Special Rules - Income Tax

Current through Register Vol. 47, No. 19, October 10, 2024

Section - Special Rules - Income Tax

Special Rule 1A. AirlinesSingle Sales Factor Apportionment.

The following special rule is established in respect to the allocation and apportionment of income for airlines.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to subsection a) and apportion its business income using the sales factor set forth in subsection d), below. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. An airline that has income from sources both within and without Colorado shall determine income in accordance with this rule. Income shall first be categorized as to "business" or "nonbusiness" income pursuant to Rule 39-22-303.5 -1. Nonbusiness income will be directly allocated to specific states in accordance with § 39-22-303.5 C.R.S. Business income will be apportioned to those states in which business is conducted based on the apportionment factor(s) as set forth in this rule.

(b)Definitions:

(i)"Business and Nonbusiness Income." For definitions and rules for determining business and nonbusiness income, see Rule 39-22-303.5 -1.

(ii)"Value" of owned real and tangible personal property shall mean its original cost.

(iii)"Cost of aircraft by type" means the average original cost or value of aircraft by type that are ready for flight.

(iv)"Original cost" means the initial federal tax basis of the property plus the value of capital improvements to such property, except that, for this purpose, it shall be assumed that Safe Harbor Leases are not true leases and do not affect the original initial federal tax basis of the property.

(v)"Average value" of the property means the amount determined by averaging the values at the beginning and ending of the income year, but the department may require the averaging of monthly values during the income year if such averaging is necessary to reflect properly the average value of the airline's property.

(vi) The "value" of rented real and tangible personal property means the product of eight (8) times the net annual rental rate.

(vii)"Net annual rental rate" means the annual rental rate paid by the taxpayer.

(viii)"Property used during the income year" includes property which is available for use in the taxpayer's trade or business during the income year.

(ix)"Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes.

(x)"Transportation revenue" means revenue earned by transporting passengers, freight and mail as well as revenue earned from other charges associated with transportation such as baggage fees, sales of food and drink, pet crate rentals, etc.

(xi)"Arrivals" and "Departures" means the number of times that an aircraft lands or takes off at an airport in revenue service.

(xii)"Arrivals and departures in this State" means the number of times that an aircraft lands or takes off in revenue service at an airport located in this State.

(xiii)"Revenue" means gross sales or gross receipts, unless otherwise required by context.

(c)Apportionment of Business Income. The same method in the reporting of items for all factors must be consistent for both the numerator and denominator. For tax years beginning on or after January 1, 2009, the taxpayer shall apportion business income using only the sales factor.

(d)The Sales Factor. The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the taxable year and the denominator of which is the total sales of the taxpayer within and without this state during the taxable year. The denominator is the transportation revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, etc. Proceeds and net gains or losses from the sale of aircraft and passive income items, such as interest, rental income, and dividends, shall not be included in the denominator. The numerator of the sales factor is the total revenue of the taxpayer in the State during the income year. Airtime, arrivals, and departures by type of aircraft shall be used in computing revenue attributable to this State derived from hauling passengers, freight, and mail. Receipts from the other business activities shall be included in the numerator in accordance with the statute. In determining the numerator of the sales factor, revenue for hauling passengers, freight, mail, and excess baggage shall be attributed to this State using the "aircraft ready for flight" ratio, which is calculated as follows:

(i) The ratio which the air miles of the taxpayer's aircraft flew in this State bears to the total air miles ramp to ramp of such aircraft everywhere by type of aircraft times the denominator cost or value of each type of aircraft, weighted at 40%.

(ii) The ratio of arrivals and departures in this State bears to the total arrivals and departures everywhere by type of aircraft times the denominator cost or value of each type of aircraft, weighted at 60%.

If records of actual revenue by type of aircraft are not maintained, the total revenue shall be divided into passenger and freight (which shall include express, excess baggage and mail) revenue and allocated to aircraft type on the ratio of the revenue passenger ton-miles and revenue freight (which shall include express, excess baggage and mail) ton-miles of such type, respectively.

(e)Alternative Methodologies. If the apportionment and allocation provisions of this methodology do not fairly represent the extent of the taxpayer's activities in Colorado, the taxpayer may petition for, or the director may require, with respect to all or any part of the taxpayer's business activities, if reasonable, alternative methodologies as set forth in § 39-22-303.5(7)(B), C.R.S.

Special Rule 2A. ContractorsSingle Sales Factor Apportionment.

The following special rule applies to contractors who elect to report income using the completed contract method; provided, however, that, with respect to contracts with a gross revenue of $100,000 or less, such rules shall apply only at the option of the taxpayer.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to § 39-22-303.5(5) C.R.S. and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. A contractor who has income from sources both within and without Colorado and elects to report income using the completed contract method shall determine income in accordance with this rule. Net income shall first be categorized as to "business" or "non-business" and non-business income will be directly allocated to specific states in accordance with § 39-22-303.5(5) C.R.S. and the rules thereunder. Gross profits from completed contracts, business administrative income and business administrative expense will be apportioned to those states in which business is conducted based on the sales factor as set forth in this rule. The amount of net income subject to tax by Colorado will be the sum of (1) the gross profit from completed contracts apportioned to Colorado less business administrative expense apportioned to Colorado plus (2) other business income apportioned to Colorado that is not directly attributable to completed contracts plus (3) the amount of non-business income allocated to Colorado.

(b)General Definitions.

(i)"Job" means a long-term contract entered into to build, construct, install or manufacture which will not be completed within the tax year in which it is entered into. As used in this rule, a "job" will refer to only those contracts where a taxpayer elects to report income using the completed contract method.

(ii)"Job Revenue" means gross revenue recorded on the books in accordance with generally accepted accounting principles. Billings shall be adjusted for overbillings or underbillings whenever applicable.

(iii)"Job Costs" means costs recorded on the books as being paid or accrued that are directly attributable to a specific job.

(iv)"Job Profit or Loss" means the gross profit or loss attributable to a specific job, which is determined by subtracting "Job Costs" from "Job Revenue".

(v)"Gross Profit Apportioned to Colorado" means Colorado's share of the sum of "Job Profits and Losses" of all jobs completed during a specific tax period.

(vi)"Administrative Expense Apportioned to Colorado" means Colorado's share of expense not directly attributable to a specific job.

(vii)"Revenue", unless otherwise required by context means gross sales or gross receipts.

(c)Business and Non-business Income. For definitions and rules for determining business and non-business income, see Rule 39-22-303.5 -1.

(d)Apportionment Factor. The taxpayer shall apportion business income using the sales factor.

(i)The Sales Factor. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. All revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer is included in the denominator of the sales factor. The numerator of the sales factor is the total revenue of the taxpayer in this state during the tax year. When determining the denominator and numerator of the sales factor, revenue directly attributable to contract jobs shall be included in the tax year on the basis of progress billings and receipts from completed and incomplete contracts. When determining the numerator, the typical computation is:

Total contract price for all jobs completed in this state during the tax year.

Plus

Total progress payments billed or received for all incomplete jobs in this state at the end of the tax year

Less

Total progress payments billed or received in prior tax years for the above completed and incomplete jobs in this state

Equals

Total revenue directly attributable to all jobs in this state during the tax year.

Add

Revenue from other business activities in this state not directly attributable to jobs.

