Colorado ~ Multiple Taxes: Nonresident Partners and Shareholders of Partnerships and S Corporations Discussed

CCH Tax Day Report

The Colorado Department of Revenue has revised its guidelines addressing the corporate and personal income tax responsibilities of nonresident partners and shareholders of partnerships and S corporations. Pass-through entities must ensure that their nonresident members pay Colorado income tax on their Colorado-source income. According to the revised guidelines, this obligation can be satisfied in one of three ways:

– the pass-through entity can, at the nonresident member’s election, include the nonresident member in a composite return the pass-through entity files (Form 106) and make a composite payment of tax on the nonresident’s behalf;

– the pass-through entity can file with its Form 106 a signed agreement from the nonresident member (Form DR 0107) by which the nonresident member agrees to file their own individual Colorado income tax return to report and pay any tax the nonresident member owes; or

– the pass-through entity can withhold and remit the applicable tax on the nonresident member’s behalf (Form DR 0108).

If a nonresident member does not elect to be included in a composite return or to sign an agreement to file their own return, the pass-through entity must withhold and remit the applicable tax on the nonresident member’s behalf using Form DR 0108. The appropriate box in Part III of Form 106 must be checked to indicate which option has been selected for each nonresident member. The revised guidelines also address nonresident members; composite returns; the nonresident partner, shareholder, or member agreement (Form DR 0107); nonresident partner or shareholder withholding (Form DR 0108); and provides a list of additional resources.

FYI Income 54, Colorado Department of Revenue, January 2017, ¶201-362

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