Corporate
Colorado's corporate income tax rate is a flat 4.63 percent assessed on Colorado net income, defined as the corporation's federal taxable income, with some modifications. According to the Milken Institute's Tax Burden Index, Colorado has the fourth-lowest cost of doing business. Additionally, the Tax Foundation reports that Colorado's low, flat corporate tax rate and fair, efficient, and impartial tax laws contribute to the state's 12th-best corporate tax index rate.
Colorado's Method of Apportioning Income
Single-factor legislation passed in 2008 Legislature simplifies Colorado's corporate income tax structure through a "single factor" apportionment, eliminating the "multiple choice" approach for income tax years commencing on or after January 1, 2009. Under current law, Colorado is unique among other states in that it uses two alternative apportionment formulas allowing the taxpayer to choose the method that produces the lesser tax liability. The taxpayer could decide each year whether to use the standard three-factor formula or a special two-factor formula:
- The three-factor formula averages the corporation's wages, property, and sales in Colorado and compares that average to total wages, property, and sales to determine what proportion of its profits will be taxed.
- The two-factor formula averages property and sales in Colorado only, and compares that average to the total property and sales. The three-factor formula, commonly referred to as the Multi-state Tax Commission formula, was adopted in 1968. At the same time, the legislature determined that the two-factor formula should remain as an option.
Unitary Taxation
Colorado has a liberal "water's edge" system of unitary taxation rather than a "worldwide" one. Specifically, foreign corporations, as well as "80/20" corporations (corporations with 80 percent of their property and payroll outside the U.S.) are not included in a Colorado income tax return. Corporations doing business in Colorado, as well as other states, must apportion to Colorado that part of their net income derived from sources within the state.