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. Colorado ranks 10th lowest nationally in per capita corporate income tax revenue. Collections in 2004 totaled $52 per capita, compared to a national average of $105 for corporate income tax revenue. Colorado does not assess a franchise or inventory tax.
Colorado's Method of Apportioning Income
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 can 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.
- Single-Factor legislation to be considered in 2008 Legislature - Colorado Governor Bill Ritter announced in October 2007 that he wlll introduce legislation in the 2007 Colorado General Assembly to simplify Colorado's corporate income tax structure through a "single factor" apportionment, allowing companies to pay taxes based solely on their sales in the state.
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.