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Colorado Tax Laws Updated for 2022-23

11/09/2022|John R. Dundon II, EA|, , , , , , , , , , ,

Like waterspouts bearing down, Colorado tax laws updated for 2022-23 are beautiful to look at and arguably dangerous to misunderstand.  It most certainly brings less than smooth sailing for most all taxpayers effectively connected to the mile high state.

From business owners (of all sizes) to individual taxpayers, there are “strange things afoot” (at the Circle K).

As of now Proposition 122, making it legal to grow, gift and use psychedelic mushrooms as well as decriminalize DMT, ibogaine and mescaline, is headed to victory.  Perhaps the fruits of this ‘victory’ might (or might not) be a useful pairing with the following 10,000 or so words.

Either way balancing our prevailing ballot initiatives with the revisions in our legislator’s revised statutes is arguably mind altering.  The most comprehensible conclusion so far is that we are most certainly living at this time in this space as a Mile High-ER state in most every regard EXCEPT the flat income tax, reduced to 4.4%.

This post is a deep dive into the following abysses.  Density alert!

Once through it (or any part of it) put yourself down for a well-deserved raise and take the rest of the day off.  Hit me up with any questions, comments, concerns or clarifications.

Legislative Oversight Committee re: Tax Policy & Task Force

May 13th 2022 Meeting Observation ““

Lengthy discussion on taxing services in CO
  • The background here is that the state expects to have budget troubles beginning in the 2024 FY and some folks are trying to find ways to bring in more revenue.
  • This will likely be a discussion that continues over the next year and may end up as legislation.
  • Suspect there won’t be enough votes to get a big change like this passed but it could also move forward as a ballot initiative for the 2023 election, as odd year elections only deal with fiscal issues.
  • See full presentation for more detail

Testimony from The Council on State Taxation (COST) https://leg.colorado.gov/sites/default/files/images/committees/cost_presentation.pdf

Committee Members

Getting to know the legislators at the helm of crafting Colorado’s Tax Statutes is a best practice for all.

Next Meeting November 10th @ 1 PM

Interim Committee Legislation moving forward in 2023
BILL BILL TOPIC FORMER BILL DESIGNATION FISCAL NOTE
Bill A Repeal of Infrequently Used Tax Expenditures Bill 1 Bill 1
Bill B Taxation Tobacco Products Remote Retail Sellers Bill 2 Bill 2
Bill C Earned Income & Child Tax Credits Bill 4 Bill 4
Bill D Tax Credit For Purchase Long-term Care Insurance Bill 6 Bill 6
Bill E Unauthorized Insurance Premium Tax Rate Bill 9 Bill 9
Sales and Use Tax Simplification Task Force
BILL BILL TOPIC FISCAL NOTE
Resolution A Resolution on the collection of use taxes on construction materials
Bill B Enhancing the functionality of the SUTS System Bill 2

Additional Task Force documents

Tax Fairness for Coloradan’s package

The extent to which the coal industry will survive is one of many questions arising out of HB21-1311 (Income Tax) and HB21-1312 (Insurance Premium Property Sales Severance Tax), combined legislation that expanded tax credits for working families and small businesses but hurt the coal industry. Each passed with a 41-23 vote and were signed into law by Governor Polis.

The first bill expands eligibility for the state earned income tax credit and essentially doubles funding for the Colorado Child Tax Credit. “Modernizing” or as some like to quip “social engineering” the Colorado tax code is either way a topic to be avoided at extended family reunions.

The second bill focuses on a property sales severance tax increasing the number of businesses that will be exempt from business personal property tax and is just plain smart legislation for most all Colorado business owners, except the coal industry of course.

Coal is dead anyhow, right? Well, we will see I suppose.

  • The bill phases-out the 50% tax credit for coal produced from underground mines & lignitic coal.
  • It also phases out the exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022.
  • So why keep digging?

Nevertheless kudos to Rep. Emily Sirota (D-Denver), Rep. Mike Weissman (D-Aurora), Sen. Chris Hansen (D-Denver) and Sen. Dominick Moreno (D-Commerce City) for skillfully sponsoring and shepherding both bills across the threshold and into Governor Polis’ office.

A relatively broad but debatable interpretation of the Colorado Department of Revenue’s 2020 Tax Profile & Expenditure Report required bi-annually as per §39-21-303, C.R.S. indicates that these bills collectively should eliminate several loopholes in the state tax code that were not “creating jobs, boosting the economy, or making Colorado more competitive with other states or benefiting Colorado.”  That aside what is not debatable is that this tax reform will create more jobs for tax accountants.

So maybe, just maybe, coal miners and related industry professionals can transition into tax accountants.  Read on”¦

HB21-1311 ““ INCOME TAX

NEIGHBORHOOD BARBEQUE BANTER – HB21-1311 Income Tax

  • Imposes a cap for taxpayers with adjusted gross incomes equal to or exceeding $400,000 on itemized deductions.
    • The limit is set at $60,000 for MFJ taxpayers & $30,000 for all others
  • Limits the deduction for contributions made to 529 plans.
    • $30K MFJ $20K All other filing statuses
  • Disallows full federal deduction for food and beverage expenses at restaurants.
  • Limits the capital gains subtraction to farmers only with qualified gains (Schedule F)
  • Allows a subtraction from Colorado taxable income in amounts related to repealing the cap on the deduction for certain social security income.
  • As per CRS § 39-22-129(3.5) the state child tax credit also is expanded for tax years beginning in 2022 to include children without Social Security Numbers adjusting the child tax credit based on adjusted gross income as follows:
    • 30% for AGI under $25,000
    • 15% for AGI between $25,000 – $50,000
    • 5% for AGI between $50,000 – $75,000
  • Allows a child tax credit in the state regardless of the federal requirement that a qualifying child must have a social security number.

TAX ADVISOR OVERVIEW – HB21-1311 Income Tax

  • Allows a temporary income tax credit for a business equal to a percentage of the conversion costs to convert the business to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust.
  • Modifies the computation of the corporate income tax receipts factor (increasing it) to make it more ‘congruent’ with combined reporting. Finnigan v. Joyce
  • Prevents corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance.
  • Clarifies that certain captive insurance companies are not exempt from income tax.
  • Repeals, for social security income that is included in federal taxable income only, the cap on the deduction for pension and annuity income received.
  • Extends the limit on the federal deduction allowed under section 199A of the internal revenue code ““ Qualified Business Income Deduction.

