Colorado has enacted market-based sourcing rules for determining the sales factor for sales of other than tangible property. In tax years starting after 2018, taxpayers will assign or source certain receipts to the apportionment formula based on the market for the sales.
Until 2018, taxpayers will continue using the cost of performance standard.
Market for Sales in Colorado
A taxpayer’s market for sales is 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.
Under the legislation, sourcing rules for marketing intangibles also apply to intangible sales contingent on the productivity, use, and disposition of the property. All other receipts from intangible property are thrown out of the apportionment formula.
Additionally, if the state or states of assignment cannot be determined using the market-based rules, the taxpayer may approximate the state of assignment.
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 are also outlined in the legislation.
Using an a Different Apportionment Method
A taxpayer can petition to use an alternative method of allocation and apportionment. However, the taxpayer must show that the statutes do not fairly represent the taxpayer’s business activity in Colorado.
In such a case, appropriate and uniform rules for alternative allocation and apportionment may be established. Additionally, the legislation allows other alternative methods to be used:
- separate accounting;
- including otherwise excluded receipts;
- including one or more additional factors that will fairly represent the taxpayer’s business activity in Colorado; or
- employing any other method to equitably allocate and apportion the taxpayer’s income.
H.B. 1185, Laws 2018, effective August 8, 2018, applicable as noted