The Colorado General Assembly has passed legislation that would replace the cost of performance standard with a market-based sourcing standard for purposes of determining the sales factor applicable to sales of other than tangible property. If enacted, businesses would be required to assign or source certain receipts to the apportionment formula based on the market for the sales for tax years beginning after 2018.
Under the legislation, a taxpayer’s market for sales would be in Colorado if the receipts are from:
- the sale, rental, lease, or license of real property located in Colorado;
- the rental, lease, or license of tangible personal property located in Colorado;
- a service delivered to a location in Colorado;
- intangible property used in marketing a good or service that is purchased by a customer in Colorado; or
- a contract right, government license, or similar intangible property that authorizes the holder to conduct business in a specific geographic area in Colorado.
Additionally, sourcing rules for marketing intangibles would also apply to intangible sales contingent on the productivity, use, and disposition of the property. All other receipts from intangible property would be thrown out of the apportionment formula. Under the legislation, if the state or states of assignment cannot be determined using the market-based rules, the taxpayer may approximate the state of assignment.
The legislation also includes rules for allocating a taxpayer’s nonapportionable rents and royalties from real or tangible personal property, capital gains, interest, dividends, and patent or copyright royalties.
H.B. 1185, as passed by the Colorado House of Representatives on May 7, 2018, and passed by the Colorado Senate on May 4, 2018