Study Notes on Colorado Income Tax Act of 1987

§ 39-22-101 -- Short Title

This article shall be known and may be cited as the “Colorado Income Tax Act of 1987”.
History: § 39-22-101 was repealed and reenacted by L. 1987, H.B. 1331, § 2, establishing the modern framework for the state's taxation system.

§ 39-22-102 -- Legislative Declaration

Findings of the General Assembly:
- The General Assembly explicitly states that the “Colorado Income Tax Act of 1987” is designed to achieve several administrative and legal efficiencies:
  - (a) Simplification: To simplify the preparation of state income tax returns by aligning the state tax base more closely with the federal tax base.
  - (b) Uniformity and Interpretation: To aid in the interpretation of state income tax law through the increased utilization of federal judicial and administrative determinations, rulings, and precedents. This ensures that terms defined at the federal level have consistent application in Colorado.
  - (c) Enforcement Efficiency: To improve the enforcement of state income tax laws by leveraging information obtained from federal income tax audits and information-sharing agreements with the Internal Revenue Service.

History: § 39-22-102 repealed and reenacted by L. 1987, H.B. 1331, § 2.

§ 39-22-103 -- Definitions - Construction of Terms

Context Requirement: Unless the context otherwise requires, the following definitions apply to all proceedings and filings under this article:
1. Assessment: The act of filing a return that specifies the tax owed, including any applicable penalties and interest. It also encompasses the formal recording of liability by the executive director based on a notice and demand for payment.
2. Basic Date: July 1, 1937.
2.5. C Corporation: Defined as any organization taxed as a corporation for federal income tax purposes under the Internal Revenue Code, distinguishing it from flow-through entities.
1. Domestic Corporation: A corporation organized under the laws of the state of Colorado.
2. Executive Director: The executive director of the Colorado Department of Revenue, or their authorized delegate.
3. Foreign Corporation: A corporation that is not organized as a domestic corporation within Colorado.
5.3. Internal Revenue Code: Refers specifically to the federal Internal Revenue Code of 1986, as amended. It includes all provisions and other federal laws relating to federal income taxes for the relevant taxable year.
5.6. Partnership: Defined by section $761(a)$ of the Internal Revenue Code; these entities are required to file informational returns under section $6031(a)$ .
5.8. Qualified Higher Deductible Health Plan: Has the same meaning as defined in section $39-22-504.6(3.5)$ , referring to health plans compatible with Health Savings Accounts (HSAs).
1. Resident Beneficiary: A beneficiary of an estate or trust who is a resident individual, a domestic corporation, a resident estate, a resident trust, or a partnership organized in Colorado.
  - Non-resident Beneficiary: Any beneficiary who does not meet the criteria of a resident beneficiary.
2. Resident Estate: The estate of a deceased person that is administered within the state of Colorado, provided it is not involved in ancillary proceedings.
  - Non-resident Estate: Any estate other than a resident estate.
3. Resident Individual:
  - (a) A natural person who is domiciled in Colorado or who maintains a permanent place of abode in Colorado and spends more than six months of the taxable year ( $> 183$ days) within the state.
  - (b) Exclusions for Service Members:
    - (I) Persons absent for at least $305$ days while stationed outside the United States for active military duty.
    - (II) Spouses of such service members who accompany them and elect non-resident status under federal law.
  - (c) Non-resident Individual: Any individual who does not qualify as a resident or falls under the specific exclusions in subsection (b).
4. Resident Partner: A partner who is a resident individual, domestic corporation, resident estate, resident trust, or a partnership in Colorado.
  - Non-resident Partner: Any partner other than a resident partner.
5. Resident Trust: A trust that is administered within Colorado.
  - Non-resident Trust: Any trust not meeting federal and state residency administration requirements.
10.5. S Corporation: A corporation that has a valid election in effect under section $1362(a)$ of the Internal Revenue Code.
10.8. Withholding Certificate: A document (such as Form W-4 or state equivalent) instructing employers to withhold taxes at a specific rate from an employee's compensation.
1. Term Use Interpretation: Any term used in this article shall have the same meaning as when used in a comparable context in the Internal Revenue Code, unless a different meaning is clearly required by the specific language of the Colorado statutes.

§ 39-22-103(8) -- Domicile and Residency Rules

General Rule: A person is classified as a resident individual if they are domiciled in Colorado or satisfy the dual criteria of maintaining a permanent abode and the six-month stay rule.
Domicile Defined:
- (a) Constituents of Domicile:
  - (i) A person's domicile is their true, fixed, and permanent home.
  - (ii) It requires the intent to return after any departure, regardless of length.
  - (iii) A person retains one domicile until they establish another. Multiple residences do not constitute multiple domiciles.
  - (iv) Determination by other agencies (e.g., for tuition or voting) is persuasive but not binding for tax purposes.
- (b) Evidence of Intent: Subjective intent must be bolstered by objective evidence.
  - (i) Reasons for moving (employment, health) are secondary to the intent to permanently abandon the prior domicile.
- (c) Indicia of Domicile: Non-exhaustive factors considered include:
  - (i) Jurisdiction of driver’s license and motor vehicle registration.
  - (ii) Voter registration and actual voting history.
  - (iii) Location of the individual's primary place of business and employment.
  - (iv) Location of secondary schools or colleges attended by children.
  - (v) The address used for federal tax returns and bank statements.
Six-Month Rule and Permanent Abode:
- Rule: Spending more than six months in Colorado while maintaining a permanent abode makes one a resident even if domiciled elsewhere.
- Permanent Place of Abode: Defined as a dwelling maintained by the taxpayer (whether owned or rented) that is suitable for year-round habitation. It excludes temporary vacation cottages or hotel rooms held for short durations.
Burden of Proof: The party asserting a change in domicile (usually the taxpayer claiming non-residency) bears the burden of proving that the previous domicile was abandoned and a new one was established through clear action and intent.

§ 39-22-104 -- Income Tax Rates and Modifiers

Tax Rates Over Time:
- The tax is imposed on the federal taxable income of individuals, estates, and trusts as follows:
  - (1) 1987-1998: $5\%$ of federal taxable income.
  - (1.5) 1999-2000: $4.75\%$ .
  - (1.7) 2000-2019: $4.63\%$ .
  - (1.7b) 2019-2021: $4.55\%$ .
  - (1.7c) 2022 and forward: $4.41\%$ .
Additions to Federal Taxable Income:
- To arrive at Colorado taxable income, certain amounts must be added back to federal taxable income:
  - (a) State Income Tax Deduction Authored: Any state income taxes deducted on the federal Schedule A must be added back.
  - (b) Bond Interest: Interest from state and local obligations (municipal bonds) from states other than Colorado.
  - (c) Net Operating Loss (NOL): Specific federal NOL deductions that do not align with Colorado's carryover rules.
Subtractions from Federal Taxable Income:
- (a) Pension/Annuity Exclusion: Up to a specific dollar limit (e.g., $\$20,000$ or $\$24,000$ depending on age) for qualified retirees.
- (b) US Government Obligations: Interest from US Treasury bonds, which are constitutionally exempt from state taxation.
- (c) Colorado Source Income: Adjustments for non-residents regarding income earned outside of state boundaries.