjustments to federal gross income that are allocated or apportioned as set forth in subparagraph (1)(b)(i), below, and (2) modified by those additions and subtractions enumerated in subparagraphs (1)(b)(ii) and (iii), below.

(i) Adjustments to Colorado Federal Gross Income. Federal "above-the-line" adjustments are allocated or apportioned when calculating the Colorado modified federal adjusted gross income in order to fairly reflect that portion of taxpayer's federal adjusted gross income which is subject to Colorado income tax.

(A) The following "above-the-line" adjustments are allowed in the ratio of taxpayer's Colorado wages and Colorado self-employment income to taxpayer's total wages and/or total self-employment income:

(I) Educator expenses.

(II) IRA deductions.

(III) Self-employed SEP, SIMPLE, or other qualified plan deductions.

(IV) Business expenses of members of the National Guard and reservists, performing artists and fee-based government officials.

(V) Health savings account and Archer medical savings account deductions.

(VI) Deductible self-employment taxes.

(VII) Self-employment health insurance deductions.

(VIII) Contributions to a 501(c)(18)(D) plan.

(IX) Contributions to a 403(b) plan by certain chaplains.

(B) The following "above-the-line" adjustments are allowed in the ratio of taxpayer's Colorado federal gross income to total federal gross income:

(I) Student loan interest deduction.

(II) Alimony deduction.

(III) Tuition and fees deduction.

(IV) Reforestation amortization and expense deduction.

(V) Repayment of supplemental unemployment benefits under the Trade Act of 1974 if such benefits were included in taxpayer's Colorado modified federal adjusted gross income in a prior tax year.

(VI) Attorney fees and court costs relating to claims for unlawful discrimination claims.

(VII) Attorney fees and court costs relating to an award from the IRS relating to detecting tax law violations.

(C) Domestic production activities deduction is allowed in the ratio of Colorado qualified production activities income to total federal qualified production activities income.

(D) Penalties for early withdrawals from a certificate of deposit or other deferred interest account if paid while a Colorado resident.

(E) Moving expenses for moving into Colorado unless the expenses are incurred when moving out of Colorado and taxpayer becomes a nonresident.

(F) Jury duty pay taxpayer paid his or her employer because the employer paid taxpayer's salary while on jury duty for jury service in Colorado.

(G) Expenses incurred for rental of personal property while a Colorado resident or for rental property located in Colorado.

(ii) Additions to Colorado Adjusted Gross Income. Additions to Colorado adjusted gross income required by § 39-22-104(3), C.R.S. and subparagraph (1)(a)(i), above, are allocated or apportioned when calculating the Colorado modified federal adjusted gross income in order to fairly reflect that portion of taxpayer's modified federal adjusted gross income which is subject to Colorado income tax.

(A) The following additions are always allocated to Colorado when calculating Colorado modified federal adjusted gross income:

(I) A withdrawal from a Colorado medical savings account described in § 39-22-504.7(3)(b)(II) or (III), C.R.S., when contributions to such account were excluded from taxpayer's Colorado taxable income in a prior tax year (§ 39-22-104(3)(f), C.R.S.).

(II) Recapture of prior tuition cost if the contribution or payment into the qualified tuition program was excluded from taxpayer's Colorado taxable income in a prior tax year (§ 39-22-104(4)(i)(III), C.R.S.).

(III) Expenses related to a discriminatory club (§ 39-22-104(3)(e)(I), C.R.S.).

(B) The following additions are allocated to Colorado when calculating Colorado modified federal adjusted gross income to the extent that the underlying or related income or loss was recognized or incurred while taxpayer was a Colorado resident:

(I) Interest income derived from obligations of a state or local government, other than of the State of Colorado or its political subdivisions, and computed as described in § 39-22-104(3)(b), C.R.S.

(II) The addition set forth in § 39-22-104(3)(c), C.R.S. (addition of deduction from federal income for certain lump-sum distributions) does not apply in tax years beginning on or after January 1, 1996. See subparagraph (1)(a)(i)(1), above.

(C) The following additions are allocated to Colorado when calculating Colorado modified federal adjusted gross income to the extent that the underlying or related expenses or losses were from business activity in Colorado or were incurred while the taxpayer was a Colorado resident:

(I) Unauthorized alien labor costs (§ 39-22-104(3)(i), C.R.S.) paid when taxpayer was a resident.

(II) Net operating loss carried over from a tax year beginning prior to January 1, 1987 (§ 39-22-104(3)(a), C.R.S.).

(III) Shareholder's share of Subchapter S corporation's additions pursuant to § 39-22-323, C.R.S. related to business expenses.

(D) The following addition is never allocated to Colorado when calculating Colorado modified federal adjusted gross income:

(I) Net operating loss that is not allocated to Colorado pursuant to § 39-22-504(1), C.R.S.

(iii) Subtractions from Colorado Adjusted Gross Income. Colorado subtractions allowed under § 39-22-104(4), C.R.S. and subparagraph (1)(a)(ii), above, are allocated or apportioned when calculating Colorado modified federal adjusted gross income in order to fairly reflect that portion of the taxpayer's modified federal adjusted gross income that is subject to Colorado income tax.

(A) The following subtractions are allocated to Colorado when calculating Colorado modified federal adjusted gross income to the extent the underlying or related income is included in Colorado gross income determined under subparagraph (1)(b), above:

(I) State income tax refund or credit for overpayment of income tax imposed by Colorado or any other taxing jurisdiction and received when taxpayer was a Colorado resident (§ 39-22-104(4)(e), C.R.S.).

(II) Interest income on obligations of the United States and its possessions (e.g., Guam, Puerto Rico) (§ 39-22-104(4)(a), C.R.S.).

