COLORADO DEPARTMENT OF REVENUE
Hearing November 5, 2008, 10:30 p.m., Room 127,
1375 Sherman Street
Denver, Colorado
Proposed
STATEMENT OF BASIS AND PURPOSE
Re: Tax Regulations (1 CCR 201-2): 39-22-301.1, 303.1, 303.3, 303.4, 303.5(1-9), 303.7(1-2), 303.10, 303.11(c and d), 303.12(c), 305, 504, and (1 CCR 201-3): Regulation IV - Colorado Multi-State Compact Tax Regulation IV – Applicability, Regulation IV - Colorado Multi-State Compact Tax Regulation IV.18(a)
Basis
The statutory basis for these regulations is §39-21-112, §§39-22-301, 303, 303.5, 303.7, 305, 504, and §24-60-1301, C.R.S.
Purpose
Regulation 39-22-301.1.Doing business in Colorado. The purpose of the revision is: (a) to make clear that a taxpayer with a substantial presence in Colorado is doing business in the state unless the state is prohibited from imposing its income tax either by the U.S. Constitution or public law 86-272; and (b) to define presumptive thresholds below which a taxpayer’s presence in the state will not be considered substantial. THIS REGULATION HAS BEEN WITHDRAWN FROM THE NOV. 5, 2008 TAX HEARING.
Regulation 39-22-303.1 (apportionment – general). This regulation revises the existing regulation by adding sections (2) through (4). The purpose of this revision is: (a) to relocate regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV., (b) to make the regulation effective only for returns filed for tax years beginning prior to January 1, 2009; and (c) to revise the title of the regulation.
Regulation 39-22-303.3. This regulation revises the existing regulation by changing the numbering from (a), (b), etc. to (1), (2), etc. and by adding subsection 3. The purpose of this revision is to make the regulation effective only for returns filed for tax years beginning prior to January 1, 2009.
Regulation 39-22-303.4. This regulation revises the existing regulation by changing the numbering from (a), (b), etc. to (1), (2), etc. and by adding subsection 3. The purpose of this revision is to make the regulation effective only for returns filed for tax years beginning prior to January 1, 2009.
Regulation 39-22-303.5.1(a) (Business and non-business income). This regulation is a new regulation. The purpose of this regulation is: (a) to relocate regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV; and (b) to make clear that all income is business income unless U.S. Constitutional standards require that it be non-business income.
Regulation 39-22-303.5.1(b) (Other definitions). This regulation is a new regulation. The purpose of this regulation is to provide additional definitions to clarify the application of the §39-22-303.5 C.R.S. and the rules thereunder.
Regulation 39-22-303.5.3 (Apportionment and allocation). This regulation is a new regulation. The purpose of this regulation is to relocate regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV.
Regulation 39-22-303.5.4(a) (Calculation of sales factor). This regulation is a new regulation. The purpose of this regulation is: (a) to relocate certain regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV; and (b) to articulate the statutory requirement that “sales” from the sale of intangible personal property means the gain therefrom and not the gross revenue.
Regulation 39-22-303.5.4(b) (Sales of tangible personal property in this state). This regulation is a new regulation. The purpose of this regulation is to relocate certain regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV.
Regulation 39-22-303.5.4(c) (Sales other than sales of tangible personal property in this state). This regulation is a new regulation. The purpose of this regulation is: (a) to articulate the standards by which the sales factor numerator is calculated for sales of other than tangible personal property; (b) in the case of sales of services, to articulate the meaning of direct costs; and (c) to articulate the meaning of and apportionment rules for purely personal services.
Regulation 39-22-303.5.5 (Non-business income). This regulation is a new regulation. The purpose of this regulation is to articulate the standard by which the situs of tangible personal property is determined.
Regulation 39-22-303.5.6 (Election to treat non-business income as business income). This regulation is a new regulation promulgated as required by §39-22-303.5(6), C.R.S. The purpose of this regulation is to articulate the rules under which a taxpayer must make the election to treat all business as business income.
Regulation 39-22-303.5.7(a). This regulation is a new regulation. The purpose of this regulation is to announce the department’s intentions to reissue special industry regulations and serve as a cross-reference to those regulations.