Equals

Numerator of Sales Factor

The denominator of the sales factor would be computed in the same manner for all jobs everywhere and includes all other revenue from business activities not directly attributable to contract jobs.

(e)Apportionment of Income and Expense. Once the sales factor has been determined, income and expense shall be apportioned to this state as set forth in this rule.

(i)Gross Profit. The gross profit of each and all jobs completed during the tax year shall be apportioned to Colorado by the sales factor.

(ii)Administrative Expense. Administrative expense not directly attributable to jobs and not directly related to allocated income shall be apportioned to Colorado by the sales factor.

(iii)Other Business Income. Other business income not directly attributable to jobs shall be apportioned to Colorado by the sales factor.

(f)Colorado Taxable Income.

Gross profit apportioned to Colorado from all jobs completed during the tax year

Less Administrative expense apportioned to Colorado

Plus Other business income apportioned to Colorado not directly related to jobs

Equal Total taxable income apportioned to Colorado

Add Non-business income allocated to Colorado

Equals Colorado Taxable Income

(g)Alternative Methodologies. If the apportionment and allocation provisions of this methodology do not fairly represent the extent of the taxpayer's activities in Colorado, the taxpayer may petition for, or the director may require, with respect to all or any part of the taxpayer's business activities, if reasonable, alternative methodologies as set forth in § 39-22-303.5(7)(B), C.R.S.

Special Rule 3A. Publishing Single Sales Factor Apportionment.

When a person in the business of publishing, selling, licensing or distributing newspapers, magazines, periodicals, trade journals or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity shall be determined using the apportionment and allocations rules set forth below.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General: Except as specifically modified by this rule, when a person in the business of publishing, selling, licensing or distributing newspapers, magazines, periodicals, trade journals or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity shall be determined pursuant to § 39-22-303.5, C.R.S, and, where applicable, § 39-22-303.5(4)(d), C.R.S. and rules adopted thereunder.

(b)Allocation of non-business income. Income shall first be categorized as to "business" or "nonbusiness" income pursuant to Rule 39-22-303.5 -1 and nonbusiness income will be directly allocated to specific states in accordance with § 39-22-303.5(5) and rules thereunder. Business income will be apportioned to those states in which business is conducted based on the apportionment factor as set forth in this rule. The amount of net income subject to tax by Colorado will be the sum of (1) the amount of nonbusiness income allocated to Colorado plus (2) the amount of business income attributable to Colorado.

(c)Definitions: The following definitions are applicable to the terms contained in this rule, unless the context clearly requires otherwise.

(i)"Print or printed material" includes, without limitation, the physical embodiment or printed version of any thought or expression including, without limitation, a play, story, article, column or other literary, commercial, educational, artistic or other written or printed work. The determination of whether an item is or consists of print or printed material shall be made without regard to its content. Printed material may take the form of a book, newspaper, magazine, periodical, trade journal or any other form of printed matter and may be contained on any medium or property.

(ii)"Purchaser" and "Subscriber" mean the individual, residence, business or other outlet which is the ultimate or final recipient of the print or printed materials. Neither of such terms shall mean or include a wholesaler or other distributor of print or printed material.

(d)Apportionment of Business Income.

(i)Sales Factor Denominator. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. The denominator of the sales factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts that may be otherwise excluded.

(ii)Sales Factor Numerator. The numerator of the sales factor shall include all gross receipts of the taxpayer from sources within this state, including, but not limited to, the following:

(1) Gross receipts derived from the sale of tangible personal property, including printed materials, delivered or shipped to a purchaser or a subscriber in this state.

(2) Except as provided in subparagraph (3) of this paragraph, gross receipts derived from advertising and the sale, rental or other use of the taxpayer's customer lists or any portion thereof shall be attributed to this state as determined by the taxpayer's "circulation factor" during the tax period. The circulation factor shall be determined for each individual publication by the taxpayer of printed material containing advertising and shall be equal to the ratio that the taxpayer's in-state circulation to purchasers and subscribers of its printed material bears to its total circulation to purchasers and subscribers everywhere.

The circulation factor for an individual publication shall be determined by reference to the rating statistics of reputable ratings services, provided that the sources selected are consistently used from year to year for such purpose. If none of the foregoing sources are available, or, if available, none is in form or content sufficient for such purposes, then the circulation factor shall be determined from the taxpayer's books and records.

The circulation factor shall fairly reflect the ratio that the taxpayer's instate circulation to purchasers and subscribers of its printed material bears to its total circulation to purchasers and subscribers everywhere.

(3) When specific items of advertisements can be shown, upon clear and convincing evidence, to have been distributed solely to a limited regional or local geographic area in which this state is located, the taxpayer may petition, or the executive director may require, that a portion of such receipts be attributed to the sales factor numerator of this state on the basis of a regional or local geographic area circulation factor and not upon the basis of the circulation factor provided by subparagraph d)ii)(2). Such attribution shall be based upon the ratio that the taxpayer's circulation to purchasers and subscribers located in this state of the printed material containing such specific items of advertising bears to its total circulation of such printed material to purchasers and subscribers located within such regional or local geographic area. This alternative attribution method shall be permitted only upon the condition that such receipts are not double counted or otherwise included in the numerator of any other state.

(4) Except as provided for in § 39-22-303.5(4)(d), C.R.S. regarding publishers of magazines or periodicals, if the purchaser or subscriber is the United States Government or if the taxpayer is not taxable in a State, the gross receipts from all sources, including the receipts from the sale of printed material, from advertising, and from the sale, rental or other use of the taxpayer's customer's lists, or any portion thereof that would have been attributed by the circulation factor to the numerator of the sales factor for such State, shall be included in the numerator of the sales factor of this State if the printed material or other property is shipped from an office, store, warehouse, factory, or other place of storage or business in this State.

(2)Alternative Methodologies. If the apportionment and allocation provisions of this methodology do not fairly represent the extent of the taxpayer's activities in Colorado, the taxpayer may petition for, or the director may require, with respect to all or any part of the taxpayer's business activities, if reasonable, alternative methodologies as set forth in § 39-22-303.5(7)(B), C.R.S.

Special Rule 4A. Railroads Single Sales Factor Apportionment.

The following special rule is established in respect to railroads.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to § 39-22-303.5(5), C.R.S. and rules thereunder and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. Where a railroad has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to this rule. In such cases, the first step is to determine what portion of the railroad's income constitutes "business" income and which portion constitutes "nonbusiness" income under Rule 39-22-303.5 -1. Nonbusiness income is directly allocable to specific states pursuant to § 39-22-303.5(5), C.R.S. and rules thereunder. Business income is apportioned among the states in which the business is conducted pursuant to the apportionment factor set forth in this rule. The sum of (1) the items of nonbusiness income directly allocated to this state, plus (2) the amount of business income attributable to this state, constitutes the amount of the taxpayer's entire net income which is subject to tax by this state.

(b)Business and Nonbusiness Income. For definitions, rules and examples for determining business and nonbusiness income, see Rule 39-22-303.5 -1A.

(c)Apportionment of Business Income.

(i) The Sales Factor.

(1) In General. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. All revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer that produces business income, except per diem and mileage charges that are collected by the taxpayer, is included in the denominator of the sales factor.