(III) Gain or loss resulting from higher Colorado adjusted basis (§ 39-22-104(4)(b), C.R.S.).

(IV) Qualifying pension / annuity income (§ 39-22-104(4)(f), C.R.S.). See Rule 39-22-104(4)(f) for qualifications and limitations.

(V) Distributions from qualified tuition program (described in § 39-22-104(4)(i), C.R.S.).

(VI) Compensation for exonerated individual (defined in § 39-22-104(4)(q), C.R.S.).

(VII) Income of a tribal member who lives on tribal reservation and recognized the income on a tribal reservation. McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1973).

(VIII) Railroad retirement benefits. (See § 39-22-104(4)(f), C.R.S. and Department Rule 39-22-104(4)(f) for qualifications and limitations.)

(IX) Qualified Colorado net capital gains (§ 39-22-518, C.R.S.).

(X) Contributions by employees to the Public Employee Retirement Association contributions made between and including calendar year 1984 to 1986 and contributions by employee to the Denver Public School retirement plan made in calendar 1986 that were previously subject to Colorado income tax.

(XI) Shareholder's share of Subchapter S corporation's subtractions pursuant to § 39-22-323, C.R.S. related to income.

(B) The following subtractions are always allocated to Colorado when calculating Colorado modified federal adjusted gross income:

(I) Medical savings account contribution (§ 39-22-104(4)(h), C.R.S.).

(II) Wildfire mitigation measures (§ 39-22-104(4)(n), C.R.S.).

(III) Employer matching contribution to adult learner individual trust account or savings account (§ 39-22-104(4)(o), C.R.S.).

(IV) Grant from military family relief fund (§ 39-22-104(4)(p), C.R.S.).

(V) Disallowed expenditure relating to medical and/or recreational marijuana (§ 39-22-104(4)(r) and (s), C.R.S.).

(VI) Payments and contributions to a qualified tuition program (described in § 39-22-104(4)(i)(II), C.R.S.).

(VII) The subtraction allowed under § 39-22-104(4)(c), C.R.S., in an amount necessary to prevent Colorado taxation of Colorado income or gain that was subject in a prior year to Colorado income tax paid by the taxpayer, by a descendant by whose death the taxpayer acquired the right to receive such income, or by a trust or estate from which the taxpayer receives such income.

(C) The following subtraction is allocated to Colorado when calculating Colorado modified federal adjusted gross income to the extent that the underlying or related expenses or losses are from business activity in Colorado or were incurred while the taxpayer was a Colorado resident:

(I) Shareholder's share of Subchapter S corporation's subtractions pursuant to § 39-22-323, C.R.S. related to business expenses. See § 39-22-326, C.R.S. for determining the part-year resident shareholder's income attributable to Colorado.

(2) Part-Year Partners, Trusts, and Estates. For application of the allocation and apportionment of the "above-the-line" adjustments described in subparagraph (1)(b)(i), above, and application of the modifications described in subparagraph (1)(b)(ii), above, to distributions from partnerships to a part-year resident individual partner, see §§ 39-22-202 to 206, C.R.S. For modifications relating to the taxable income of part-year resident trusts and estates, see §§ 39-22-108.5 and 401 to 404, C.R.S.

(3) Computation of Credit for Taxes Paid to Another State. A credit will be allowed for income taxes paid another state. See Department Rule 39-22-108 (credit for taxes paid another state), § 39-22-108.5, C.R.S. (dual resident trust income tax), and Department Rule 39-22-109 (Colorado-source income).

Notes

39-22-110

Colorado Register, Vol 37, No. 14. July 25, 2014, effective 8/14/2014 37 CR 18, September 25, 2014, effective 10/15/2014 37 CR 19, October 10,2014, effective 10/30/2014 37 CR 22, November 25, 2014, effective 12/16/2014 38 CR 04, February 25, 2015, effective 3/17/2015 38 CR 07, April 10, 2015, effective 4/30/2015 38 CR 11, June 10, 2015, effective 6/30/2015 38 CR 22, November 25, 2015, effective 12/15/2015 38 CR 24, December 25, 2015, effective 1/14/2016 38 CR 24, December 25, 2015, effective 1/19/2016 39 CR 01, January 10, 2016, effective 1/30/2016 39 CR 16, August 25, 2016, effective 9/14/2016 40 CR 08, April 25, 2017, effective 5/15/2017 40 CR 12, June 25, 2017, effective 7/15/2017 40 CR 16, August 25, 2017, effective 9/14/2017 40 CR 23, December 10, 2017, effective 1/1/2018 41 CR 14, July 25, 2018, effective 8/14/2018 41 CR 20, October 25, 2018, effective 11/14/2018 42 CR 02, January 25, 2019, effective 12/18/2018 42 CR 02, January 25, 2019, effective 12/18/2018, expires 4/17/2019 42 CR 06, March 25, 2019, effective 4/14/2019 43 CR 04, February 25, 2020, effective 3/16/2020 43 CR 13, July 10, 2020, effective 6/2/2020 43 CR 17, September 10, 2020, effective 9/30/2020 44 CR 03, February 10, 2021, effective 3/2/2021 44 CR 07, April 10, 2021, effective 4/30/2021 44 CR 08, April 25, 2021, effective 5/15/2021 45 CR 01, January 10, 2022, effective 1/30/2022 45 CR 04, February 25, 2022, effective 3/17/2022 45 CR 05, March 10, 2022, effective 3/30/2022 46 CR 11, June 10, 2023, effective 5/2/2023 46 CR 09, May 10, 2023, effective 5/30/2023

1. See Department Rule 39-22-109 for guidance on what constitutes Colorado-source income.