Regulation 39-22-303.5.7(b). This regulation is a new regulation. The purpose of this regulation is to relocate certain regulatory language previously existing in adopted Multistate Tax Compact regulations under Article IV.
Regulation 39-22-303.5.8 (Income from foreclosures – limited in-state activity). This regulation is a new regulation. The purpose of this regulation is to articulate the non-availability, to anyone filing under 39-22-303.5(8), of the business income election allowed in 39-22-303.5(6). The reason for the inapplicability of the business income election is the contradiction in the rules articulated in subsection (8) of the statute (direct allocation) and the method inherent if the election is made pursuant to subsection (6) (apportionment).
Regulation 39-22-303.5.9 (Apportionment rules and regulation issued pursuant to Article IV of the Multistate Tax Compact). This regulation is a new regulation. The purpose of this regulation is to clarify (a) the applicability of the referenced rules for periods beginning prior to 1/1/09 and (b) the inapplicability of the referenced rules for periods beginning on or after January 1, 2009.
Regulation 39-22-303.7.1 (Other definitions). This regulation is a new regulation. The purpose of this regulation is to provide additional definitions to clarify the application of the §39-22-303.7 C.R.S. and the rules thereunder.
Regulation 39-22-303.7.2 (Application). This regulation is a new regulation. The purpose of this regulation is (a) to provide guidance to the application of §39-22-303.7 C.R.S.; and (b) to provide an example of the calculation called for.
Regulation 39-22-303.10. This regulation revises the existing regulation by revising wording throughout and by adding subsection (4). The purpose of this revision is: (a) to reverse the order of explanations so that the current rule comes first, in (2)(a)(ii), and the rule applicable to years prior to January 1, 2000 comes second in (2)(b); (b) to clarify that the statute allows a credit based only on the foreign tax credit allowed, rather than the foreign taxes paid; and (c) to articulate the new statutory rule that foreign source income remaining in a taxpayer’s Colorado net income is not to be included in the Colorado sales factor numerator.
Regulation 39-22-303.11(c). Apportionment of income on a combined report. This regulation revises the existing regulation by revising existing wording and by adding sections (2), (3), and (4). The purpose of this revision is: (a) to conform the regulation to HB 08-1380; (b) to announce the department’s intention to craft rules explaining how to combined apportionment factors calculated on different bases; and (c) to make the revised regulation effective for tax years beginning on or after January 1, 2009.
Regulation 39-22-303.11(d). This regulation revises existing wording in the regulation. The purpose of this revision is to conform the cross-reference in the regulation to prior revisions.
Regulation 39-22-303.12(c). This regulation repeals the existing regulation and replaces it with the new regulation. The purpose of this regulation is: (a) to articulate the appropriate standard for determining the applicability of §3922303(12)(c) C.R.S. when a corporation has no property and no payroll factors; (b) to apply a de minimis rule in this context; (c) to give an example; and (d) to provide an explanatory comment. THIS REGULATION HAS BEEN WITHDRAWN FROM THE NOV. 5 TAX HEARING
Regulation 39-22-305. Consolidated Returns. This regulation revises the existing regulation. The purpose of this revision is to conform the regulation to the single sales factor methodology and to correct cross-references.
Regulation 39-22-504(2). This regulation revises the existing regulation. The purpose of this revision is: (a) to renumber the regulation; and (b) to articulate the application of the rule regarding carry-forward net-operating losses in the context of the new single sales factor apportionment methodology.
Regulaton IV – Colorado Multi-State Compact Tax Regulation IV – Applicability. This regulation is a new regulation. The purpose of this regulation is to articulate the application of Article IV rules to tax years beginning before January 1, 2009 and to tax years beginning on or after January 1, 2009.
Regulation IV – Colorado Multi-State Compact Tax Regulation IV.18(a). This regulation revises the existing regulation by adding subsection (4). The purpose of this revision is to articulate a de minimis standard in the calculation of payroll, property, or sales factors. THIS REGULATION HAS BEEN WITHDRAWN FROM THE NOV. 5, 2008 TAX HEARING.
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