DEEPER DIVE – HB21-1311 Income Tax

Corporate Income Tax Changes
  • Modifies Colorado’s computation of the receipts factor for apportionment of combined corporations to require that all corporations in the combined group with any Colorado receipts must utilize the “Finnigan method” to determine the Colorado receipts in the numerator for tax years beginning on or after January 1, 2022. Colorado currently uses the “Joyce method.”
    • “Joyce” and “Finnigan” refer to two different ways of calculating the sales factor numerator in a unitary combined report or consolidated return filed by a group of affiliated corporations. The names come from two decisions of the California State Board of Equalization: Appeal of Joyce, Inc., No. 66 SBE 069
    • Under the Joyce rule, the relevant taxpayer is a particular corporate entity making a sale, whereas in a Finnigan rule state, the taxpayer is the combined group. This means that under Joyce, a corporation is determined to be taxable in a state only if the corporation itself possesses taxable nexus, whereas under Finnigan, a corporation is taxable if any member of its unitary group is taxable.
    • State Throwback & Throw out Rules
  • Modifies the definition of an “affiliated group” to “includable C corporations connected directly or indirectly through stock ownership.”
    • The requirement that the common parent be an includable C corporation remains in place.
  • Requires for tax years beginning on or after January 1, 2022, that the Colorado combined group include C corporations “incorporated in a foreign jurisdiction for the purpose of tax avoidance.”
    • The legislation includes a rebuttable presumption that a corporation is created for tax avoidance purposes if it is incorporated in one of 44 listed jurisdictions and includes information on how to calculate the taxable income of a foreign corporation that is to be included in the Colorado combined group.
  • Disallows the Internal Revenue Code (IRC) section 78 dividend subtraction from any foreign corporations created for tax avoidance purposes that are included in a Colorado combined return.
  • Creates a subtraction for any net GILTI (global intangible low taxed income), or IRC section 951 income of a foreign corporation created for tax avoidance purposes that is included in a Colorado combined return.
  • Provides that for tax years beginning on or after January 1, 2022, corporations are required to addback any federal deductions for food and beverage under IRC section 274(n)(2)(D) that exceed 50% of the total expense.
  • Provides that for tax years beginning on or after January 1, 2022, the qualified Colorado capital gain exclusion is limited to taxpayers with farming activity reported on federal Schedule F with qualified capital gains.
  • Creates a tax credit for businesses that create an Employee Stock Ownership Plan (“ESOP”) or an Employee Ownership Trust or that convert to a Worker-Owned Cooperative.
    • The credit amount is based on defined “conversion costs” and the plan must be approved by the state.
  • Makes captive insurance companies taxable entities for Colorado corporate income tax purposes if 50% or less of the entities’ receipts are from premiums for insurance arrangements.
Individual Income Tax Changes – HB21-1311 Income Tax
  • Extends the Colorado limitation on the amount of IRC section 199A deductions that are allowed for certain high-income taxpayers for an additional three years.
    • Effective for tax years between January 1, 2021 & January 1, 2026.
  • Creates a limit on federal itemized deductions that are allowed for Colorado purposes for taxpayers with federal adjusted gross income of $400,000 or more.
    • Effective for tax years beginning on or after January 1, 2022
    • The limit is set at $60,000 for MFJ taxpayers & $30,000 for all others.
  • Requires taxpayers to add back any federal deductions claimed of more than 50% of food and beverage expenses.
    • Effective January 1, 2022 through January 1, 2023
  • Increases the cap on the deduction for federally taxed pension annuity benefits for tax years beginning on or after January 1, 2022, for certain taxpayers who are 65 or older to include all federally taxed social security benefits.
  • Limits deductions for contributions to 529 Plans for tax years beginning on or after January 1, 2022 to $20,000 per beneficiary (adjusted for inflation) for taxpayers filing a single return and $30,000 per beneficiary (adjusted for inflation) for taxpayers filing a joint return.
  • Increases the Colorado earned income tax credit for Colorado residents to 20% of the federal credit claimed for tax years beginning on or after January 1, 2022, but before January 1, 2023.
    • For tax years beginning on or after January 1, 2023, but before January 1, 2026, the Colorado earned income tax credit increases to 25% of the federal credit claimed.
    • The state credit reverts to 20% of the federal credit claimed for tax years beginning on or after January 1, 2026.
  • Makes the Colorado child tax credit available for tax years beginning on or after January 1, 2022, based on a percentage of the federal tax credit that varies by the amount of the taxpayer’s federal adjusted gross income.
  • Provides that for tax years beginning on or after January 1, 2022, the qualified Colorado capital gain exclusion is limited to taxpayers with farming activity reported on federal Schedule F with qualified capital gains.
Editorial Commentary
  • The reference to the federal economic nexus standard in IRC § 7701(o) is interesting because states recently have been relatively silent on this provision. A state resurgence on this issue seems inevitable.
  • The interaction of the Joyceand Finnigan rules with the state’s throwback provisions may significantly impact sellers of tangible personal property.
  • Under the Finniganrule, sales to states where any member of the combined group has nexus are not subject to throwback.
  • The impact of the change is heavily fact-dependent and will require taxpayers to reassess existing positions taken in apportionment calculations.

DETAILS ON HB21-1312 ““ INSURANCE PREMIUM PROPERTY SALES SEVERANCE TAX

NEIGHBORHOOD BARBEQUE BANTER – HB21-1312 Severance Tax

  • Phases-out the 50% tax credit for coal produced from underground mines & lignitic coal and exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022.
  • Requires personal property tax to be based on the property’s value in use as defined by a property tax administrator.
  • Increases the per-schedule exemption for business personal property tax from $7,900 to $50,000.
  • Codifies the definition of tangible personal property to include digital goods, including amounts charged for mainframe computer access, photocopying, packing & crating.

Tax Advisor overview – HB21-1312 Severance Tax

  • Disallows the sales tax vendor fees for retailers who report total taxable sales greater than $1 million in the tax period.
  • Requires a company to have a minimum percentage of its total domestic workforce in the state in order for the company to be deemed to maintain a home office or regional home office. This percentages are:
    • 2% for 2022
    • 5% for 2023
    • 5% for 2024 onward.
  • Narrows the tax exemption for annuities considerations to those that are purchased in connection with a qualified retirement plan, a Roth 401(k), or an individual retirement account.
  • Authorizes the commissioner of insurance to appoint an independent examiner to conduct examinations.