The numerator of the sales factor is the total revenue of the taxpayer in this state during the income year. The total revenue of the taxpayer in this state during the income year, other than revenue from hauling freight, passengers, mail, and express, shall be attributable to this state in accordance with § 39-22-303.5(4) C.R.S. and rules thereunder.

(2) Numerator of Sales Factor from Freight, Mail, and Express. The total revenue of the taxpayer in this state during the income year for the numerator of the factor from hauling freight, mail and express shall be attributable to this state as follows:

(a) All receipts from shipments which both originate and terminate within this state; and

(b) That portion of the receipts from each movement or shipment passing through, into, or out of this state is determined by the ratio which the miles traveled by such movement or shipment in this state bears to the total miles traveled by such movement or shipment from point of origin to destination.

(3)Numerator of Sales Factor from Passengers. The numerator of the sales factor shall include:

(a) All receipts from the transportation of passengers (including mail and express handled in passenger service) which both originate and terminate with this state; and

(b) That portion of the receipts from the transportation of interstate passengers (including mail and express handled in passenger service) determined by the ratio which revenue passenger miles in this state bears to the total everywhere.

Special Rule 5A. Television and Radio BroadcastingSingle Sales Factor Apportionment.

The following special rule is established with respect to the allocation and apportionment of income from television and radio broadcasting.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to § 39-22-303.5(5), C.R.S. and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. When a person in the business of broadcasting film or radio programming, whether through the public airwaves, by cable, direct or indirect satellite transmission or any other means of communication, either through a network (including owned and affiliated stations) or through an affiliated, unaffiliated or independent television or radio broadcasting station, has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to § 39-22-303.5, C.R.S. and the rules issued thereunder by this state, except as modified by this rule.

(b)Business and Nonbusiness Income. For definitions, rules, and examples for determining whether income shall be classified as "business" or "nonbusiness" income, see Rule 39-22-303.5 -1.

(c)Definitions. The following definitions are applicable to the terms contained in this rule, unless the context clearly requires otherwise.

(i)"Film" or "film programming" means any and all performances, events or productions telecast on television, including but not limited to news, sporting events, plays ,stories or other literary, commercial, educational or artistic works, through the use of video tape, disc or any other type of format or medium.

Each episode of a series of films produced for television shall constitute a separate "film" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

(ii)"Radio" or "radio programming" means any and all performances, events or productions broadcast on radio, including but not limited to news, sporting events, plays, stories or other literary, commercial, educational or artistic works, through the use of an audio tape, disc or any other format or medium.

Each episode of a series of radio programming produced for radio broadcast shall constitute a separate "radio programming" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

(iii)"Release" or "in release" means the placing of film or radio programming into service. A film or radio program is placed into service when it is first broadcast to the primary audience for which the program was created. Thus, for example, a film is placed in service when it is first publicly telecast for entertainment, educational, commercial, artistic or other purpose.

Each episode of a television or radio series is placed in service when it is first broadcast. A program is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for broadcast or, merely because it is previewed to prospective sponsors or purchasers.

(iv) "Rent" shall include license fees or other payments or consideration provided in exchange for the broadcast or other use of television or radio programming.

(v) A "subscriber" to a cable television system is the individual residence or other outlet which is the ultimate recipient of the transmission.

(vi) "Telecast" or "broadcast" (sometimes used interchangeably with respect to television) means the transmission of television or radio programming, respectively, by an electronic or other signal conducted by radio waves or microwaves or by wires, lines, coaxial cables, wave guides, fiber optics, satellite transmissions directly or indirectly to viewers and listeners or by any other means of communications.

(vii) "United States" means states and District of Columbia, but does not include the Commonwealth of Puerto Rico or territories and possessions of the United States.

(d)Apportionment of Business Income.

(i)In General. The taxpayer shall apportion business income using only the sales factor. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year.

(ii)The Sales Factor.

(1)Sales Factor Denominator. The denominator of the sales factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts otherwise excluded.

(2) Sales Factor Numerator. The numerator of the sales factor shall include all gross receipts of the taxpayer from sources within this state, including but not limited to the following:

(a) Gross receipts, including advertising revenue, from television,

film, or radio programming in release to or by television and radio stations located in this state.

(b) Gross receipts, including advertising revenue, from television, film, or radio programming in release to or by a television station (independent or unaffiliated) or network of stations for broadcast shall be attributed to this state in the ratio (hereafter "audience factor") that the audience for such station (or owned and affiliated stations in the case of networks) located in this state bears to the total audience for such station (or owned and affiliated stations in the case of networks) within the United States.

The audience factor for television or radio programming shall be determined by the ratio that the taxpayer's in-state viewing (listening) audience bears to its total viewing (listening) audience. Such audience factor shall be determined either by reference to the books and records of the taxpayer or by reference to published rating statistics, provided the method used by the taxpayer is consistently used from year to year for such purpose and fairly represents the taxpayer's activity in the state.

If none of the foregoing sources are available, or, if available, none is in form or content sufficient for such purposes, then the audience factor shall be determined by the ratio that the population of this state bears to the population of the United States, as reflected in the most current population data published by the U.S. Bureau of Census, for all states which receive the broadcasts.

(c) Gross receipts from film programming in release to or by a cable television system shall be attributed to this state in the ratio (hereafter "audience factor") that the subscribers for such cable television system located in this state bears to the total subscribers of such cable television system. If the number of subscribers cannot be accurately determined from the books and records maintained by the taxpayer, such audience factor ratio shall be determined on the basis of the applicable year's subscription statistics located in published surveys, provided that the source selected is consistently used from year to year for that purpose.

If none of the foregoing resources are available, or, if available, none is in form or content sufficient for such purposes, then the audience factor shall be determined by the ratio that the population of this state bears to the population of the United States as reflected in the most current population data published by the U.S. Bureau of Census for all states in which the cable system has subscribers.

(d) The extent that the gross receipts from live television broadcasting, film, or radio programming, as determined pursuant to paragraph 1)d)ii)(2)(b) or (c) include receipts derived from broadcasts to audiences located outside the United States ("foreign-based receipts"), the total gross receipts against which the audience factor shall be applied shall be modified so that such foreign-based receipts are not used to affect the amount of receipts that are to be apportioned to the state. Such modification shall consist of deducting from total receipts, prior to the application thereto of the audience factor, that amount of receipts derived from broadcasts to audiences located outside the United States.

Example: XYZ Television Network Co. has gross receipts from all broadcasting of films of $1 billion of which a total of $200,000,000 was derived from advertising receipts and license fees attributable to releases of its films in foreign television markets and $800,000,000 attributable to the United States market. Assuming that foreign countries into which its programming has been telecast or sold or licensed for telecast would have jurisdiction to impose their income tax upon XYZ Network Co., then its in-state gross receipts attributable to its telecasting activity would be determined as follows:

$1,000,000,000- $200,000,000 = $800,000,000

$800,000,000 x (audience factor) = in-state gross receipts

(e) Receipts from the sale, rental, licensing or other disposition of audio or video cassettes, discs, or similar medium intended for home viewing or listening shall be included in the sales factor as provided in § 39-22-303.5 C.R.S. and rules thereunder.

Special Rule 6A. Trucking Single Sales Factor Apportionment.

