Colorado Market Based Sourcing

Effective 08/08/2018, Colorado is moving to market-based sourcing of sales.  Specifically, Colorado income tax laws will conform to the Multistate Tax Commission's (“MTC”) model act related to market-based sales sourcing.  The effect is to source receipts from the sale of services or from the sale, lease, license, or rental of intangible personal property using a market-based sourcing rule instead of a cost-of-performance rule.  The law becomes effective for tax years beginning on or after January 1, 2019 for apportioning taxpayers.

Colorado's change in apportionment sourcing scheme may provide both opportunities and pitfalls to multistate tax filers.  Multistate taxpayers domiciled in “cost of performance” states are particularly at risk in cases where the greater cost of performance occurs in the home state.  However, a taxpayer can petition to use an alternative method of allocation and apportionment but must show that the statutes do not fairly represent the taxpayer’s business in Colorado.