DEEPER DIVE – HB21-1312 Severance Tax

Summary of Sales & Use Tax Changes
  • Includes digital goods in the definition of tangible personal property, and defines digital goods as “any item of tangible personal property that is delivered or stored by digital means, including but not limited to video, music, electronic books, or computer files.”
  • Imposes sales tax on amounts charged for mainframe computer access, photocopying, and packing and crating.
  • Adds to C.R.S. section 39-26-102, subsection 5.7, defining “mainframe computer access” to mean the “provision of access to computer equipment for the purpose of storing or processing data.” As well as amending the statute under subsection 6.5, “photocopying” is now defined as the “sale of a document rendered on paper or other similar material by a machine that creates an accurate reproduction of the original.” The bill also adds subsection 6.4 to the statute, which defines “packing and crating” to mean “tangible personal property furnished to prepare tangible personal property at retail for delivery to a location designated by the purchaser.“
  • eliminates the vendor fee for any filing period where the retailer’s total taxable sales are greater than $1 million.
    • Currently, a retailer who collects sales tax can retain 4% of the state sales tax collected (known as a vendor fee), with a monthly cap of $1,000. Effective 1/1/22
Summary of Property Tax Changes
  • Requires that the actual value of personal property be determined based on the property’s value in use, which will be defined by the property tax administrator.
  • Increases exemption for business personal property from $7,700 to $50,000 for tax years beginning on January 1, 2021.
    • For tax years beginning on January 1, 2023, the amount of the exemption will be adjusted biennially by the property tax administrator.
Summary of Insurance Premium and Severance Tax Changes
  • Requires that a company have at least 2% of its workforce in Colorado to be considered a home or regional home office in calendar year 2022. The amount increases to 2.25% for calendar year 2023 and 2.5% for all subsequent calendar years.
  • Narrows the tax exemption for annuities considerations to those purchased through a qualified retirement plan, a Roth 401(k), or an individual retirement account.
  • Beginning with the 2022 taxable year, the quarterly exemption and both tax credits related to coal production will be phased out.
    • Currently, the first 300,000 tons of quarterly coal produced is exempt from property tax. Additionally, there is a tax credit of 50% from underground coal production and another credit of 50% for lignite coal.

The latest from the Colorado Department of Labor & Employment (CDLE)

Healthy Families and Workplaces Act
NEW DEPARTMENT
  • Family & Medical Leave Program (FAMLI)
  • The FAMLI program will ensure all Colorado workers have access to paid leave in order to take care of themselves or their family during life circumstances that pull them away from their jobs.
  • Eligible employees will receive up to twelve weeks of leave.
  • FAMLI will start providing benefits to employees beginning January 1, 2024.
  • All Colorado employers MUST providepaid sick leave to their employees, accrued at one hour of paid sick leave for every 30 hours worked, up to a maximum of 48 hours.
  • An employee begins accruing paid sick leave when the employee’s employment begins.
  • Employees may use paid sick leave as it is accrued and may carry forward and use in subsequent calendar years paid sick leave that is not used in the year in which it is accrued.
  • Employees may use accrued paid sick leave to be absent from work for:
    • Mental or physical illness, injury, or health condition; needs a medical diagnosis, care, or treatment related to such illness, injury, or condition; or needs to obtain preventive medical care.
    • The employee needs to care for a family member who has a mental or physical illness, injury, or health condition; needs a medical diagnosis, care, or treatment related to such illness, injury, or condition; or needs to obtain preventive medical care.
    • The employee or family member has been the victim of domestic abuse, sexual assault, or harassment and needs to be absent from work for purposes related to such crime.
    • A public official has ordered the closure of the school or place of care of the employee’s child or of the employee’s place of business due to a public health emergency, necessitating the employee’s absence from work.
  • Some silver linings for employers
    • Employers who offer a more generous PTO, vacation, or sick leave policy (meaning providing at least 48 hours of sick leave), do not need to provide additional leave.
      • But the accrual must be as generous as that required in the Act and be available immediately and for part-time employees.
      • Additionally, the PTO policy must provide notice to an employee that additional leave will not be provided as the PTO policy meets the requirements of HFWA.
    • Even though the Act refers to paid sick leave as “wages,” it specifically provides that unused paid sick leave need not be paid out at termination.
      • Any unused paid sick days must be reinstituted if the employee is rehired within six months of termination.
      • The paid sick leave also carries over to any successor employer which I have no idea how this can be tracked much less enforced.
    • Employers may require documentation from the employee if they take four or more consecutive paid sick days.
  • Public Health Emergency (PHE) Paid Sick Leave
    • In addition to the new paid sick leave law that just went into effect, all employers in Colorado have been obligated to provide public health emergency leave since January 1, 2021.
    • Under state law, all Colorado employers must provide this leave if there is a federal, state, or local declaration of emergency.
    • While our state declaration has been lifted, the federal declaration is currently still in place, and therefore the obligation to provide PHE leave is still currently in place.
    • PHE leave is a one-time leave obligation. If an employee used all of their supplemental PHE leave in 2021, they must rely on their accrued leave or take any additional COVID-19 leave unpaid.

Employer Responsibilities

  • Employers and their employees are both responsible for funding the program and may split the cost 50/50.
  • The premiums are set to 0.9% of the employee’s wage, with
    • .45% paid by the employer
    • .45% paid by the employee
  • Employers who offer their own paid leave program may apply for an exemption.
  • Employers with nine or fewer employees do not have to contribute to the program.
    • BUT do need to remit their employees’ share (.45%) of premium payments on behalf each quarter.
    • This can be done through a simple payroll deduction.

Employer Steps to prepare for FAMLI

  • Determine how FAMLI will apply to your business
    • How many people do you employ?
    • What portion of the costs will you cover?
  • Estimate your Premium Liability
    • Use the premium and benefits calculator on the FAMLI website
    • For multiple employees, use the set formula and rate to create a spreadsheet that works for your business needs.
    • Premiums are paid on wages up to the Federal Social Security Wage Cap ($160,200 for earnings in 2023).
    • Benefits are calculated on a sliding scale using the individual’s average weekly wage from the previous five calendar quarters in relation to the average weekly wage for the state of Colorado ($1,350.55 as of July 2022) and may increase over time.
    • Disclaimer: these calculations should only be used as estimates and may not be equal to the exact amount of your premium or benefit payment. 
  • Consider Your Plan Options
    • While markets for private plans are not yet available and details on self-insured options are still forthcoming, you should plan conversations with your insurance brokers and financial planners.
  • Update HR Manuals and Communicate with Employees
    • Beginning in Fall 2022, begin incorporating language into employee manuals regarding premium deductions.
    • Beginning in Fall 2023, adopt clear guidance and communications to employees around FAMLI benefits.
  • Register With the FAMLI Division
    • Set up your account with FAMLI.
    • Notify FAMLI of private plans ““ if any
    • Expect forthcoming information about how to complete this process.
  • Be Ready to Collect Premiums
    • Plan to both have the FAMLI premiums deducted and submitted to CDLE beginning January 1, 2023.
    • While FAMLI benefits won’t be available to employees until 2024, businesses must begin collecting premiums starting on January 1, 2023 through a simple payroll deduction.
    • Most Colorado businesses will need to begin deducting FAMLI premiums from all employees on their payroll, including full-time, part-time and seasonal.
    • Employers cannot collect missed premiums from employees in later pay periods.
    • It is important to know employees are never required to pay more than 50% of the total premium.
    • By law, the FAMLI Division Director is required to recalculate the premium rate every year past 2025 and determine if adjustments to the premium rate need to be made.
    • Current Colorado law caps the premium at 1.2% meaning it will not be assessed any higher than this amount.
  • Address questions, comments, concerns to [email protected].
Responsibilities Under the FAMLI Statute

