If you operate a business in Colorado but the owners live in another state, a recent tax policy change affects you. Previously, Colorado allowed businesses choose from three methods to ensure their out-of-state owners paid state taxes. However, starting with the 2024 filing, businesses must take a bigger role in making sure taxes are paid.
How It Worked Before
Businesses had three options to handle taxes for non-resident owners:
- DR 107 Agreement – The nonresident owner agreed to pay their own Colorado taxes.
- DR 108 Filing – The business paid the tax on behalf of the nonresident owner (this option is now eliminated)
- SALT Parity Act Election – The business chose to pay taxes for all owners, both in and out of state.
Of the three methods, there was no strict rule on which to use. However, Colorado reserved the right to take action against the company if a nonresident owner failed to pay their taxes.
What’s Changing?
Starting in 2024, Colorado now requires businesses to calculate and pay the taxes for their nonresident owners using a composite return—unless you have a DR 107 agreement in place or opt into the SALT Parity Act. Furthermore, the DR 108 Filing option is now eliminated.
What You Need to Do
To avoid completing a composite return, paying tax for nonresidents only, businesses need to:
- Get a signed DR 107 form from nonresident owners on file (once signed, it’s valid indefinitely and a smart move for long-term compliance)
- Or choose the SALT Parity Act to handle taxes for all owners, both in and out of state.
Pro Tip
With Colorado increasing their scrutiny on nonresident income, you and any new business owners should be proactive about obtaining a signed DR 107 Form. Adding it to your organizational agreements ensures it’s handled upfront, saving you from last-minute tax headaches down the road.
For more information on the DR 107, see the Department of Revenue at https://tax.colorado.gov/DR0107.