The following special rule is established with respect to the apportionment of income for trucking companies.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to § 39-22-303.5(5) and rules thereunder and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. As used in this rule, the term "trucking company" means a motor common carrier, a motor contract carrier, or an express carrier which primarily transports tangible personal property of others by motor vehicle for compensation. When a trucking company has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to this rule. In such cases, the first step is to determine what portion of the trucking company's income constitutes "business" income and what portion constitutes "nonbusiness" income under Rule 39-22-303.5 -1. Nonbusiness income is directly allocable to specific states pursuant to the provisions of § 39-22-303.5(5), C.R.S. and rules thereunder. Business income is apportioned among the states in which the business is conducted and pursuant to the apportionment factor set forth in this rule. The sum of (i) the items of nonbusiness income directly allocated to this state and (ii) the amount of business income attributable to this state constitutes the amount of the taxpayer's entire net income which is subject to tax in this state.

(b)Business and Nonbusiness Income. For definitions, rules, and examples for determining business and nonbusiness income, see Rule 39-22-303.5 -1.

(c)Apportionment of Business Income

(i)In General. For tax years beginning on or after January 1, 2009, the taxpayer shall apportion business income using only the sales factor.

(ii)The Sales Factor

(1)In General. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. All revenue derived from transactions and activities in the regular course of the taxpayer's trade or business that produces business income shall be included in the denominator of the revenue factor.

The numerator of the sales factor is the total revenue of the taxpayer in this state during the income year. The total state revenue of the taxpayer, other than revenue from hauling freight, mail, and express, shall be attributable to this state in accordance with § 39-22-303.5(4) and rules thereunder.

(2)Numerator of the Sales Factor from Freight, Mail, and Express. The total revenue of the taxpayer attributable to this state during the income year from hauling freight, mail, and express shall be:

(a)Intrastate: All receipts from any shipment which both originates and terminates within this state; and,

(b)Interstate: That portion of the receipts from movements or shipments passing through, into, or out of this state as determined by the ratio which the mobile property miles traveled by such movements or shipments in this state bear to the total mobile property miles traveled by movements or shipments from points of origin to destination.

(d)Records. The taxpayer shall maintain the records necessary to identify mobile property and to enumerate by state the mobile property miles traveled by such mobile property as those terms are used in this rule. Such records are subject to review by the Department of Revenue or its agents.

(e)Definitions.

(i) "Mobile property" means all motor vehicles, including trailers, engaged directly in the movement of tangible personal property.

(ii) A "mobile property mile" is the movement of a unit of mobile property a distance of one mile whether loaded or unloaded.

(f)De Minimis Nexus Standard. Notwithstanding any provision contained herein, this rule shall not apply to require the apportionment of income to this state if the trucking company during the course of the income tax year neither:

(i) owns nor rents any real or personal property in this state, except mobile property; nor

(ii) makes any pick-ups or deliveries within this state; nor

(iii) travels more than twenty-five thousand mobile property miles within this state; provided that the total mobile property miles traveled within this state during the income tax year do not exceed three percent of the total mobile property miles traveled in all states by the trucking company during that period; nor

(iv) makes more than twelve trips into this state.

Special Rule 7A. Financial Institutions Single Sales Factor Apportionment.

The following special rule is established to provide a uniform methodology for determining the allocation and apportionment of income for financial institutions.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to § 39-22-303.5(5) C.R.S. and rules thereunder and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)Apportionment and Allocation.

(i) Except as otherwise specifically provided, a financial institution whose business activity is taxable both within and without this state shall allocate and apportion its net income as provided in this rule. All items of nonbusiness income (income which is not includable in the apportionable income tax base) shall be allocated pursuant to the provisions of § 39-22-303.5(5), C.R.S. and rules thereunder. A financial institution organized under the laws of a foreign country, the Commonwealth of Puerto Rico, or a territory or possession of the United States whose effectively connected income (as defined under the Federal Internal Revenue Code) is taxable both within this state and within another state, other than the state in which it is organized, shall allocate and apportion its net income as provided in this rule.

(ii) All business income (income that is includable in the apportionable income tax base) shall be apportioned to this state by multiplying such income by the apportionment percentage. The apportionment percentage is the taxpayer's sales factor (as described in subsection (c) of this rule).

(iii) The sales factor shall be computed according to the method of accounting (cash or accrual basis) used by the taxpayer for the taxable year.

(b)Definitions. As used in this rule, unless the context otherwise requires:

(i) "Billing address" means the location indicated in the books and records of the taxpayer on the first day of the taxable year (or on such later date in the taxable year when the customer relationship began) as the address where any notice, statement and/or bill relating to a customer's account is mailed.

(ii) "Borrower or credit card holder located in this state" means:

(1) a borrower, other than a credit card holder, that is engaged in a trade or business which maintains its commercial domicile in this state; or

(2) a borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this state.

(iii) "Commercial domicile" means:

(1) the headquarters of the trade or business, that is, the place from which the trade or business is principally managed and directed; or

(2) if a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, such taxpayer's commercial domicile shall be deemed for the purposes of this rule to be the state of the United States or the District of Columbia from which such taxpayer's trade or business in the United States is principally managed and directed. It shall be presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, irrespective of where the services of such employees are performed, as of the last day of the taxable year.

(iv)"Credit card" means credit, travel or entertainment card.

(v)"Credit card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services to the credit card.

(vi)"Financial institution" means:

(1) Any corporation or other business entity registered under state law as a bank holding company or registered under the Federal Bank Holding Company Act of 1956 (12 U.S.C. § 1841, et seq., as amended), or registered as a savings and loan holding company under the Federal National Housing Act (12 U.S.C. 1701, as amended);

(2) A national bank organized and existing as a national bank association pursuant to the provisions of the National Bank Act, 12 U.S.C. sections 21 et seq.;

(3) A savings association or federal savings bank as defined in the Federal Deposit Insurance Act, 12 U.S.C. section 1813(b)(1);

(4) Any bank, savings association, or thrift institution incorporated or organized under the laws of any state;

(5) Any corporation organized under the provisions of 12 U.S.C. sections 611 to 631;

(6) Any agency or branch or a foreign depository as defined in 12 U.S.C. section 3101;

(7) A production credit association organized under the Federal Farm Credit Act of 1933, all of whose stock held by the Federal Production Credit Corporation has been retired;

(8) Any corporation whose voting stock is more than fifty percent (50%) owned, directly or indirectly, by any person or business entity described in subsections (1) through (7) above other than an insurance company taxable under § 10-3-209, C.R.S.;

(9) A corporation or other business entity that derives more than fifty percent (50%) of its total gross income for financial accounting purposes from finance leases. For purposes of this subsection, a "finance lease" shall mean any lease transaction which is the functional equivalent of an extension of credit and that transfers substantially all of the benefits and risks incident to the ownership of property. The phrase shall include any "direct financing lease" or "leverage lease" that meets the criteria of Financial Accounting Standards Board Statement No. 13, "Accounting for Leases" or any other lease that is accounted for as a financing by a lessor under generally accepted accounting principles. (The reference to Financial Accounting Standards Board Statement No. 13 does not include later amendments or editions of this referenced material. Certified copies of this material are available for review in the Office of Tax Policy Analysis at the Colorado Department of Revenue at 1881 Pierce Street, Lakewood, CO 80214. Additionally, a copy of this material may be examined at any state publications depository library. For this classification to apply,

(a) the average of the gross income in the current tax year and immediately preceding two tax years must satisfy the more than fifty percent (50%) requirement; and

(b) gross income from incidental or occasional transactions shall be disregarded;

(10) Any other person or business entity, other than an insurance company taxable under § 10-3-209, C.R.S., that derives more than fifty percent (50%) of its gross income from activities that a person described in subsections (1) through (7) and (9) above is authorized to transact. For the purpose of this subsection, the computation of gross income shall not include income from non-recurring, extraordinary items.

