Colorado ~ Corporate Income Tax: Insufficient Evidence Provided for Nexus Determination

The Colorado Department of Revenue has issued a general information letter in response to a taxpayer’s request for guidance as to whether any corporate income tax liability responsibility exists for a limited liability company that sells technical surveillance equipment products to law enforcement and military customers worldwide and has made an S corporation election. Under the facts presented, the company does not have offices or locations in Colorado, does not conduct business in Colorado, and none of the company’s shareholders have nexus with Colorado. The department notes while an S corporation is not subject to Colorado income tax, members of an S corporation must file a Colorado income tax return if the corporation does business in Colorado or derives income from sources in Colorado. A corporation is considered to be doing business for in Colorado for income tax purposes if it has substantial nexus with Colorado, which will be presumed by the department if the taxpayer exceeds any of the following thresholds in any tax period: $50,000 of property; or $50,000 of payroll; or $500,000 of sales; or 25% of all property, payroll and sales. Even if the company exceeds the substantial nexus thresholds, the company may still not have any Colorado income tax obligations if it falls within the protection of P.L. 86-272. The taxpayer did not provide sufficient information to determine whether the company exceeds the substantial nexus thresholds or to determine if federal law would prohibit the state from requiring the company to pay income tax under P.L. 86-272, if any of the substantial nexus thresholds were met.

GIL-16-001, Colorado Department of Revenue, January 4, 2016 (released May 17, 2016), ¶201-332

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