Do nonresident directors of a nonresident corporation owe Colorado income tax on their director pay because they held one board meeting in Colorado?

Plain-English summary

A corporation that is neither domiciled nor incorporated in Colorado held one two-day board of directors meeting in Colorado in 2008 (the board normally meets four times a year). Its directors are nonresidents paid a flat fee per meeting, plus an annual retainer and quarterly stock options — and the retainer and options are paid whether or not a director attended the Colorado meeting. The company asked: does the directors' income become subject to Colorado income tax just because they met in Colorado?

The Department said yes. Colorado taxes a nonresident individual on income earned from a profession or occupation carried on in Colorado (§ 39-22-109(2)(b)(II)). The Department analogized to a nonresident professional athlete who plays a game in Colorado and owes Colorado tax on the Colorado portion of his pay. By attending the board meeting, the directors "clearly carried on their occupation in Colorado," so some of their director income is Colorado-source.

The notable part is how much is apportioned. It isn't just the meeting fee. The Colorado share is the total director compensation — fee + annual retainer + stock options — times a fraction:

days worked as a director in Colorado ÷ total days worked as a director.

So even pay that is nominally unrelated to the Colorado meeting (the retainer and the options) gets pulled into the day-ratio apportionment. The Department added that if a director believes a different method better fits their facts, that needs a fully developed record and a private letter ruling, not a GIL.

This "duty-days" approach to a nonresident's Colorado-source compensation parallels the broader Colorado-source-income analysis in [[gil-14-019-income-earned-by-nonresident]].

What this means for you

Nonresident directors and the companies that pay them

Holding even a single board meeting in Colorado can create Colorado-source income for every nonresident director who attends — and the taxable slice is computed against all of their director pay for the year (fees, retainer, and equity), apportioned by days worked in Colorado over total director days. Companies may need to track director duty-days by location and consider Colorado reporting/withholding for those directors.

Athletes, entertainers, and other itinerant professionals

The same "occupation carried on in Colorado" logic applies to anyone who performs their profession in the state for part of the year. The Department's go-to model is the professional-athlete duty-day apportionment, and it extends naturally to directors and similar roles.

Accountants and tax professionals

Apportion total compensation for the role by the Colorado-director-days ÷ total-director-days ratio under § 39-22-109(2)(b)(II) and Reg. 39-22-109(2)(1). Don't limit the base to the meeting fee — the Department applies the ratio to the retainer and stock options too. A taxpayer wanting a different allocation must build the record and request a private letter ruling.

Common questions

Q: Do nonresident directors owe Colorado tax for one board meeting held in Colorado?
A: Yes. Attending the meeting means carrying on their occupation in Colorado, so a portion of their director income is Colorado-source and taxable.

Q: Is only the meeting fee taxed, or the retainer and options too?
A: The Department applies a day-ratio to the directors' total compensation — fee, annual retainer, and stock options — not just the meeting fee.

Q: How is the Colorado portion calculated?
A: Total director compensation × (days worked as a director in Colorado ÷ total days worked as a director).

Q: Can a director use a different allocation method?
A: Possibly, but it requires a fully developed factual record and a private letter ruling — a General Information Letter won't resolve it.

Citations and references

Statutes and rules:
- § 39-22-109(2)(b)(II), C.R.S. (nonresident income from a profession or occupation carried on in Colorado)
- Department Regulation 39-22-109(2)(1) (nonresident apportionment; professional athletes Q&A)

Related rulings:
- [[gil-14-019-income-earned-by-nonresident]] — Colorado-source income of a nonresident under § 39-22-109

Source

• Landing page: Colorado All Letter Rulings
• Original PDF: GIL-08-028.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-08-028
October 23, 2008

XXXXXXXXXXXXX
Attn: XXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: Income Tax / Board of Directors
Dear XXXXXXXXXX,
This letter is in response to your letter of August 21, 2008 to the Colorado Department of
Revenue. I apologize that it has taken so long to reply to your request. The department
recently acquired the staff needed to respond to these types of requests.
The department also recently enacted a regulation governing requests for tax advice. We
issue both private letter rulings and general information letters. See, §24-35-103.5, C.R.S. and
Department regulation 24-35-103.5. Private letter rulings are issued in response to tax
questions relating to specific factual settings and are binding on the department. General
information letters are issued in response to general tax questions and are not binding on the
department. You can view this regulation on-line at:
http://www.revenue.state.co.us/taxstatutesregs/3921reg24-35-103.5.html
I am initially treating your request as a request for a general information letter. As noted above,
general information letters are general discussions of tax law and do not fully develop the tax
treatment of any set of facts. If you would like a private letter ruling, please take a moment to
review the regulation and resubmit your request with the necessary information.
Issue
1. Is income of nonresident directors of a nonresident corporation subject to Colorado
income tax if the directors held a board of directors meeting in Colorado?

Background
You provide the following set of facts. Corporation A is neither domiciled nor incorporated in
Colorado. The corporation’s board of directors typically conducts four board-of-director
meetings each year. In 2008, a two-day board of directors meeting was held in Colorado.

Directors are paid a flat fee for attending each board meeting. Directors are also paid an
annual retainer and are issued stock options on a quarterly basis, both of which are paid
regardless of whether the directors attended the Colorado meeting. For tax year 2008, none of
the directors have income sourced to Colorado, except for income at issue here.
Discussion
1. Income earned by a profession or occupation carried on in Colorado is subject to Colorado
income tax.
Colorado imposes tax on income earned by a nonresident individual in a profession or
occupation carried on in Colorado. §39-22-109(2)(b)(II), C.R.S.1 For example, Colorado levies
income tax on income earned by a nonresident professional athlete who participates in an
athletic event in Colorado. See, Department Regulation 39-22-109(2)(1) and the professional
athletes Q&A.2 The directors clearly carried on their occupation in Colorado when they
attended the Colorado board meeting.
In the case of a director, the amount of income normally apportioned to Colorado is the total
amount paid (fee, annual retainer, and stock options) to the director for board-of-director
services times a ratio of days worked in Colorado as a director divided by total days worked as
a director. If the taxpayers believe a different approach is warranted under their
circumstances, then the facts must be much more fully developed. Moreover, a general
information letter would not be the appropriate forum and the matter should be submitted as a
private letter ruling.
Pursuant to state law and department regulation 24-35-103.5, noted above, the Department
will make public a redacted version of this letter. Your letter requesting this general information
letter is not made public. I enclose a proposed redacted version of this letter. Please contact
me within 60 days from the date of this letter if you have any questions, comments, or objection
concerning the redacted letter.
I hope this is helpful. Please feel free to contact me if you have any questions.

1 For a nonresident individual, tax is apportioned in the ratio of Colorado nonresident federal adjusted gross income to the
total federal adjusted gross income (as otherwise modified). Colorado nonresident adjusted gross income is that portion
of the federal adjusted gross income derived from Colorado sources. Income is considered derived from Colorado
sources if, among other things, it is earned from a profession or occupation carried on in Colorado.
2 www.revenue.state.co.us/taxstatutesregs/incomeindex/profathletesQA.html.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue