First Regular Session Sixty-ninth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 13-0451.01 Jason Gelender x4330 HOUSE BILL 13-1143 HOUSE SPONSORSHIP DelGrosso, SENATE SPONSORSHIP (None), House Committees Senate Committees Finance Appropriations A BILL FOR AN ACT Concerning adoption of the model mobile workforce statute that the multistate tax commission approved in 2011, and, in connection therewith, establishing criteria for exempting from state income tax and related income tax withholding requirements certain wage or salary income earned within the state by nonresident individuals. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill adopts the model mobile workforce statute (model statute) that the multistate tax commission approved in 2011. The model statute establishes criteria for exempting from state income tax and related income tax withholding requirements certain wage or salary income earned within the state by nonresident individuals. Specifically: Wage or salary income earned by a nonresident employee who works no more than 20 days in Colorado is subtracted from the employee's federal taxable income for the purpose of determining the employee's state taxable income if: The employee receives no other income from Colorado sources; The employee's state of residence either does not impose income tax or offers a similar income tax break; or The employee is not a professional athlete, entertainer, prominent individual who performs services for compensation on a per-event basis, construction worker, or, as defined under the federal internal revenue code, a key employee or officer. The bill exempts the employer of a nonresident employee from income tax withholding requirements for a nonresident employee who works no more than 20 days in Colorado if the employee's Colorado income is subtracted from the employee's federal taxable income for the purpose of determining the employee's state taxable income or if such income would be subtracted but for the fact that the employee has income from other Colorado sources. Subject to specified requirements, the bill exempts an employer who erroneously fails to withhold taxes for a nonresident employee due to a miscalculation of the number of days that the employee worked in Colorado. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, 39-22-104, add (4) (p) as follows: 39-22-104. Income tax imposed on individuals, estates, and trusts - single rate - definitions - repeal. (4) There shall be subtracted from federal taxable income: (p) (I) Compensation that would be subject to withholding under section 39-22-604, but for the exception from the withholding requirement set forth in section 39-22-604.1, that is received by a nonresident individual for employment duties performed in this state, if: (A) The nonresident individual has no other income from sources within this state for the tax year in which the compensation was received; (B) The nonresident individual is present in this state to perform employment duties for not more than twenty days during the tax year in which the compensation is received, where presence in this state for any part of a day constitutes presence for that day unless such presence is purely for purposes of transit through the state; and (C) The nonresident's state of residence provides a substantially similar subtraction or does not impose an individual income tax. (II) This paragraph (p) does not apply to compensation received by: (A) An individual who is a professional athlete or a member of a professional athletic team; (B) A professional entertainer who performs services in the professional performing arts; (C) An individual of prominence who performs services for compensation on a per-event basis; (D) An individual who performs construction services to improve real property, predominantly on construction sites, as a laborer; (E) An individual who is a key employee, without regard to ownership or the existence of a benefit plan, for the year immediately preceding the current tax year under section 416 (i) of the internal revenue code; or (F) An individual who is an employee of a noncorporate employer, and who would be a key employee, without regard to ownership or the existence of a benefit plan, for the year immediately preceding the current tax year pursuant to section 416 (i) of the internal revenue code if the term "employee" was substituted for the term "officer" in section 416 (i) (1) (A) (i) of the internal revenue code and if the individual is one of the noncorporate employer's fifty highest paid employees without regard to whether the individual is an officer. (III) This paragraph (p) does not prevent the operation, renewal, or initiation of any agreement with another state authorized by section 24-60-1301, C.R.S., or any other provision of law. (IV) This paragraph (p) creates a subtraction from federal taxable income for nonresident compensation under certain de minimus circumstances and does not affect this state's jurisdiction to impose income tax or any other tax on any taxpayer. SECTION 2. In Colorado Revised Statutes, 39-22-601, amend (1) (a) as follows: 39-22-601. Returns. (1) (a) (I) Whenever a resident individual or a nonresident individual with income from Colorado sources is required to file a federal income tax return under the provisions of section 6012 of the internal revenue code or whenever a resident individual or a nonresident individual has incurred any tax liability under any provision of this article, the individual shall make a return that shall contain a written declaration that it is made under the penalty of perjury in the second degree. The return shall set forth, in such detail as the executive director shall prescribe by regulations, the said individual's federal taxable income, the deductions, modifications, exemptions, and credits required or allowed under this article, and any other information necessary to carry