Employer Type
Employer Premium
Employee Premium
No Premium
9 or fewer employees ✓
10 or more employees ✓ ✓
Voluntarily Participating Self-Employed ✓
Participating Local Government Employer ✓ ✓
Voluntarily Participating Local Government Employee ✓
Local Government Employer who has Voted to Opt Out ✓
Nonparticipating Self-Employed ✓
Employer with Approved Private Plan ✓
Wages Subject to FAMLI Premiums
WAGES (subject to FAMLI Premiums) NOT WAGES (exempt from FAMLI Premiums)
Payments defined as wages under the Federal Unemployment Tax Act (FUTA)Tips

Employee contribution to 401(k) or IRC 408 simplified Retirement Plans

Disability payments paid in first 6 months after an employee worked for you

Employer contributions to a Medical Savings Account

Employee-matching contributions into IRC 219 simplified employee pension plan

Payments made by public school or 501(c)(3) into annuity contract or by governmental entity into deferred compensation plan because of a salary-reduction agreement

Payments for personal services, including anything other than cash that has cash value (except payments to agricultural or domestic workers, which must be cash to be wages)

Employee contributions to a Salary Reduction Simplified Employee Pension Plan (SARSEP)

125 Cafeteria Plan if cash is chosen

 Payments for moving expenses if deduction is allowed in the federal Internal Revenue Code (IRC), IRC 127Group Term Life Insurance

Employer contribution to 401(k) or IRC 408 simplified Retirement Plans, all PERA contributions

Amounts paid or incurred for a dependent care plan (IRC 129) or a educational assistance program (IRC 127)

Employee Contributions to a Medical Savings Account

Employer contributions into IRC 219 simplified employee pension plan

Payments into a deferred compensation plan if you are a government entity

Value of meals or lodging furnished by employer if such items are excluded from income as described in IRC 119

Employer contributions to a Salary Reduction Simplified Employee Pension Plan(SARSEP)

125 Cafeteria Plan if qualified benefit chosen
Determining Employee Head Count
  • When it comes to counting how many employees your business has, your headcount will be calculated once a year by counting the number of employees you have on your payroll for a total of 20 or more calendar workweeks in the preceding calendar year.
  • Businesses that report having ten or more employees who worked during 20 or more weeks in all of 2022 will be responsible for sending in the full 0.9% premium for all four quarters in 2023.
Remote Employees
  • When it comes to counting remote employees, if the employer has more than ten TOTAL employees”“even if they work outside of Colorado”“the employer will still be responsible for sending in the full 0.9% premium once a quarter.
Self Employed
  • Most Colorado workers will be eligible for FAMLI benefits, including self-employed and independent contractors.
  • Participation for self-employed workers is optional.
  • If you do decide to opt into FAMLI as a self-employed worker, you must agree to participate by paying premiums and reporting your income for a minimum of three years in order to avoid only opting in only when the need for leave is foreseeable.
  • There is no enrollment period for self-employed workers. You can opt in any time and apply for leave any time starting January 1, 2024.
Calculating Self-Employed Wages
  • Self-employed workers will only be responsible for paying the 0.45% employee share of the premium.
  • While the FAMLI program mirrors the unemployment insurance program’s definition of wages for employers across the state, self-employed workers may decide between reporting their gross income or net earnings from their self-employment in order to determine their quarterly premium payments and potential benefit payments.
  • Self-employed individuals will be able to change between net earnings and gross income one time within a coverage period.
  • The FAMLI Division may require copies of tax returns, bank records, self- attestations, or any other documents deemed necessary by the Division to verify or determine the income of individuals electing coverage as a self-employed individual.
Private Plans
  • Private businesses have the option of using an approved private plan that offers the same or greater benefits and protections as the FAMLI program.
  • Employers considering to offer a private plan (including self-insurance models) are not exempt from paying FAMLI premiums until the FAMLI Division has reviewed and approved the private plan or self-insurance documentation in accordance with the Division’s private plan regulations.
  • All employers must register with the FAMLI program, and will be required to pay premiums beginning January 1, 2023.
  • Employers can request a refund for premiums paid in 2023 if they get a private plan approved by the Division with an effective date on or before January 1, 2024.
  • The FAMLI Division anticipates opening up the application for private plan approval in the first quarter of 2023.
    • More instructions on that application process are forthcoming.
  • Proposed private plan rules

The latest from the Colorado Department of Revenue CDOR

Colorado’s SALT Parity Act for Business
  • This new law concerns the authority of a pass-through business entity to elect to pay state income taxes at the entity level, known euphemistically as Colorado’s SALT Parity Act.

In summary

  • The 2017 federal “Tax Cuts and Jobs Act” placed a cap of $10,000 on the amount of state and local taxes paid that an individual may deduct on their federal taxes as an itemized deduction on Schedule A.
  • Unfairly this limitation did not apply to C corporations.
  • Consequently, businesses organized as pass-through entities like S corporations and partnerships were disadvantaged by being obligated to pay increased taxes on business profits compared to C corporations.
  • Starting in 2022 and as long as the SALT caps of the 2017 Tax Cut & Jobs Act remain in effect (IRC 164), pass-through entities may elect to pay their state income tax at the entity level so that the pass-through entity can claim an unlimited deduction at the federal level of state and local taxes paid.
  • While this reduces federal taxable income for the pass-through entity, it does not reduce Colorado taxable income because, under current law, the individual and the partnership are required to add back any state and local taxes deducted at the federal level.
Remember!

Pass-through entities pay taxes on business profits at the individual (partner or shareholder) level.

The Tax Cut & Jobs Act provisions sunset in 2026, including the cap on state and local tax (SALT) deductions.  Meaning this new Colorado statutes may be short lived.

HB21-1327
  • authored by Representative Ortiz & Van Winkle and Senators Kolker and Woodward among other things:
  • Added Sections 39-22-340 to 39-22-346 to our Colorado Revised Statutes.
  • Caused the creation of NEWform DR 1705 allowing partnerships and S corporations to make an election before the close of the tax year.
  • Partnerships and S corporations may also make the election on the income tax return (DR 0106) when it is filed next year.
  • However, the Department received requests that taxpayers be allowed to make the election during the year, which is why the form was created.
  • File DR1705 by mail: Colorado Department of Revenue Denver, CO 80261
  • For future tax years, the Department anticipates making an election option available on the estimated payment form (DR 0106EP).
  • Partnerships and S corporations will not be required to make the election to make an estimated payment and will continue to be allowed to make the election when filing the return.
  • SPECIAL NOTE – An election under the SALT Parity Act is binding on all partners and shareholders, regardless of whether the partner is an individual, corporation, partnership, or other legal entity, and regardless of whether the partner or shareholder is a resident or a nonresident.

