Colorado has a competitive business tax structure that rewards investment and innovation. With low taxes at the state level, and a wide range of local tax structures, Colorado offers almost unlimited choices to meet the needs of all types of businesses.
Colorado’s tax climate has:
• Among the lowest income tax rates of any state with a corporate income tax.
• The lowest sales tax of states that assess a state sales tax.
• The third-lowest residential property tax (in the state’s largest city).
Corporate Income Tax
The corporate income tax rate in Colorado is among the lowest in the nation at 4.63%. Colorado's corporate tax structure is a "single sales factor" for multi-state corporations, creating an incentive for companies that want to build their workforce and increase their physical presence in Colorado, and rewarding companies currently investing in the people and infrastructure of the state.
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 (i.e. corporations with 80% 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 Colorado. These corporations may choose to utilize either the Colorado Income Tax Act or the Multi-State Tax Compact. The Tax Act apportions income according to percentages of property owned and the gross receipts in Colorado versus nationwide. The Tax Compact adds the payroll in Colorado versus nationwide as an additional factor.
A Colorado unitary return can include domestic corporations that meet certain objective criteria to measure an affiliated group or corporation. These include overlapping directorships and corporate officers, use of patents, logos, copyrights, etc., and relationships concerning long-term debt, sales, and administrative services among the group.
Colorado has a statutory provision that allows the filing of a consolidated return in lieu of separate returns for those members of an affiliated group that would otherwise be required to file a separate Colorado tax return.
Colorado levies a 2.9% sales tax. Services are not taxed, only sales of non-food items are taxed. Use taxes substitute for sales taxes in cases where an item is purchased for consumption in Colorado from a source outside Colorado or other circumstances where a sales tax was not paid. There are many state sales tax exemptions.
Personal Property Tax
The State of Colorado does not impose property taxes on businesses. Local governmental units assess property taxes primarily to fund public school operations and local government services. Commercial and industrial property is assessed for property tax purposes at 29% of market value.