(11) The executive director is authorized to exclude any person from the application of subsection (10) upon such person proving, by clear and convincing evidence, that the income-producing activity of such person is not in substantial competition with those persons described in subsections (1) through (7) and (9) above.

(vii)"Loan" means an extension of credit resulting from direct negotiations between the taxpayer and its customer, and/or the purchase, in whole or in part, of such extension of credit from another. Loans include participations, syndications, and leases treated as loans for federal income tax purposes. Loans shall not include: futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; non-interest bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; interests in a REMIC, or other mortgage-backed or asset-backed security; and other similar items.

(viii)"Loan secured by real property" means that fifty percent or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

(ix)"Loan servicing fees" include all fees not in the nature of interest charged for any service or recovery of any cost in connection with a loan.

(x)"Merchant discount" means the fee (or negotiated discount) charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit card is accepted in payment for merchandise or services sold to the card holder.

(xi)"Participation" means an extension of credit in which an undivided ownership interest is held on a pro-rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

(xii)"Person" means an individual, estate, trust, partnership, corporation and any other business entity.

(xiii)"Principal base of operations" with respect to transportation property means the place of more or less permanent nature from which said property is regularly directed or controlled.

(xiv)"Real property owned" and "tangible personnel property owned" mean real and tangible personal property, respectively, (1) on which the taxpayer may claim depreciation for federal income tax purposes, or (2) property to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes (or could claim depreciation if subject to federal income tax). Real and tangible personal property do not include coin, currency, or other property acquired in lieu of or pursuant to a foreclosure.

(xv)"Regular place of business" means an office at which the taxpayer carries on its business in a regular and systematic manner and which is continuously maintained, occupied and used by employees of the taxpayer.

(xvi) "Sales" and "Revenue" mean gross sales or gross receipts, unless otherwise required by context.

(xvii)"State" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and territory or possession of the United States or any foreign country, except where the context otherwise requires.

(xviii)"Syndication" means an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

(xix)"Taxable" means either:

(1) that a taxpayer is subject in another state to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, a corporate stock tax (including a bank shares tax), a single business tax, or an earned surplus tax, or any tax which is imposed upon or measured by net income; or

(2) that another state has jurisdiction to subject the taxpayer to any of such taxes regardless of whether, in fact, the state does or does not impose such taxes upon the taxpayer.

(xx)"Transportation property" means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels and motor vehicles, as well as any equipment or containers attached to such property, such as rolling stock, barges, trailers or the like.

(c)The Sales Factor.

(i)General. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. The method of calculating sales for purposes of the denominator is the same as the method used in determining sales for purposes of the numerator. The sales factor shall include only those sales described herein which constitute business income and are included in the computation of the apportionable income base for the taxable year.

(ii)Revenue from the lease of real property. The numerator of the sales factor includes revenue from the lease or rental of real property owned by the taxpayer if the property is located within this state or revenue from the sublease of real property if the property is located within this state.

(iii)Revenue from the lease of tangible personal property.

(1) Except as described in paragraph ii of this subsection, the numerator of the sales factor includes revenue from the lease or rental of tangible personal property owned by the taxpayer if the property is located within this state when it is first placed in service by the lessee.

(2) Revenue from the lease or rental of transportation property owned by the taxpayer is included in the numerator of the sales factor to the extent that the property is used in this state. The extent an aircraft will be deemed to be used in this state and the amount of revenue that is to be included in the numerator of this state's sales factor is determined by multiplying all the revenue from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this state cannot be determined, then the property will deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

(iv)Interest from loans secured by real property.

(1) The numerator of the sales factor includes interest and fees or penalties in the nature of interest from loans secured by real property if the property is located within this state. If the property is located both within this state and one or more other states, the sales described in this subsection are included in the numerator of the sales factor if more than fifty percent of the fair market value of the real property is located within this state. If more than fifty percent of the fair market value of the real property is not located within any one state, then the sales described in this subsection shall be included in the numerator of the sales factor if the borrower is located in this state.

(2) The determination of whether the real property securing a loan is located within this state shall be made as of the time the original agreement was made and any and all subsequent substitutions of collateral shall be disregarded.

(v)Interest from loans not secured by real property. The numerator of the sales factor includes interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in this state.

(vi)Net gains from the sale of loans. The numerator of the sales factor includes net gains from the sale of loans. Net gains from the sale of loans include income recorded under the coupon stripping rules of Section 1286 of the Internal Revenue Code.

(1) The amount of net gains (but not less than zero) from the sale of loans secured by real property included in the numerator is determined by multiplying such net gains by a fraction the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection iv of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(2) The amount of net gains (but not less than zero) from the sale of loans not secured by real property included in the numerator is determined by multiplying such net gains by a fraction the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection v of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(vii)Revenue from credit card receivables. The numerator of the sales factor includes interest and fees or penalties in the nature of interest from credit card receivables and revenue from fees charged to card holders, such as annual fees, if the billing address of the card holder is in this state.

(viii)Net gains from the sale of credit card receivables. The numerator of the sales factor includes net gains (but not less than zero) from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection vii of this section and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(ix)Credit card issuer's reimbursement fees. The numerator of the sales factor includes all credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection vii of this section and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(x)Revenue from merchant discount. The numerator of the sales factor includes revenue from merchant discount if the commercial domicile of the merchant is in this state. Such revenue shall be computed net of any cardholder charge backs, but shall not be reduced by any interchange transaction fees or by any issuer's reimbursement fees paid to another for charges made by its card holders.

(xi)Loan servicing fees.

(1) The numerator of the sales factor includes loan servicing fees derived from loans secured by real property multiplied by a fraction the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection iv of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(2) The numerator of the sales factor includes loan servicing fees derived from loans not secured by real property multiplied by a fraction the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection v of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(3) In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the sales factor shall include such fees if the borrower is located in this state.

(xii)Revenue from services. The numerator of the sales factor includes revenue from services not otherwise apportioned under this section if the service is performed in this state. If the service is performed both within and without this state, the numerator of the sales factor includes revenue from services not otherwise apportioned under this section to the extent the income-producing activity is performed in this state based on cost of performance.

(xiii)Revenue from investment assets and activities and trading assets and activities.

(1) Interest, dividends, net gains (but not less than zero) and other income from investment assets and activities and from trading assets and activities shall be included in the sales factor. Investment assets and activities and trading assets and activities include but are not limited to: investment securities; trading account assets; federal funds; securities purchased and sold under agreements to resell or repurchase; options; futures contracts; forward contracts; notional principal contracts such as swaps; equities; and foreign currency transactions. With respect to the investment and trading assets and activities described in subparagraphs (a) and (b) of this paragraph, the sales factor shall include the amounts described in such subparagraphs.

(a) The sales factor shall include the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements.

