YOUR COLORADO TAX INFORMATION SOURCE

COLORADO INCOME TAXES

A BRIEF OVERVIEW

PERSONAL INCOME TAXES

Colorado developed a more complex income tax structure and computation a number of years ago, revolving around a "TABOR surplus."  Then, the Colorado taxpayers passed Referendum C in November 2005.  This legislation mandates that there will be no budget surplus until 2011 at the earliest, so the TABOR related credits and deductions will not be available until after 2010.  This means that Colorado taxpayers can expect the Colorado calculation to be fairly simple until after 2010. 

Colorado income tax returns are due on April 15, the same as the federal return, although a filing for an extension of time until October 15 is available.  Federal taxable income from Form 1040 is the base figure used and then this amount is increased or decreased by a number of adjustments to arrive at Colorado taxable income, which is then subject to the Colorado statutory state tax rate of 4.63%. 

Colorado taxable income is basically calculated as follows:

A. Federal taxable income from Form 1040, 1040A, or 1040EZ is INCREASED for Colorado income tax purposes by:

1. The amount claimed as a federal itemized deduction for ANY state income taxes paid.

2. ANY federally tax-exempt municipal interest income received from NON-Colorado sources, such as from municipalities in other states, including the portion of tax-exempt mutual fund dividends from non-Colorado resources.

3. Lump sum distributions from pension or profit sharing plans that are excluded from federal taxable income.

4. A limited number of other additions.

B. Federal taxable income from Form 1040, 1040A, or 1040EZ is DECREASED for Colorado tax purposes by:

1. ANY state income tax refund that was reported as income on the federal income tax return.

2. Interest received on U.S. Government obligations: Included in this category and exempt from Colorado income taxes are interest received from: U.S. Treasury bills, notes, certificates or bonds, and savings bonds; Bank for Cooperatives; Commodity Credit Corporation; Federal Deposit Insurance Corporation (FDIC); Federal Farm Credit Banks (FFCB); Federal Home Loan Banks (FHLB); Federal Intermediate Credit Banks (FICB); Federal Land Banks (FLB); Financing Corporations (FICO); Student Loan Marketing Association (Sallie Mae); and a number of other government agencies. Specifically excluded and NOT exempt from Colorado taxes is interest received from: Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac); Federal National Mortgage Association (FNMA or Fannie Mae); Government Nation Mortgage Association (GNMA or Ginnie Mae); World Bank; and a few others.

3. Up to $20,000 of pension plan, or other taxable retirement benefit payments received such as federally taxable social benefits, that are reported as federal taxable income by EACH taxpayer age 55 through 64, and up to $24,000 for Each taxpayer over age 65. This is a per-taxpayer reduction in Colorado taxable income, which means that the total reduction from federal taxable income can be $40,000 for a couple over age 55 through 64 and as high as high as $48,000 for joint filers over age 65 when each taxpayer received at least $24,000 in federally taxable pension and/or social security benefits. Pension benefit payments include any pension plan payments and any distributions from an IRA, 401(K), SIMPLE, SEP, or other qualified retirement plan and both lump-sum and periodic payments. This $20,000 or $24,000 per person reduction is also available to a surviving spouse or a dependent child that is under age 55 and receives the payments as a result of the death of the person that earned the pension.

4. All net Capital Gains from the sale of Colorado Source property that was purchased after May 9, 1994, and has been continually owned by the taxpayer for at least 5 years. Colorado source property includes Colorado real estate and personal property, as well as stock and partnership interest in Colorado businesses. IMPORTANT NOTE! Effective 1/1/2010, the annual exclusion amount is limited to $100,000, is limited to real estate gains only, and the acquisition must have occurred before August 9, 2010.

5. Charitable contributions made in excess of $500 when the taxpayer does not use itemized deductions for federal income tax purposes. Available for years 2006-2010.

6. Up to $1,500 for single filers and up to $3,000 for joint filers and surviving spouse filers of federally taxable interest, dividends, and capital gains. Not available for years 2006-2010.

C. There are numerous Colorado Tax Credits that can be offset the state income tax, most of which are TABOR surplus controlled, including: 

1. State Sales Tax Credit.  Full year Colorado residents are eligible for a sales tax credit at a rate which is established each year by the state.  The amount is refundable and is not considered as taxable income in the following year. There will be NO sales tax refund available for the years 2006 through 2010.

2. Child Care Credit.  There is a state child care credit equal to 50% of the federal child care credit, although the child's age (13) and taxpayer income ($60,000) restrictions are different from those used in the federal calculation.  The credit is for child care only, not for care of other dependents as allowed on the federal return.

3. Child Tax Credit.  A state tax credit of $200 per child under age six (6) is available for resident taxpayers with income under $60,000. A taxpayer can not claim both the child care described above and the child tax credit during the same year.  NOT AVAILABLE FOR YEARS 2005-2010.

4. Earned Income Credit.  For those who qualify for the federal earned income credit, Colorado allows an earned income credit equal to 10% of the federal earned income credit.   NOT AVAILABLE FOR YEARS 2005-2010.