Drill Down

CRS 39-22-343. Election

  • Provided SALT deductions remain limited by IRC 164 ““ presently through tax year 2025 – an S corporation or partnership may annually elect to be subject to income tax at the entity level.
  • The annual election is binding on all electing pass-through entity owners each tax year.

CRS 39-22-344. Imposition of tax

  • An electing pass-through entity is subject to tax = 4.45% of the sum of each owner’s pro rata or distributive share of the entity’s TOTAL pass-through income
    • BOTH attributed to Colorado & NOT attributed to Colorado.
  • Any Colorado tax credits in the election year shall be claimed by the entity and NOT passed through to the entity owner.
  • Any excess income tax credit, net operating loss, or other modification may be carried forward on the electing pass-through entity’s income tax return but may only be recognized in an election year.

39-22-345 Owner exclusion

  • Electing pass-through entity owners shall not be liable for the tax nor the Alternative Minimum Tax in their separate or individual capacities.
  • The basis in the hands of the owner’s interest is determined as if the election had not been made.

39-22-346 Credit for tax paid in other states

  • An electing pass-through entity is entitled to a Colorado tax credit subject to limitations (CRS 39-22-108) for taxes paid to other states for income not attributable to Colorado (CRS 39-22-344) whether the tax was paid by the electing pass-through entity itself or by its owners.
  • Owners of the resident electing pass-through entity are not entitled to any credit with respect to income of the electing pass-through entity.

39-22-601 Returns

  • A Colorado NONRESIDENT INDIVIDUAL whose only source of income from Colorado is income from the electing pass-through entity need not file a Colorado income tax return (DR 0104).

For more on Colorado’s SALT Parity contact legislative advocate at the Colorado Department of Revenue.

Editorial Commentary – Be Aware
  • Colorado is one of only three states that currently allows certain taxpayers to take the IRC § 199A deduction for state income tax purposes
  • However, making the ‘SALT’ election negates the Internal Revenue Code (IRC) Sec. 199A deduction for qualified business income available for Colorado purposes.
  • As per CRS §§ 39-22-344(3) & 39-22-346 – If an individual taxpayer benefits from the IRC Sec. 199A deduction, and that individual is a partner, shareholder or member in an electing PTE, the IRC Sec. 199A deduction must be added back on that individual’s Colorado return as per CRS § 39-22-104(3)(r).

TABOR refunds

  • On May 23, 2022, Gov. Jared Polis signed a new law (Senate Bill 22-233) to give Coloradans a tax rebate of $750 for individual filers and $1,500 for joint filers.
  • To claim the Colorado Cash Back check, Colorado full year residents must file their 2021 Colorado state income tax return by the extension deadline 10/17/22.
  • To receive Colorado Cash Back, an individual must meet the following criteria:
    • Be at least 18 years of age on or before December 31, 2021
    • Be a Colorado resident for the entire 2021 income tax year
    • File a state income tax return for the 2021 income tax year
      • or apply for a Property Tax/Rent/Heat Credit (PTC) Rebate.
    • Anyone moving to Colorado in 2022 is not eligible for this refund.
TABOR refund offsets
  • Call the Colorado Cash Back hotline 303-951-4996for more information.
  • If you owe a past debt to a government agency, the refund could have been intercepted to satisfy the debt.
  • Instances in which a refund could be intercepted include:
    • debts for child or spousal support
    • overpaid Aid to the Needy Disabled (AND);
    • overpayment of unemployment benefits
    • judicial fines
    • judicial restitution
    • unpaid parking tickets
    • any unpaid interest, fees, or surcharges owed to the Department or any other government agency
    • any other unpaid debt to another government agency
  • When a refund is intercepted, the Department of Revenue will send a letter explaining which agency initiated the intercept, the amount of the refund intercepted and whom to contact for further information.
    • CDOR phone operators do not have access to this information.
  • If the debt is smaller than the refund, the taxpayer will receive the difference. If a taxpayer believes the refund has been intercepted in error, the taxpayer must contact the agency initiating the interception in order to resolve the intercept.
  • If a refund is requested on a joint return, and the refund was intercepted due to taxes owed or a balance is owed to another Colorado government agency or the IRS, the spouse who does not owe the debt may request that he/she receive the portion of the refund that was intercepted.
    • Injured spouse claims should be mailed to the department separate from the Colorado income tax return.
    • Claims must include a copy of the federal income tax return or federal form 8379 (available on the IRS Web site) and copies of all W-2, W-2G, or any 1099 statements received by both parties.
    • Send all injured spouse claims to:

Colorado Department of Revenue
Injured Spouse Desk, Room 240
PO BOX 17087
Denver, CO 80217-0087

  • When married and filing a joint income tax return, both parties are responsible for any Federal (IRS) or State tax debt.
    • This is true if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed returns.
    • One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.
    • If this is the case the taxpayer must first request innocent spouse relief (form 8857) from the IRS.
    • Department of Revenue will mirror the decision the IRS makes.
    • When requesting innocent spouse relief through the Department of Revenue, a copy of the IRS final determination letter must be attached to the written request.
    • Send all innocent spouse claims to:

Colorado Department of Revenue
Innocent Spouse Desk, Room 240
PO BOX 17087
Denver, CO 80217-0087

Colorado’s Sales Tax Regime

  • Over the last several years, retailers across the U.S. have needed to adjust to the widespread implementation of economic nexus as a direct result of the ‘Wayfair’ Supreme Court Decision.
  • A handful of states ““ with Colorado at the top of the heap – add an additional layer of complexity.
  • These states, known as ‘home-rule’ states, create a tax burden that can be overwhelming. Colorado is arguably the most challenging regime as a direct result of ALL 70 home rule municipalities and their draconian collection enforcement standards.
  • On a bright note, and much to the relief of retailers, Colorado is now making strides streamlining local sales tax collection for remote sellers within the state.
What Makes Colorado So Complex?
  • A home rule state gives local government entities, including municipalities and counties, the authority to establish and levy their own sales taxes, separate from state sales tax regulations.
  • Much like economic nexus laws, tax regulations vary wildly between home rule jurisdictions, even within the same state.
  • What this means is that an out-of-state retailer who makes sales into Colorado will need to individually contact each local tax authority to determine whether they are obligated to collect and remit sales tax on their products, and what rate they will need to collect at.
    • Then, they must file a separate return with each tax authority.

This can be a horrific situation for smaller retailers that trigger economic nexus within Colorado but do not have large accounting departments.

What Is Colorado Doing to Reduce the Burden?

In 2017, lawmakers in Colorado established the Sales and Use Tax Simplification Task Force (SUTS). As a group, SUTS studies”¦

“sales and use tax simplification between the state and local governments, including home rule municipalities to adopt innovative revenue-neutral solutions that do not require constitutional amendments or voter approval.”