(b) The sales factor shall include the amount by which interest, dividends, gains and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, exceed amounts paid in lieu of interest amounts paid in lieu of dividends, and losses from such assets and activities.

(2) The numerator of the sales factor includes interest, dividends, net gains (but not less than zero) and other income from investment assets and activities and from trading assets and activities described in paragraph (1) of this subsection that are attributable to this state.

(a) The amount of interest, dividends, net gains (but not less than zero) and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the average value of such assets which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(b) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator is determined by multiplying the amount described in subparagraph (a) of paragraph (1) of this subsection from such funds and such securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such funds and such securities.

(c) The amount of interest, dividends, gains and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book and foreign currency transactions (but excluding amounts described in subparagraph (a) or (b) of this paragraph), attributable to this state and included in the numerator is determined by multiplying the amount described in subparagraph (b) of paragraph (1) of this subsection by a fraction, the numerator of which is the average value of such trading assets which are property assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(d) For purposes of this paragraph, average value shall be determined as follows:

(i) Value of property owned by the taxpayer.

(1) The value of tangible personal property owned by the taxpayer is the original cost or other basis of such property for Federal income tax purposes without regard to depreciation or amortization.

(2) Loans are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a loan is charged-off in whole or in part for Federal income tax purposes, the portion of the loan charged off is not outstanding. A specifically allocated reserve established pursuant to regulatory or financial accounting guidelines which is treated as charged-off for Federal income tax purposes shall be treated as charged-off for purposes of this section.

(3) Credit card receivables are valued at this outstanding principal balance, without regard to any reserve for bad debts. If a credit card receivable is charged-off in whole or in part for Federal income tax purposes, the portion of the receivable charged-off is not outstanding.

(ii)Average value of tangible personal property owned by the taxpayer. The average value of tangible personal property owned by the taxpayer is computed on an annual basis by adding the value of the property on the first day of the taxable year and the value on the last day of the taxable year and dividing the sum by two. If averaging on this basis does not properly reflect average value, the executive director may require averaging on a more frequent basis. The taxpayer may elect to average on a more frequent basis. When averaging on a more frequent basis is required by the executive director or is elected by the taxpayer, the same method of valuation must be used consistently by the taxpayer with respect to property within and without this state and on all subsequent returns unless the taxpayer receives prior permission from the executive director or the executive director requires a different method of determining average value.

(3) In lieu of using the method set forth in paragraph (2) of this subsection xiii), the taxpayer may elect, or the executive director may require in order to fairly represent the business activity of the taxpayer in this state, the use of the method set forth in this paragraph.

(a) The amount of interest, dividends, net gains (but not less than zero) and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the gross income from such assets and activities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

(b) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator is determined by multiplying the amount described in subparagraph (a) of paragraph (1) of this subsection from such funds and such securities by a fraction, the numerator of which is the gross income from such funds and such securities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such funds and such securities.

(c) The amount of interest, dividends, gains and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book and foreign currency transactions (but excluding amounts described in subparagraphs (a) or (b) of this paragraph), attributable to this state and included in the numerator is determined by multiplying the amount described in subparagraph (b) of paragraph (1) of this subsection by a fraction, the numerator of which is the gross income from such trading assets and activities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

(4) If the taxpayer elects or is required by the executive director to use the method set forth in paragraph (3) of this subsection xiii), it shall use this method on all subsequent returns unless the taxpayer receives prior permission from the executive director to use, or the executive director requires a different method.

(5) The taxpayer shall have the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of this state by demonstrating that the day-today decisions regarding the asset or activity occurred at a regular place of business outside this state. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business and one such regular place of business is in this state and one such regular place of business is outside this state, such asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, such policies and guidelines shall be presumed to be established at the commercial domicile of the taxpayer.

(xiv)All other revenue. The numerator of the sales factor includes all other revenue pursuant to the provisions of § 39-22-303.5, C.R.S.

(xv)Attribution of certain sales to commercial domicile. All sales which would be assigned under this section to a state in which the taxpayer is not taxable shall be included in the numerator of the sales factor, if the taxpayer's commercial domicile is in this state.

Special Rule 8A.Telecommunications and Ancillary Service Providers - Single Sales Factor Apportionment.

The following special rule is established with respect to the allocation and apportionment of income from the sale of telecommunications and ancillary services by a person that is taxable both in this state and in one or more other states.

(1)Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to 39-22-303.5(5) and rules thereunder and apportion its business income using the sales factor set forth in this rule. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.

(a)In General. A telecommunications provider that has income from sources both within and without Colorado shall determine income in accordance with this rule. Income shall first be categorized as to "business" or "nonbusiness" income pursuant to Rule 39-22-303.5 - 1. Nonbusiness income will be directly allocated to specific states in accordance with § 39-22-303.5(5) and rules thereunder. Business income will be apportioned to those states in which business is conducted based on the apportionment factor as set forth in this rules. The amount of net income subject to tax by Colorado will be the sum of (1) the amount of nonbusiness income allocated to Colorado plus (2) the amount of business income attributable to Colorado.

(b)Business and Nonbusiness Income. For definitions and rules for determining business and nonbusiness income, see Rule 39-22-303.5 -1.

(c)Definitions.

(i) "800 service" means a "telecommunications service" that allows a caller to dial a toll-free number without incurring a charge for the call. The service is typically marketed under the name "800," "855," "866," "877," and "888" toll-free calling, and any subsequent numbers designated by the Federal Communications Commission.

(ii) "900 service" means an inbound toll "telecommunications service" purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. "900 service" does not include collection services provided by the seller of the "telecommunications services" to the subscriber, or service or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name "900" service, and any subsequent numbers designated by the Federal Communications Commission.

(iii) "Air-to-Ground Radiotelephone service" means a radio service, as that term is defined in Federal Communications Commission regulation 47 CFR 22.99 (December 30, 2005) (which is incorporated herein by reference, but such incorporation does not include later amendments to such regulation and copies of such regulation are available at the Office of the Executive Director, Colorado Department of Revenue),in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.

(iv) "Ancillary service" means services that are associated with or incidental to the provision of telecommunications services, including but not limited to the following subcategories: detailed telecommunications billing, directory assistance, vertical service, conference bridging service and voice mail services. The term "ancillary service" is defined as a broad range of services and is broader than the sum of the subcategories.

(v) "Bundled transaction" means the retail sale of two or more products where (1) the products are otherwise distinct and identifiable, and (2) the products are sold for one non-itemized price. For purposes of this special rule, a "bundled transaction" does not include the sale of any products in which the "sales price" varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction. A transaction that otherwise meets the definition of a "bundled transaction" is not a "bundled transaction" if it is:

(1) the "retail sale" of two products where the first product is essential to the use of the second product, and the first product is provided exclusively in connection with the second, and the true object of the transaction is the second;

(2) the "retail sale" of more than one product, but the products are sourced the same under this special rule; or

(3) the "retail sale" of more than one product, but the sum of the "purchase price" or "sales price" of products which are sourced differently under this special rule is de minimis.

(vi) "Call-by-call Basis" means any method of charging for telecommunications services where the price is measured by individual calls.

(vii) "Coin-operated telephone service" means a "telecommunications service" paid for by inserting money into a telephone accepting direct deposits of money to operate.

