S Corp 1120S and Partnership 1065 Colorado filing Requirement DR 0106

S Corps 1120S & Partnerships 1065 that meet Colorado Revised Statute 39-22-301(1) must file Colorado DR 0106. If your S Corp or Partnership was organized or commercially domiciled in Colorado, among others, then it must file DR 0106. CRS 38-22-201(1).

The DR0106 effectively captures Colorado state income tax on nonresident shareholders and partners. In additional, in enables taxpayers who wish to use the SALT Parity Act.

Colorado House Bill 23-1277, “CONCERNING THE FILING OF INCOME TAX RETURNS BY BUSINESS ENTITIES” made changes to CRS 39-22-601. The good news is that pursuant to CRS 39-22-302, “An S corporation shall not be subject to taxation under this article.” This is the flow-through S Corp tax concept written into Colorado law.

However, nonresident shareholders are subject to Colorado income tax. In the instance where an S Corp or Partnership has Colorado nonresident shareholders it generally must pay income tax on their behalf. They could also file an agreement.

Pursuant to CRS 39-5-102, county assessors must beam a list of nonresident property owners to the Colorado Department of Revenue (CDR). If the nonresident is running a short term rental, you could be sure they will get notice from the CDR. If the nonresident is a shareholder of an S Corp, the CDR can then file a DR 0106 and assess tax. There is also a hefty penalty for nonpayment of Colorado tax that surely will be applied.

There is a new focus to tax nonresidents of Colorado income. This focus is embodied in the changes to 39-22-601.

Colorado DR 0106 reporting should be coordinated with the federal return. We prepare both S corporation Form 1120-S returns and partnership Form 1065 returns, including related Colorado reporting.

Colorado pass-through entity reporting is one part of broader business tax preparation, which should coordinate the federal entity return, Colorado filings, shareholder or partner reporting, and the owner’s individual return.