Two solutions have emerged from the SUTS’ collective efforts:

  • The Sales & Use Tax System(SUTS), a statewide portal for tax collection implemented by the Department of Revenue (DOR).
    • SUTS Business Enrollment Update
      • Business registration continues to grow, with 2,146 businesses signed up to use the Sales & Use Tax System (SUTS) as of January 2021.
      • The total number of home rule, self-collecting jurisdictions to 70.
      • 27% of home rule, self-collecting municipalities are reviewing and evaluating the system.
      • 11% of home rule, self-collecting municipalities have started the process of securing signatures for the agreement.
      • 61% of home rule, self-collecting municipalities have signed the agreement and are onboarding the system.
  • A model ordinance for home rule municipalities developed by the Colorado Municipal Leagueand the DOR.
  • The Colorado Municipal League (CML) model ordinance on Economic Nexus and Marketplace Facilitators was developed in early 2020 by home rule municipal tax professionals, in conjunction with the business community and the Department of Revenue, as part of a sales tax simplification effort.
  • The Model Ordinance is only for the 70 self-collecting home rule municipalities in Colorado. It has long been recognized, by governments and businesses alike, that various home rule municipalities giving the same term different meanings is a source of complexity in our tax system for businesses that operate in multiple municipalities.
  • Use of “standardized” definitions, such as those put into the Model Ordinance, can help minimize this complexity and provide clarity to those remitting taxes to governments that self-collect on the local level in Colorado.
  • Home rule municipalities that have joined SUTS are also encouraged to adopt the model ordinance.
  • On the flip side, those municipalities that do not join SUTS are asked not to adopt the language on economic nexus and move forward with voluntary compliance.

These two solutions working in tandem should simplify sales tax compliance for remote sellers to a reasonable degree, especially as municipalities continue to adopt them.

Filed under ““ ‘Believe it when you see it’

“Municipalities who are not going to be joining the state single point of remittance portal (“SUTS”), are being asked to adopt the language on economic nexus and continue to move forward with voluntary compliance.”

Purportedly because:

“The risk of a lawsuit under the United States Commerce Clause if you were to enforce economic nexus without the single point of remittance is high.”

For more information check out the following resources:
Colorado Sales Tax Audits

When you receive an audit notice in the mail, it sparks worry, concern and anxiety.  Frequently, the first question that comes to mind is “What triggered these sales and use tax audit?” Understanding the sales and use tax audit triggers or cause of the audit can help companies both prepare for the audit by predicting what the auditor will be looking for, as well as take steps to avoid sales and use tax audits in the future.

Similar to the IRS with income tax audits, states have systems, policies and procedures in place that help them to identify businesses to select taxpayers for audit.  While each state’s methodology is different, there are some common reasons taxpayers are flagged.

Prior Sales and Use Tax Audit Liabilities
  • Far and away the most common of all sales and use tax audit triggers is having a large liability in a prior audit.
  • Audit liabilities are the clearest evidence a state has that a company either does not understand sales and use tax law or is not taking appropriate steps to manage this important function.
  • Besides that, states want to focus their efforts on audits that will generate revenue.
  • A prior track record of your company’s audit being “productive” or resulting in a large audit liability makes it more likely you will be flagged for a subsequent sales and use tax audit.
Irregularities In Sales and Use Tax Filings
  • States continuously evaluate taxpayers’ sales and use tax returns to identify patterns that are suspicious.
  • Such irregularities are a precursor to many sales and use tax audit notifications.
  • Here are 4 of the most prevalent irregularities found in sales and use tax filings:
    • Late Sales And Use Tax Filings – States initiate audits based off late filings because “where there’s smoke, there’s fire.”
    • Wide Fluctuations In Figures Reported On Sales And Use Tax Returns
      • For non-seasonal businesses, the state expects to see your total revenues, exempt revenues, and purchases on which use tax is reported to normalize within a certain range.
      • Spikes or craters to those amounts raise a red flag for the state.
    • High Ratios of Exempt Sales to Gross Sales Reported On Sales And Use Tax Returns
      • High volumes of exempt sales can be a red flag for the state, particularly if this ratio of exempt to taxable sales is not in line with other taxpayers within the same industry.
Closing A Location, Shutting Down Operations, Dissolving A Business or Declaring Bankruptcy
  • When a business closes a location, ceases operations, dissolves the business, or declares bankruptcy, these actions will frequently trigger a sales and use tax audit.
  • The state will view this occurrence as its last opportunity to recover any taxes that might be owed.
The Industry A Business Operates Within Can Increase Likelihood of A Sales And Use Tax Audit
  • States know that certain industries are more likely to have issues with their sales and use tax compliance.
  • Cash-based businesses such as convenience stores, restaurants and bars are often targets for sales and use tax audits because states have years of data showing that cash sales are frequently under reported on sales and use tax returns.
  • Another industry that is frequently flagged for sales and use tax audits is construction contractors.
    • Contractors have very complex rules for which purchases and sales are subject to tax.  Add in the variety of ways in which contracts can be written ““ lump sum, time and materials, cost plus, etc. ““ and the state knows the likelihood of errors is high.
Whistleblowers Or Referrals from An Outside Party
  • Disgruntled taxpayers, customers or even suppliers or vendors may notify the state of potential sales and use tax audit leads.
  • Certainly, there is an element of “sour grapes” to these sorts of claims, but states do consider such notifications.
  • It is difficult to know just how much this trigger is responsible for initiating sales and use tax audits because a state auditor will not inform the taxpayer that this is, in fact, the reason they are being audited.

Destination Sourcing

  • Governor Polis signed HB22-1027 on January 31, 2022, which extends the small business exception to destination sourcing requirements.
  • This exception applies only to businesses with less than $100,000 in retail sales.
  • Small businesses with less than $100,000 in retail sales need to transition to destination sourcing by October 1, 2022.
2022 Transition to Destination Sourcing

Sales tax collection for the State of Colorado changed in 2019. At that time, exceptions to destination sourcing were given to small businesses. Destination sourcing means that sales tax is calculated based on the address where the taxable product or service is delivered to the consumer, not on your business location. Businesses with over $100,000 in sales should already be using destination sourcing to determine sales tax rates.

Now that the Geographic Information System (GIS) is online and available for everyone to use, state statute requires Colorado-based businesses using the temporary origin sourcing exception to transition to destination sourcing by 90 days from the date the Department announced that the system was live.

This means that all businesses located within Colorado, regardless of their sales volume, must begin complying with the destination sourcing rules below by October 1, 2022. The Department is not authorized to grant exceptions to this statutory requirement. 

General Destination Sourcing Rules

Sales tax is now calculated based on the buyer’s address when the taxable product or service is delivered to the consumer. This is called destination sourcing. Destination sourcing is also used when a product or service has a lease/rental agreement with periodic recurring payments.

