S Corps & Partnerships that meet Rule 39-22-301(1) must file Colorado DR 0106. If you 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.” However, nonresident shareholders are subject to Colorado income tax. In the instance where an S Corp or Partnership has Colorado nonresidnet shareholders it generally must pay income tax on their behalf. They could also file an agreement.
Pursuanr 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 emobodied in the changes to 39-22-601.