Colo. Code Regs. 39-22-303.6-3

Current through Register Vol. 47, No. 20, October 25, 2024

Rule 39-22-303.6-3 - Apportionment and Allocation of Income

Basis and Purpose. The bases of this rule are §§ 39-21-112, 39-22-301, 39-22-303, and 39-22-303.6, C.R.S. The purpose of this rule is to provide guidance for determining whether income must be allocated or apportioned. Consistent with the General Assembly's adoption of § 39-22-303.6, C.R.S., these rules are intended to conform the state's income tax laws to the Multistate Tax Commission's model statute and regulation except when those model provisions are inconsistent with Colorado statute. See 2018 Colo. Sess. Laws, ch. 369, § 1(2).

(1)Apportionment. If the business activity with respect to any trade or business of a taxpayer occurs both within and without Colorado, and if by reason of such business activity, the taxpayer is taxable in another state, the portion of the net income (or net loss) arising from such trade or business that is derived from sources within Colorado shall be determined by apportionment in accordance with § 39-22-303.6(4), (5), and (6), C.R.S.

(2)Allocation. Unless electing to treat all income as apportionable income, any taxpayer subject to the taxing jurisdiction of Colorado shall allocate all of its nonapportionable income or loss within or without Colorado in accordance with § 39-22-303.6(7), C.R.S., and the corresponding rules.

(3)Combined Report. If a particular trade or business is carried on by a taxpayer and one or more affiliated corporations, nothing in § 39-22-303.6, C.R.S., or in these rules, shall preclude the use of a "combined report" whereby the entire apportionable income of such trade or business is apportioned in accordance with §§ 39-22-303, 39-22-303.6, 39-22-303.7, or 39-22-303.9, C.R.S.

(4)Taxpayers Subject to Multiple Apportionment Methodologies. A taxpayer may be engaged in two or more distinctly different commercial activities. Each activity may require the use of different apportionment methodologies described in Rules 39-22-303.6 -1 through-17 (regular apportionment of apportionable income) and Special Rules for Allocation and Apportionment 1A through 8A.

(a)Minimal Commercial Activities.

(i) When the sum of the gross receipts of one commercial activity that requires the use of a different apportionment methodology amounts to less than one percent of the taxpayer's total gross receipts, such commercial activity is conclusively minimal and the taxpayer shall apportion the income from the minimal activity in the same ratio that it apportions its gross receipts pursuant to the receipts factor for the remainder of the commercial activity.

(ii) When the sum of the gross receipts of one commercial activity that requires the use of a different apportionment methodology amounts to less than five percent of the taxpayer's total gross receipts, such commercial activity may be minimal depending on the facts. If such commercial activity is considered minimal, the taxpayer shall apportion the income from the minimal activity in the same ratio that it apportions its gross receipts pursuant to the receipts factor for the remainder of the commercial activity.

(b)Commercial Activities that are Not Minimal. If multiple activities give rise to gross receipts that are not minimal, the taxpayer shall use the apportionment methodology most applicable to each commercial activity to separately allocate and apportion Colorado income for such commercial activities. The Colorado taxable income for each commercial activity shall be computed on a separate apportionment schedule. Such Colorado taxable incomes shall then be combined and any net operating loss carryforward applied. Any tax and credits shall then be computed on the total Colorado taxable income.

(c)Examples.

(i)Example (i). Corporation A and Corporation B are an affiliated group of C corporations that are required to file a combined report. Corporation A engages in trucking and Corporation B engages in retail sales of tangible personal property. Corporation A derives all of its income from sales of transportation services to Corporation B. Corporation A and Corporation B have distinctly different commercial activities; however, Corporation A does not derive income from sources outside its affiliate, Corporation B. Corporation A and Corporation B apportion their taxable income pursuant to § 39-22-303.6 C.R.S., and the rules thereunder because of Corporation B's retail sales. Special Rule 6A, regarding the apportionment of trucking income, is not used to apportion Corporation A's income because all of Corporation A's receipts are excluded from the apportionment calculation as intercompany transactions.

(ii)Example (ii). Same facts as Example (i), except Corporation A derives $2 million from sales of transportation services to third-parties who are not part of the affiliated group. Corporation B makes $20 million in sales of its goods to consumers. Total sales of the affiliated group are $22 million. Corporation A must use Special Rule 6A, prescribing apportionment of income for trucking companies, and Corporation B must apportion its income pursuant to § 39-22-303.6, C.R.S., and the rules thereunder. Corporation A and Corporation B must separately calculate their receipts factors using the appropriate methodologies. Each corporation must also calculate separate taxable income for each commercial activity and use the appropriate receipts factor to calculate Colorado taxable income. The combined group then calculates tax and applies any credits generated.

39-22-303.6-3

Colorado Register, Vol 37, No. 14. July 25, 2014, effective 8/14/2014

37 CR 18, September 25, 2014, effective 10/15/2014

37 CR 19, October 10,2014, effective 10/30/2014

37 CR 22, November 25, 2014, effective 12/16/2014

38 CR 04, February 25, 2015, effective 3/17/2015

38 CR 07, April 10, 2015, effective 4/30/2015

38 CR 11, June 10, 2015, effective 6/30/2015

38 CR 22, November 25, 2015, effective 12/15/2015

38 CR 24, December 25, 2015, effective 1/14/2016

38 CR 24, December 25, 2015, effective 1/19/2016

39 CR 01, January 10, 2016, effective 1/30/2016

39 CR 16, August 25, 2016, effective 9/14/2016

40 CR 08, April 25, 2017, effective 5/15/2017

40 CR 12, June 25, 2017, effective 7/15/2017

40 CR 16, August 25, 2017, effective 9/14/2017

40 CR 23, December 10, 2017, effective 1/1/2018

41 CR 14, July 25, 2018, effective 8/14/2018

41 CR 20, October 25, 2018, effective 11/14/2018

42 CR 02, January 25, 2019, effective 12/18/2018

42 CR 02, January 25, 2019, effective 12/18/2018, expires 4/17/2019

42 CR 06, March 25, 2019, effective 4/14/2019

43 CR 04, February 25, 2020, effective 3/16/2020

43 CR 13, July 10, 2020, effective 6/2/2020

43 CR 17, September 10, 2020, effective 9/30/2020

44 CR 03, February 10, 2021, effective 3/2/2021

44 CR 07, April 10, 2021, effective 4/30/2021

44 CR 08, April 25, 2021, effective 5/15/2021

45 CR 01, January 10, 2022, effective 1/30/2022

45 CR 04, February 25, 2022, effective 3/17/2022

45 CR 05, March 10, 2022, effective 3/30/2022

46 CR 11, June 10, 2023, effective 5/2/2023

46 CR 09, May 10, 2023, effective 5/30/2023