Businesses will now be required to collect and remit sales tax for all retail sales to Colorado consumers, regardless of the physical location for the business. In general, a retail sale is made at the location to which it is sourced in accordance with the following rules:

  1. If the purchaser takes possession of the purchased property or first uses the purchased service at the seller’s business location, the sale is sourced to that business location.
  2. If the property or service is delivered to the purchaser at a location other than seller’s business location, the sale is sourced to the location the purchaser receives the purchased property or first uses the purchased service.
  3. If the purchaser requests delivery of the property or service to another recipient (i.e. the purchase is a gift), the sale is sourced to the location the recipient takes possession of the purchased property or first uses the purchased service.

If a sale cannot be sourced using the preceding rules, section 39-26-104(3)(a), C.R.S., provides additional guidelines for sourcing retail sales based upon the seller’s records, the purchaser’s payment instrument, or the location from which the property was shipped.

Special Note Re: Leased Property
Hold Harmless Database
  • Retailers using third-party databases previously certified by the Department will need to ensure that their providers are using the most recent Geographic Information System (GIS)data in order to continue to be held harmless for errors and omissions in the jurisdictions returned by an address search.
  • The certifications for all other databases expired on June 30, 2021.
  • These rules will apply to sales occurring on or after October 1, 2022.
    • A sale occurs when a seller transfers goods to a buyer for consideration.
    • The Department generally relies on the invoice date as establishing the date when the good is transferred to the buyer.
  • Possession by a shipping company on behalf of the customer does not constitute receipt, so the tangible personal property would not be considered received at your facility.
    • The sales tax due will depend on where the customer takes possession of the tangible personal property, which in this case, is at their delivery location.
  • Special rules apply to the taxation of motor vehicles in Colorado.
    • The manner in which a motor vehicle is taxed varies depending on whether it is leased or purchased.
    • Review the Motor Vehicles – Sales Tax Topicguidance publication for more information.
  • Transactions that take place within your store, where the customer receives the product at the time of purchase, are handled the same way as before.
    • You would use your store’s physical location to determine the sales tax rate.

Sales Tax Exemption on Essential Hygiene Products Begins January 1, 2023

  • The law exempts from sales tax all incontinence products and diapers and period products purchased AFTER JANUARY 1, 2023.
  • The January release of the Colorado Sales and Use Tax Rate publication (DR 1002) will list those state-administered local jurisdictions that will allow the exemption.
  • Local exemptions, including exemptions allowed by self-collecting home-rule municipalities, may also be searched by address using the Colorado Sale Tax Lookup

Limited State Sales Tax Special Deduction Available

  • HB22-1406allows qualifying retailers to claim a limited state sales tax special deduction under certain conditions, and to retain the resulting state sales tax for sales made in July, August, and September 2022.
  • Eligible retailers are still required to collect all applicable state and state-administered local sales taxes, file returns on time, and pay all local sales taxes (in addition to state sales taxes in excess of the amount related to the special deduction).
  • The special deduction does not apply to any taxes imposed by any state-administered city, county, or special district.
Who Qualifies?
Other Considerations
  • The special deduction does not apply to any taxes imposed by any state-administered city, county, or special district.
  • Retailers should contact self-collecting home-rule cities regarding any similar programs they may offer.
  • Eligible retailers are required to collect all applicable state and state-administered local sales taxes, file returns on time, and pay all local sales taxes (in addition to state sales taxes in excess of the amount related to the special deduction).
What if You Already Filed a Sales Tax Return?
  • If your business qualifies for the special deduction allowed by HB22-1406, but you have already filed and paid your return for the filing period, you may apply to the Department for a refund.
  • File Using Revenue Online (Fastest)
    • To ensure that your refund claim is prioritized take the following actions:
      • File an amended sales tax return for the period.
      • Complete a Claim for Refund Form (DR 0137).
      • Note clearly in the “Refund Request Reason” that the refund is being requested because the business qualifies for the special deduction allowed by HB22-1406 but the return was filed and paid early.
      • Attach your Claim for Refund to a secure web messageusing Revenue Online. Be sure to include the following information:
        1. Account Type: Sales Tax
        2. Message Type: Refund Question
        3. Subject: Special Deduction HB22-1406

Colorado’s NEW Retail Delivery Fee (RDF)

WHAT ‘FEE’ IS IT THIS TIME & WHO MUST FILE?
  • If you sell taxable items delivered by a motor vehicle to a location in Colorado including deliveries made by a third-party, you will be required to charge, collect, and remit a new fee to the Colorado Department of Revenue (CDOR) beginning July 1, 2022.
  • This new ‘fee’ is $0.27 per retail sale for delivery.  It does not appear ‘that bad’ but it can add up quick AND will be ANNUALLY adjusted!
  • The fee is charged to the purchaser, collected by the retailer and remitted to CDOR with sales tax filing frequencies and due dates on form DR 1786.
HOW DID THIS COME ABOUT?

Senate Bill 21-260 ““ Sustainability Of The Transportation System sponsored by Senators Fenberg & Winter along with Representatives Garnett and Gray added §43-4-218 to our Colorado Revised Statutes essentially because:

  • The World Economic Forum’s estimatedthat by 2030 there will be over thirty percent more delivery vehicles on roads to deliver seventy-eight percent more packages
  • This increased traffic congestion will accelerate the deterioration of Colorado’s surface transportation system infrastructure.

It is hard for this 2008 Colorado transplant to disagree with these observations.

WHAT YOU MUST DO NOW
  • Charge customers on delivery orders
  • List separately on the receipt or invoice the “Retail Delivery Fee”
  • File the RDF return and remit fees to CDOR with the same frequency and due dates as your sales tax filings.
  • A return is required to be filed each period, even if there are no fees to report.
  • Only one return is required per tax account (sales tax or retailer’s use), regardless of the number of sites
WHEN TO FILE:

Returns are generally filed on a monthly basis and must be filed on or before the 20th day of the month following each reporting period. Retailers permitted to file state sales or use tax returns on a quarterly, annual, or other basis will file the retail delivery fee return on the same schedule.

HOW TO FILE

Retailers are encouraged to file form DR 1786 and remit the retail delivery fee through Revenue Online and simultaneously make payment.

Retailers can also file a paper return by mailing it with payment to: Colorado Department of Revenue, Denver, CO 80261-0009

  • Include your phone number and email to ensure processing of your return.
  • Of course ““ retain a copy of the return for your records.

REGISTRATION

Taxpayers impacted include anyone who ships anything subject to Colorado Sales Tax inside Colorado delivered by motor vehicle including online sales and business to business retail sales.  Wholesale sales are exempted.

Taxpayers with an active sales tax account, a retailer license, and any sales tax liability reported after January 1, 2021, will be automatically registered for an RDF account by July 1, 2022.  Additionally, any open out-of-state retailers or retailer’s use account holders will be automatically registered for an RDF account.  There is NO registration fee or additional licensure required.

