39-22-301(1) - Doing Business in Colorado
(1) A corporation is doing business in
Colorado for income tax purposes whenever the minimum standards of Public Law
86-272(15 U.S.C.
381) are exceeded, and it has substantial
nexus with this state as further provided in this rule.
(2)
Substantial Nexus Standard.
(a)
(i)
Business entities that are organized or commercially domiciled in this State
have substantial nexus with this State.
(ii) Business entities organized outside the
State are doing business in this State,have substantial nexus, and are subject
to Colorado filing requirements and, if applicable, Colorado income tax imposed
by Article 22 of Title 39 when in any tax period the property, payroll or sales
of the business in the State, as such property, payroll, and sales are defined
below in Subsection (c), exceeds the thresholds set forth in Subsection
(b).
(b) Substantial
nexus is established if any of the following thresholds is exceeded during the
tax period:
(i) a dollar amount of $50,000 of
property; or
(ii) a dollar amount
of $50,000 of payroll; or
(iii) a
dollar amount of $500,000 of sales; or
(iv) twenty-five percent of total property,
total payroll or total sales.
(c) Property, payroll and sales are defined
as follows:
(i) Property counting toward the
threshold is the average value of the taxpayer's real property and tangible
personal property owned or rented and used in this State during the tax period.
Property owned by the taxpayer is valued at its original cost basis. Property
rented by the taxpayer is valued at eight times the net annual rental rate. Net
annual rental rate is the annual rental rate paid by the taxpayer less any
annual rental rate received by the taxpayer from subrentals. The average value
of property shall be determined by averaging the values at the beginning and
ending of the tax period; but the executive director may require the averaging
of monthly values during the tax period if reasonably required to reflect
properly the average value of the taxpayer's property.
(ii) Payroll counting toward the threshold is
the total amount paid by the taxpayer for compensation in this State during the
tax period. Compensation means wages, salaries, commissions and any other form
of remuneration paid to employees and defined as gross income under Internal
Revenue Code ยง 61. Compensation is paid in this State if (A) the
individual's service is performed entirely within the State; (B) the
individual's service is performed both within and without the State, but the
service performed without the State is incidental to the individual's service
within the State; or (C) some of the service is performed in the State and (1)
the base of operations or, if there is no base of operations, the place from
which the service is directed or controlled is in the State, or (2) the base of
operations or the place from which the service is directed or controlled is not
in any State in which some part of the service is performed, but the
individual's residence is in this State.
(iii) Sales counting toward the threshold
include the total dollar value of the taxpayer's gross receipts from
(A) the sale, lease or license of real
property located in this State;
(B)
the lease or license of tangible personal property located in this
State;
(C) the sale of tangible
personal property other than software or digital products received in this
State as indicated by receipt at a business location of the seller in this
State or by instructions, known to the seller, for delivery or shipment to a
purchaser (or to another at the direction of the purchaser) in this
State;
(D) the sale of software or
digital products for primary use by a purchaser known to the seller to be in
this state; and
(E) the sale, lease
or license of services and intangibles for primary use by a purchaser known to
the seller to be in this State. If the seller knows that a service or
intangible will be used in multiple States because of separate charges levied
for, or measured by, the use at different locations, because of other
contractual provisions measuring use, or because of other information provided
to the seller, the seller shall apportion the receipts according to usage in
each State.
(F) If the seller does
not know where a service or intangible will be used or where a tangible
(including software or a digital product) will be received, the receipts shall
count toward the threshold of the State indicated by an address for the
purchaser that is available from the business records of the seller maintained
in the ordinary course of business when such use does not constitute bad faith.
If that is not known, then the receipts shall count toward the threshold of the
State indicated by an address for the purchaser that is obtained during the
consummation of the sale, including the address of the purchaser's payment
instrument, if no other address is available, when the use of this address does
not constitute bad faith.
(iv) Notwithstanding the other provisions of
this Subsection (c), for a taxpayer subject to the special apportionment
methods under Colorado Special Rules for Allocation and Apportionment of
Corporate Income, the property, payroll and sales for measuring against the
nexus thresholds shall be defined as they were for tax periods prior to 1/1/09
for apportionment purposes under those rules. Such rules are maintained and are
available at the Colorado Department of Revenue, Office of Tax Policy Analysis,
1881 Pierce Street, Lakewood, CO 80214. Financial institutions subject to an
apportioned income or franchise tax shall determine property, payroll and sales
for nexus threshold purposes the same as for apportionment purposes under the
Financial Institutions special rule.
(v) Pass-through entities, including, but not
limited to, partnerships, limited liability companies, S corporations, and
trusts, shall determine threshold amounts at the entity level. If property,
payroll or sales of an entity in this State exceeds the nexus threshold,
members, partners, owners, shareholders or beneficiaries of that pass-through
entity are subject to tax on the portion of income earned in this State and
passed through to them.
(vi) For
purposes of the application of this rule and in order to clearly reflect the
activity of a taxpayer in the state, the executive director may combine the
payroll, property, or sales of two or more entities within a combined group if
the payroll, property, or sales of those entities have been manipulated in
order to artificially fall below the de minimis thresholds of (2)(b)(i) of this
rule.
(3) A
"safe harbor" lease transaction, by itself, does not create nexus for Colorado
income tax purposes.
Notes
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