(viii) "Communications Channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

(ix) "Conference bridging service" means an ancillary service that links two or more participants of an audio or video conference call and may include the provision of a telephone number. Conference bridging service does not include the telecommunications services used to reach the conference bridge.

(x) "Customer" means the person or entity that contracts with the seller of telecommunications services. If the end user of telecommunications services is not the contracting party, the end user of the telecommunications service is the customer of the telecommunication service. "Customer" does not include a reseller of telecommunications service or for mobile telecommunications service of a serving carrier under an agreement to serve the customer outside the home service provider's licensed service area.

(xi) "Customer Channel Termination Point" means the location where the customer either inputs or receives the communications.

(xii) "Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement.

(xiii) "Directory assistance" means an ancillary service of providing telephone number information, and/or address information.

(xiv) "End user" means the person who utilizes the telecommunication service. In the case of an entity, "end user" means the individual who utilizes the service on behalf of the entity.

(xv) "Fixed wireless service" means a telecommunications service that provides radio communication between fixed points.

(xvi) "Home service provider" means the same as that term is defined in Section 124(5) of Public Law 106-252(Mobile Telecommunications Sourcing Act).

(xvii) "International" means a "telecommunications service" that originates or terminates in the United States and terminates or originates outside the United States, respectively. United States includes the District of Columbia or a U.S. territory or possession.

(xviii) "Interstate" means a "telecommunications service" that originates in one United States state, or a United States territory or possession, and terminates in a different United States state or a United States territory or possession.

(xix) "Intrastate" means a "telecommunications service" that originates in one United States state or a United States territory or possession, and terminates in the same United States state or a United States territory or possession.

(xx) "Mobile telecommunications service" means the same as that term is defined in Section 124(7) of Public Law 106-252(Mobile Telecommunications Sourcing Act).

(xxi) "Mobile wireless service" means a telecommunications service that is transmitted, conveyed or routed regardless of the technology used, whereby the origination and/or termination points of the transmission, conveyance or routing are not fixed, including, by way of example only, telecommunications services that are provided by a commercial mobile radio service provider.

(xxii) "Network access service" means the provision by a local exchange telecommunication service provider of the use of its local exchange network by an inter-exchange telecommunication service provider to originate or terminate the inter-exchange telecommunication service provider's traffic carried to or from a distant exchange.

(xxiii) "Paging service" means a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmissions may include messages and/or sounds.

(xxiv) "Pay telephone service" means a telecommunications service provided through any pay telephone.

(xxv) "Place of primary use" means the street address representative of where the customer's use of the telecommunications service primarily occurs, which shall be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" shall be within the licensed service area of the home service provider.

(xxvi) "Post-paid calling service" means the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number which is not associated with the origination or termination of the telecommunications service. A post-paid calling service includes a telecommunications service, except a prepaid wireless calling service, that would be a prepaid calling service except it is not exclusively a telecommunication service.

(xxvii) "Prepaid calling service" means the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.

(xxviii) "Prepaid wireless calling service" means the sale of a telecommunications service that provides the right to utilize mobile wireless service as well as other non-telecommunications services including the download of digital products delivered electronically, content and ancillary services, which must be paid for in advance that is sold in predetermined units of dollars of which the number declines with use in a known amount.

(xxix) "Private communications service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels.

(xxx) "Product" means tangible personal property (including a digital good and standardized software) or service.

(xxxi) "Service address" means:

(1) The location of the customer's telecommunications equipment, to which the customer's call is charged, and from which the call originates or terminates, regardless of where the call is billed or paid.

(2) If the location in subsection (1) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(3) If the location in subsection (1) and subsection (2) are not known, the service address means the location of the customer's place of primary use.

(xxxii) "Telecommunications service" means the electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The term "telecommunications service" includes such transmission, conveyance, or routing in which computer processing applications are used to act on the form, code or protocol of the content for purposes of transmission, conveyance or routing without regard to whether such service is referred to as voice over Internet protocol services or is classified by the Federal Communications Commission as enhanced or value added.

(1) The term "telecommunication service" is defined as a broad range of services. The term includes, but is broader than the sum of, the following subcategories: 800 service, 900 service, fixed wireless service, mobile wireless service, paging service, prepaid calling service, prepaid wireless calling service, private communication service, value-added non-voice data service, coin-operated telephone service, international telecommunications service, interstate telecommunications service, intrastate telecommunications service, network access service and pay telephone service.

(2) The term "telecommunications service" does not include:

(a) Data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser where such purchaser's primary purpose for the underlying transaction is the processed data or information;

(b) Installation or maintenance of wiring or equipment on a customer's premises;

(c) Tangible personal property;

(d) Advertising, including but not limited to directory advertising.

(e) Billing and collection services provided to third parties;

(f) Internet access service;

(g) Radio and television audio and video programming services, regardless of the medium, including the furnishing of transmission, conveyance and routing of such services by the programming service provider. Radio and television audio and video programming services shall include but not be limited to cable service as defined in 47 USC 522(6) and audio and video programming services delivered by commercial mobile radio service providers, as defined in Federal Communications Commission regulation 47 CFR 20.3 (December 2005). This federal regulation is incorporated herein by reference, but such incorporation does not include later amendments to or editions of such regulations. A certified copy of this regulation is available for review at the Office of Tax Policy Analysis, Colorado Department of Revenue, 1881 Pierce Street, Lakewood, CO 80214. Additionally, a copy of this material may be examined at any state publications depository library.

(h) "Ancillary services"; or

(i) Digital products "delivered electronically", including but not limited to software, music, video, reading materials or ring tones.

(3) Examples of Included and Excluded Services.

Example 1. An entity provides dedicated network service to an entity which will resell that service as intrastate telecommunications service. Both entities are providing a telecommunications service.

Example 2. An entity provides an interstate telecommunications service to an internet service provider which will use that service in the provision of internet access service. The entity providing interstate telecommunications service is providing a telecommunications service. The entity providing internet access service is not providing a telecommunications service.

Example 3. An entity primarily engaged in the provision of cable television provides an interstate telecommunications service. The entity is engaged in the provision of telecommunications service.

(xxxiii) "Value-added non-voice data service" means a service that otherwise meets the definition of "telecommunications services" in which computer processing applications are used to act on the form, content, code, or protocol of the information or data primarily for a purpose other than transmission, conveyance or routing.

(xxxiv) "Vertical service" means an ancillary service that is offered in connection with one or more telecommunications services, which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including conference bridging services.

(xxxv) "Voice mail service" means an ancillary service that enables the customer to store, send or receive recorded messages. Voice mail service does not include any vertical services that the customer may be required to have in order to utilize the voice mail service.

(d)Apportionment - Sales Factor: Sales of telecommunications and ancillary services in this state. The sales factor is a fraction, the numerator of which is the sales of the taxpayer in this state during the taxable year and the denominator of which is the sales of the taxpayer within and without this state during the taxable year. All revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer is included in the denominator of the sales factor. The sales factor shall include the following types of sales to the extent that such sales constitute business income.

(i) Gross receipts from the sale of telecommunications services, other than those sourced in subsections iii) through vii), which are sold on a call-by-call basis are in this state when (1) the call originates and terminates in this state or (2) the call either originates or terminates and the service address is also located in this state.