out the purposes of this article. For the purpose of this section, the residence of the individual taxpayer shall be the address supplied by the taxpayer to the department of revenue on the return. (II) (A) For purposes of this paragraph (a), a nonresident individual whose only source of income from this state is compensation that is subtracted from federal taxable income under section 39-22-104 (4) (p) has no tax liability under this article and need not file a return; except that, if the executive director determines that the nonresident individual should be required to file an informational return, this subparagraph (II) does not preclude the executive director from requiring the nonresident individual to do so. (B) This subparagraph (II) applies only to the determination of an individual income taxpayer's filing requirement and does not affect the imposition of, or this state's jurisdiction to impose, income tax or any other tax on any taxpayer. SECTION 3. In Colorado Revised Statutes, add 39-22-604.1 as follows: 39-22-604.1. Withholding tax - nonresident income subtracted from federal taxable income - exception to requirement to withhold. (1) (a) No amount is required to be deducted or retained from compensation paid to a nonresident individual for employment duties performed in this state if the compensation is subtracted from federal taxable income pursuant to section 39-22-104 (4) (p) or if the compensation would be subtracted from federal taxable income pursuant to said section but for the fact that the nonresident individual has other income from sources within this state. The number of days that a nonresident employee is present in this state for purposes of section 39-22-104 (4) (p) (I) (B) includes all days that the nonresident employee is present and performing employment duties in the state on behalf of the employer and any other related person. (b) For purposes of this subsection (1): (I) "Related entity" means: (A) A stockholder who is an individual, or a member of the stockholder's family as described in section 318 of the internal revenue code if the stockholder and the members of the stockholder's family directly, indirectly, beneficially, or constructively own, in the aggregate, at least fifty percent of the value of the taxpayer's outstanding stock; (B) A stockholder or a stockholder's partnership, limited liability company, estate, trust, or corporation, if the stockholder and the stockholder's partnerships, limited liability companies, estates, trusts and corporations directly, indirectly, beneficially, or constructively own, in the aggregate, at least fifty percent of the value of the taxpayer's outstanding stock; or (C) A corporation, or a party related to a corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of the internal revenue code, if the taxpayer directly, indirectly, beneficially, or constructively owns at least fifty percent of the value of the corporation's outstanding stock. The attribution rules of the internal revenue code apply for purposes of determining whether the ownership requirements set forth in this subparagraph (I) have been met. (II) "Related person" means a person that, with respect to a taxpayer during all or any portion of the taxable year, is: (A) A related entity; (B) A component member as defined in section 1563 (b) of the internal revenue code; (C) A person to or from whom there is attribution of stock ownership in accordance with section 1563 (e) of the internal revenue code; or (D) A person that, notwithstanding its form of organization, bears the same relationship to the taxpayer as a person described in sub-subparagraph (A), (B), or (C) of this subparagraph (II). (2) An employer that has erroneously applied the exception set forth in subsection (1) of this section solely as a result of miscalculating the number of days that a nonresident employee is present in this state to perform employment duties is not subject to any penalty for failure to withhold income taxes that could otherwise be imposed under any provision of this article or article 21 of this title if: (a) The employer relied on a regularly maintained time and attendance system that: (I) Required the nonresident employee to record, on a contemporaneous basis, his or her work location each day that the nonresident employee is present in a state other than: (A) The nonresident employee's state of residence; or (B) Where the nonresident employee's services are considered performed for purposes of the "Colorado Employment Security Act", articles 70 to 82 of title 8, C.R.S.; and (II) Is used by the employer to allocate the nonresident employee's wages between all taxing jurisdictions in which the nonresident employee performs duties. (b) The employer does not maintain a time and attendance system as described in paragraph (a) of this subsection (2) and relied on employee travel records that the employer required the nonresident employee to maintain and record on a regular and contemporaneous basis; or (c) The employer does not maintain a time and attendance system as described in paragraph (a) of this subsection (2) or require the maintenance of employee records described in paragraph (b) of this subsection (2) and relied on travel expense reimbursement records that the employer required the nonresident employee to submit on a regular and contemporaneous basis. (3) This section establishes an exception to withholding and deduction requirements and does not affect the imposition of, or this state's jurisdiction to impose, income tax or any other tax on any taxpayer. SECTION 4. Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 7, 2013, if adjournment sine die is on May 8, 2013); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. (2) This act applies to income received by a nonresident of this state for employment duties performed in this state during income tax years that commence on or after January 1, 2014.