5. Other Tax Credits.  There are also special tax credits available for investments in Enterprise Zones, in child care facilities, in historic property, and in other specific investments, for doctors working in rural or undeserved areas, for businesses paying unemployment insurance, for contributions to child care centers, for clean-up of contaminated land, and numerous other special credits.  ONLY THE ENTERPRISE ZONE CREDITS ARE AVAILABLE FOR YEARS 2005-2010, ALL OTHERS ARE NOT AVAILABLE.

("TABOR surplus" refers to Colorado's Taxpayer's Bill of Rights which constitutionally limits the state's annual revenue growth.  Any revenue growth that exceeds the permitted revenue growth generates a "TABOR surplus" that the state must refund to the taxpayers.  This refund process consists of several tax credits and deductions, the existence and amount of each is based on the amount of the TABOR surplus.)

COLORADO FULL YEAR RESIDENTS WITH OUT-OF-STATE INCOME

Full year Colorado residents are required to report all income from all states on their Colorado income tax return. A tax credit is typically received for income taxes paid to other states on income that is also reported in Colorado, although the tax credit is limited to the tax that would be paid at the Colorado tax rate of 4.63%. This means that the state income tax credit on income taxable in California may be less than the actual tax paid to California due to the higher tax rate imposed by that state. If the out-of-state income is from a state that does not impose an state income tax such as Texas, Washington, Florida, etc., then Colorado income tax is imposed on the income with no out-of-state tax credit.

PART-YEAR COLORADO RESIDENTS AND NON-RESIDENTS

A taxpayer that is a part-year Colorado resident or a non-resident that has income from Colorado sources, wages, self-employment income, rental income, sales of real estate, etc., must file a Colorado return.  Colorado income tax is assessed on the portion of the income that is derived from Colorado sources. 

**SALE OF COLORADO REAL ESTATE BY A NON-RESIDENT**

Colorado law requires that Colorado Income Tax of 2% of the sales price of any sale of real estate over $100,000 by a non-resident be withheld from the sales proceeds.  This necessitates the filing of a Colorado tax return to report the sale, and to obtain a refund or pay any additional tax owed as a result of the sale.   Those non-residents required to have the 2% withholding applied to a real estate sale include any of the following:

    1.  Non-resident individuals.

    2.  Non-resident partners and partnerships (including LLCs, LLPs, LLLPs, etc.) where the federal Form 1099-S AND the authorization for disbursement of funds from the sale does not show the seller as having a Colorado address.

    3.  Non-resident estates and trusts.

    4.  A corporation not incorporated under Colorado law or not currently registered with the Secretary of State's office as qualified to transact business in Colorado. 

CORPORATION INCOME TAXES

Colorado assesses a corporate income tax on "C" corporations, but normally no corporate income or franchise tax on "S" corporations.  The corporate income tax rate for Colorado is 4.63% on net income derived from Colorado sources.   There is no minimum income tax amount on C corporations.  There is no franchise tax assessed on corporations, either C or S.  As with the personal income taxes, the base amount for the Colorado taxable income computation is federal taxable income.  A certain limited number of adjustments are then made to arrive Colorado taxable income.  Corporate tax returns are due on the 15th day of the fourth month after year-end, a month later than the federal return, and a six month filing extension can be obtained.

PARTNERSHIPS, LLCs, LPs, LLPs, LLLPs TAXES

Colorado does not impose an income tax or have a minimum tax amount and does not assess a franchise tax on partnerships.  The filing date is April 15, although filing extensions out to October 15, can be obtained.  NOTE: Colorado income tax is required to be withheld at the entity level based upon profits allocated to non-resident partners/members, which necessitates the filing of a Colorado tax return to report the income, unless a separate election agreement is completed by the partner/member in which they agree to file a Colorado Income Tax return.

ESTATE, INHERITANCE AND GIFT TAXES

Colorado does not have a gift or inheritance tax.

Colorado does not have an estate tax. 

SOURCES AND AGENCIES

Income Taxes – Personal, Corporate, Partnership, Trust, Estate:

Colorado Department of Revenue  http://taxcolorado.com
1375 Sherman Street, Denver, CO 80261 (303) 232-2446
Local Office:
    4420 Austin Bluffs Parkway, Colorado Springs, CO 80918
    (719) 594-8706

Colorado Incorporation, LLCs, LLPs, LLLPs, etc.:

Secretary of State, Corporations Department www.sos.state.co.us
    1560 Broadway, Suite 200, Denver, CO 80202
    (303) 894-2251

Regulated Businesses - (Accountants, Attorneys, Physicians, Other Professionals):

Department of Regulatory Agencies www.dora.state.co.us

1560 Broadway, Suite 1550, Denver, CO 80202

State of Colorado Internet:

www.state.co.us.

City of Colorado Springs

General Information - (719) 385-CITY (2489)  www.coloradosprings.com

Internal Revenue Service,

2864 South Circle Drive, 7th Floor,
Colorado Springs 80906 (719) 579-0839   www.irs.gov

The information provided above is believed reliable.  Tax laws are very complex and guidance from a tax professional should be obtained before making any major financial decision that could have an income tax impact.  Our office is knowledgeable in the areas of income taxation and we are available to discuss such matters.