(ii) Gross receipts from the sale of telecommunications services, other than those sourced in subsections iii) through vii), which are sold on other than a call-by-call basis, are in this state when the customer's place of primary use is in this state.

(iii) Gross receipts from the sale of mobile telecommunications services, other than air-to-ground radiotelephone service and prepaid calling service, are in this state when the customer's place of primary use is in this state pursuant to the Mobile Telecommunications Sourcing Act.

(iv) Gross receipts from the sale of pre-paid calling service, prepaid wireless calling service and post-paid calling service are in this state when the origination point of the telecommunications signal is first identified in this state by either (1) the seller's telecommunications system, or (2) information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(v) Gross receipts from the sale of a private communication service are in this state:

(1) if such service is for a separate charge related to a customer channel termination point, when the customer channel termination point is located in this state;

(2) if under such service all customer termination points are located entirely within one state, when the customer channel termination points are located in this state;

(3) if such service is for segments of a channel between two customer channel termination points located in different states and such segments of channel are separately charged, when one of the customer channel termination points is in this state, provided however that only fifty percent of such gross receipts shall be sourced to this state; and

(4) if such service is for segments of a channel located in more than one state and such segments are not separately billed, when the customer channel termination points are in this state, provided however that only a percentage of such gross receipts, determined by dividing the number of customer channel termination points in the state by the total number of customer channel termination points, are in this state.

(vi) A portion of the total gross receipts from sales of telecommunication services to other telecommunication service providers for resale is in this state in an amount determined by multiplying such total gross receipts by a fraction, the numerator of which is "total carrier's carrier service revenues" for this state and the denominator of which is the sum of "total carrier's carrier service revenues" for all states in which the taxpayer is doing business, as reported by the Federal Communications Commission in its report titled Telecommunications Revenues by State, Table 15.6, or successor reports which include such information, for the most recent year available as of the due date of the return, determined without regard to extensions.

(vii) Gross receipts attributable to the sale of an ancillary service are in this state when the customer's place of primary use is in this state.

(viii) Gross receipts attributable to the sale of a telecommunication or ancillary service sold as part of a bundled transaction are in this state when such gross receipts would be this state in accordance with the provisions of sections d)i) through vii).

(1) The amount of gross receipts attributable to the sale of a telecommunication or ancillary service which is sold as part of a bundled transaction shall be equal to the price charged by the taxpayer for such service when sold separately, adjusted by an amount equal to the quotient of a) the difference between (1) the price charged by the taxpayer for the bundled transaction, and (2) the sum of the prices charged by the taxpayer for each of the included products when sold separately, and b) the number of products included in the bundled transaction;

(2) If the amount of such gross receipts is not determinable under subsection viii)(1), then it may be determined by reasonable and verifiable standards from taxpayer's books and records that are kept in the regular course of business for purposes including, but not limited to, non-tax purposes.

(ix) Gross receipts from the sale of telecommunication services which are not taxable in the State to which they would be apportioned pursuant to sections d)i) through vii), shall be excluded from the denominator of the sales factor.

Special Rule 9A. Apportionment of Income for Electricity Producers.

Basis and Purpose. The statutory bases for this rule are sections 39-21-112(1) and 39-22-303.6, C.R.S. The purpose of this rule is to prescribe the inclusion of certain receipts of electricity producers in the receipts factor. Notwithstanding section 39-22-303.6(1)(d), C.R.S., and pursuant to the authority granted in section 39-22-303.6(9)(a)(I), C.R.S., the Department has determined that the exclusion of certain hedging transactions from the receipts factor of electricity producers does not fairly represent the extent of an electricity producer's business activity in Colorado. Gains and losses on hedging transactions entered into to manage risks associated with the gross income electricity producers expect from their wholesale sales of electricity are best accounted for in the receipts factor as adjustments to the gross receipts from such sales. Therefore, the Department establishes the following rule prescribing the adjustment of receipts from such sales based on the income, gain, or loss from certain hedging transactions, as described in this rule.

(1)General Rule. Except as provided in paragraph (3) of this rule, or as otherwise specifically allowed or required by the Executive Director pursuant to section 39-22-303.6(9), C.R.S., any income, gain, or loss from a transaction properly identified as a hedge under section 1221(b)(2)(A) or 475(c)(3) of the Internal Revenue Code shall be excluded from a taxpayer's receipts pursuant to section 39-22-303.6, C.R.S., for the purpose of apportionment.

(2)Definitions. For purposes of this rule,

(a) "Hedging transaction" means any transaction that a taxpayer enters into in the normal course of the taxpayer's trade or business primarily to manage risk of price changes. The Department shall construe this term in a manner consistent with its use in section 1221(b)(2)(A)(i) of the Internal Revenue Code.

(b) "Electricity producer" means any taxpayer treated as a C corporation, S corporation, or partnership for Colorado income tax purposes, wherever resident or organized, primarily engaged in the generation and sale of electricity.

(3)Special Rule for Including Hedging Transactions in Receipts.

(a) Except as provided in paragraph (3)(c) of this rule, any amount included in the receipts of an electricity producer pursuant to section 39-22-303.6(1)(d), C.R.S., from a wholesale sale of electricity shall be adjusted by the income, gain, or loss from a hedging transaction that hedged such wholesale sale of electricity if the identification requirements prescribed in this paragraph (3)(a) are satisfied. The identification requirements are met if the electricity producer's books and records clearly identify a hedging transaction as managing risk relating to a particular sale or sales of electricity, including anticipated sales, that must be included in the electricity producer's receipts pursuant to section 39-22-303.6(1)(d), C.R.S. The identification requirements are met only if identification is made at the time and in the manner consistent with 26 CFR 1.1221-2(f) and (g) (as in effect September 2021) and the taxpayer's books and records include the information necessary to determine the applicable adjustment prescribed by this paragraph (3).

(b) The adjustment prescribed by this paragraph (3) shall be made with respect to the calculation of both the numerator and the denominator of the apportionment fraction pursuant to section 39-22-303.6(4), C.R.S. The numerator shall be adjusted to the extent that the receipts of the wholesale sale of electricity that was hedged were in Colorado as determined by section 39-22-303.6, C.R.S., and the rules thereunder.

(c) In the case of a taxpayer filing a combined return pursuant to section 39-22-303, C.R.S., a consolidated return pursuant to section 39-22-305, C.R.S., or both, the adjustment to the receipts factor required by this paragraph (3) shall not apply unless both the income from the wholesale sale and the gain or loss from the hedging transaction that hedged that wholesale sale are included in the taxpayers' combined, consolidated, or combined and consolidated federal taxable income.

(4)Incorporation by Reference.26 CFR 1.1221-2(f) and (g) incorporated by reference in paragraph (3)(a) of this rule includes only the version that was in effect as of December 2021, and no later amendments to the incorporated federal regulation. The regulation incorporated by reference is available for public inspection during regular business hours at the Office of Tax Policy at the Department of Revenue, 1881 Pierce Street, Lakewood, CO 80214. A copy of this regulation is also available for a reasonable charge from the Department of Revenue, 1881 Pierce Street, Lakewood, CO 80214, 303-866-5627, and is available online at https://www.govinfo.gov/content/pkg/CFR-2021-title26-vol13/pdf/CFR-2021-title26-vol13.pdf beginning on page 309 of the linked volume of the Code of Federal Regulations.

Special Rules - Income Tax

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