 There is NO opting out of the automatic registration.

IF you are new to Colorado and open account after July 1, 2022, you will be REQUIRED to register through Revenue Online or by:

  • Filing the Retail Delivery Fee Return, form DR 1786
  • Submitting form CR 0100AP

EXEMPTIONS 

  • If all of the property you sell is exempt from Colorado state sales tax, the delivery will be exempt from the RDF including sales that are entirely wholesale sales.
  • A delivery that is made to a purchaser who is exempt from paying the state sales tax (such as a government or a charitable organization) is exempt from the RDF.
  • When a ‘store’ (tool truck) is brought to the customer with the ‘intent’ of making a sale AND a sale subsequently takes place, there is no RDF because nothing was pre ordered for delivery.
OTHER OBSERVATIONS
  • The retail delivery fee does apply to deliveries by motor vehicle from another state to a location in Colorado.
  • The fee cannot be refunded once the sale and purchase has been exercised, even if an item is returned.
  • If your customer orders a number of items in a “cart”, and purchases all of the items at the same time, only one retail delivery fee is due regardless of how many deliveries are actually needed to complete the sale.
  • If a customer orders a number of items and completes the purchase of each item at different times, the retail delivery fee is due on each sale, even if only one delivery is needed to complete the sale.
  • A motor vehicle is any self-propelled vehicle that is designed primarily for travel on the public highways and is generally and commonly used to transport people and property over the public highways or a low-speed electric vehicle.
  • Even if shipping is free, the fee still applies.

Colorado Now Accepts Cryptocurrency for Tax Payments

  • Starting September 1, 2022, the Colorado Department of Revenue (DOR) will now accept Cryptocurrency as an additional form of payment for all state taxpayers.
  • This includes:
    • individual income tax
    • business income tax
    • sales and use tax
    • withholding tax
    • severance tax
    • excise fuel tax
  • Cryptocurrency has been modified as an additional payment option for taxpayers who are ready to complete an online transaction to pay for their state taxes on Revenue Online.
    • This option allows for cryptocurrency payment through the PayPal Cryptocurrencies Hub, where taxpayers will be able to select their desired cryptocurrency to use for the payment.
Beware
  • A sufficient amount of cryptocurrency to cover the tax, obligation and fees is converted to dollars and remitted to DOR to complete the online transaction.
  • Service fees include an additional $1.00 plus 1.83% of the payment amount.
  • You must have the entire value of your invoice in a single cryptocurrency in your PayPal Cryptocurrencies Hub.
  • Effective on the date initiated, USDs will transfer in 3-5 business days. +-
  • PayPal purchase fees or miner/gas fees may apply when transferring cryptocurrencies from an external wallet to your PayPal Cryptocurrencies Hub.
  • At this time, only PayPal Personal accounts can pay using cryptocurrency.
  • PayPal Business accounts cannot pay using cryptocurrency.
  • Transfers from external wallets to your PayPal wallet must be done via the PayPal mobile app.

Child Care Contribution Credit – FYI 35 ““ worth a revisit ““ Sunsets 12/31/2024

  • Taxpayers that make a qualifying monetary contribution to promote childcare in Colorado for children 12 and younger may claim an income tax credit of 50% of the total qualifying contribution.
  • The credit a taxpayer can claim for qualifying contributions made during a tax year is limited to $100,000.
  • In-kind contributions of services or property (non-monetary donations) do not qualify for the credit.
  • Any taxpayer that makes a qualifying contribution can claim the credit.
    • Resident and nonresident individuals, estates, trusts, and C corporations can all claim the credit for qualifying contributions they make, either directly or as a partner or a shareholder in a partnership or S corporation that makes a qualifying contribution.
  • Contributions must meet several criteria to qualify for the childcare contribution credit.
    • The contribution must be monetary.
    • Contributions of services or property (including shares of stock) do not qualify for the credit.
    • The credit is allowed only for contributions that promote childcare in Colorado.
    • The contribution must be made for an eligible childcare purpose and to a licensed childcare facility, an approved facility school, or a registered or grandfathered childcare program.
    • Qualifying charitable distributions (QCD) made in accordance with federal law and IRS regulations from an individual retirement account (IRA) to a charitable organization are considered monetary contributions.
  • Who can you donate to?
    • A licensed childcare facility that uses the donation to provide childcare,
    • An approved facility school that uses the donation to provide childcare,
    • A registered childcare program that provides childcare services similar to those provided by licensed childcare centers
    • A grandfathered childcare program or facility
    • Pooling moneys of several businesses and donating such moneys for the establishment of a licensed childcare facility
    • Establish a registered grant or loan program for parents requiring financial assistance for childcare
    • A registered program for the training of childcare providers
    • Establishment of an information dissemination program that assists parents with information and referral services for child care.
  • Licensed childcare facilities and approved facility schools by the Colorado Department of Human Services include:
    • childcare centers
    • child placement agencies
    • family childcare homes
    • foster care homes
    • homeless youth shelters
    • residential childcare facilities
    • secure residential treatment centers,
  • NONQUALIFYING CONTRIBUTIONS
    • The contribution is made to a childcare facility in which the taxpayer or a person related to the taxpayer has a financial interest.
    • The contribution is made to a for-profit business and is not directly invested in the acquisition or improvement of facilities, equipment, or services, including the improvement of staff salaries, staff training, or the quality of childcare.
    • The contribution is not directly related to promoting childcare in Colorado.
    • The contribution is made in a tax year commencing after December 31, 2024.
    • The donor receives consideration from the donee organization in exchange for the contribution.
      • See Department Rule 1 CCR 201-2, 39-22-121(9)(e) for contributions made by companies for which the company’s employees receive benefits.
  • CALCULATING THE CREDIT
    • The credit is equal to 50% of the taxpayer’s qualifying contribution made during the tax year except that the credit a taxpayer can claim for any tax year cannot exceed $100,000.
    • The $100,000 limitation applies jointly to two taxpayers filing a joint income tax return together.
    • The credit is nonrefundable.
      • The amount of credit a taxpayer uses for a given tax year (in combination with all other nonrefundable credits the taxpayer claims) cannot exceed the taxpayer’s income tax liability for that year.
      • If a taxpayer’s credit exceeds the total tax due, the taxpayer can carry forward the excess credit to the following tax year.
      • Taxpayers can carry forward excess credits for up to five tax years, but must use the excess credits in the earliest tax year possible.
  • CLAIMING THE CREDIT
    • Taxpayers must file an annual income tax return along with the associated credit schedule in order to claim the credit.
    • Taxpayer must submit with their return a copy of the completed Child Care Contribution Tax Credit Certification (Form DR 1317) obtained from the donee organization certifying the contribution.
    • For electronically filed returns, a scanned copy of Form DR 1317 can be submitted either via e-file or by using the E-Filer Attachment function of Revenue Online.

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