Does an out-of-state company that occasionally sends tutors to teach a corporate training course in Colorado owe Colorado sales tax or income tax?

Plain-English summary

An out-of-state company that provides negotiating-training classes to corporations across the country asked whether it owes any Colorado tax because it occasionally sends two tutors into Colorado to teach. Its employees live and work out of state; it solicits by phone and Internet; the only Colorado footprint is the visiting instructors. Because the request wasn't clear about which tax, the Department addressed both sales tax and income tax.

Sales tax — the teaching is a nontaxable service. Colorado generally treats education and training as nontaxable services (private schools, for example, are service providers, so tuition isn't taxed). Live or video instruction is "substantially similar" to traditional educational services, so the training charge itself isn't subject to sales tax. The wrinkle is tangible materials:
- If the provider hands out materials but doesn't separately charge for them, the provider is the user and owes use tax when it buys or uses the materials in Colorado.
- If the student is charged a separate fee for materials, that's a sale of materials and the provider must collect sales tax on them.
- If the materials are the "true object" of the deal and the instruction is incidental, the entire charge is a taxable sale of tangible personal property (citing [[gil-08-010-taxability-of-school-material]], where home-study course material was taxable).

Income tax — visiting employees can create nexus. Colorado taxes corporations with Colorado-source income. An out-of-state corporation has nexus if it crosses any one of $500,000 sales / $50,000 property / $50,000 payroll / 25% (Reg. 39-22-301.1(2)(b)). Income from services performed in Colorado goes in the numerator of the single-sales-factor apportionment formula. And employees performing services in Colorado are themselves liable for Colorado income tax, so the company owes wage withholding on them (FYI Withholding 5).

The Department wouldn't decide the actual outcome in a GIL — whether these occasional visits cross a nexus threshold is fact-specific — but it laid out exactly which tests to run.

What this means for you

Training, tutoring, and education businesses

Your core service — instruction — is not subject to Colorado sales tax. The tax exposure lives in the materials. Decide deliberately how you handle course materials: bundle them into a nontaxable instruction charge (and pay use tax on what you buy), or bill them separately (and collect sales tax on them). If a "class" is really a way to sell a workbook or kit, expect the whole charge to be taxable under the true-object test.

Out-of-state providers sending staff into Colorado

Sending instructors (or any employees) to perform services in Colorado can create income-tax nexus once you cross a threshold, apportion service income to Colorado, and trigger wage-withholding duties for those employees' Colorado work — even if the visits are occasional. Track in-state days and payroll.

Accountants and tax professionals

Two separate analyses: (1) sales/use — service vs. true-object-materials; (2) income — nexus under Reg. 39-22-301.1(2)(b), single-sales-factor sourcing of services performed in Colorado, plus withholding. The materials rules here mirror the broader Colorado "true object" line and [[gil-08-010-taxability-of-school-material]].

Common questions

Q: Is corporate training or tutoring subject to Colorado sales tax?
A: The instruction itself is a nontaxable service. Materials can be taxable — the provider owes use tax on materials it uses, must collect tax on materials billed separately, and the whole charge is taxable if the materials are the "true object."

Q: Does sending instructors into Colorado make my company owe income tax?
A: It can. Performing services in Colorado can create nexus once you exceed $500,000 sales / $50,000 property / $50,000 payroll / 25%, and service income performed here is apportioned to Colorado.

Q: Do I have to withhold Colorado tax for employees teaching in Colorado?
A: Employees performing services in Colorado are liable for Colorado income tax, and the company is liable for wage withholding on that Colorado work (FYI Withholding 5).

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, not binding on the Department. For a binding determination on your facts, request a private letter ruling (which requires a fee).

Citations and references

Statutes, rules, and guidance:
- § 39-22-301(1)(a), C.R.S. (income tax on Colorado-source corporate income)
- Department Regulation 39-22-301.1(2)(b) (nexus: $500k sales / $50k property / $50k payroll / 25%)
- § 39-22-303.5, C.R.S.; Reg. 39-22-303.5.4(a) (single-sales-factor apportionment)
- FYI Sales 47 (Printers and Printing — provider as user of materials); FYI Withholding 5 (wage withholding)
- General Information Letter 08-010 (home-study course material taxable)

Related rulings:
- [[gil-08-010-taxability-of-school-material]] — true-object test; course materials taxable
- [[gil-13-024-colorado-source-income]] — cost-of-performance sourcing for service income
- [[gil-13-009-c-corporation-income-tax-return]] — nexus thresholds and P.L. 86-272 (services not protected)

Source

• Landing page: Colorado All Letter Rulings
• Original PDF: GIL-12-013.pdf

Original ruling text

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

GIL-12-013
November 6, 2012
XXXXXXXXXXXXXXXXX
ATTN: XXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Training Classes for Corporations
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXX ("Company") a request for guidance to
determine the applicability of Colorado sales and use tax on training classes to
corporations.
The Colorado Department of Revenue ("Department") issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues and is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department but not on the taxpayer,
and requires payment of a fee. For more information about general information letters and
private letter rulings, please see Department regulation 24-35-103. 5 at
www.colorado.gov/revenue/tax > Tax Library > Rulings.
The Department initially treats your request as one of a general information letter. If you would
like the Department to issue a private letter ruling on the issues you raise, you can resubmit a
request and fee in compliance with regulation 24-35-103.5. It is important to remember that
general information letters, such as this one, are general discussions of tax law and are not a
determination of the tax consequence of any particular action or inaction.
Issue
Is Company liable to collect and remit any taxes due to occasionally sending tutors into Colorado
to teach a negotiating course to a corporation?

Background
Headquartered outside of Colorado, Company provides negotiating training classes to
corporations throughout the country. Company's employees live and work outside of
Colorado. Company solicits sales for their services over the telephone and Internet.
Company's only physical presence in Colorado occurs when it occasionally sends two tutors to
Colorado to teach. The issue is whether Company is liable for any taxes because Company
occasionally sends employees to teach a negotiating course to a corporation in Colorado.
Discussion
It is unclear whether you are requesting guidance on sales tax or income tax that may be
due. We address both.
The Department generally treats the provision of education and training as non-taxable services.
For example, private schools are generally considered service providers and, therefore,
charges for instruction are not subject to sales tax. We presume from the limited facts
provided to us that the material is presented by an instructor (tutor) either
in person or via a video feed and, therefore, substantially similar to non-taxable educational
services provided in more traditional settings.
In some cases, tangible personal property is transferred from the educational service
provider to the student, which raises the issue of whether the transfer of such property
creates a sales tax liability. This can be a more difficult issue to resolve. In general, the
Department views the educational service provider as the user of such materials. In such
cases, the provider is liable for use tax when it acquires the material and/or uses the
materials in Colorado. However, if the student is charged a separate fee for the materials,
the Department views such charges as the sale of materials to the student, which
obligates the service provider to collect tax on the materials. Finally, incases where the
materials themselves are the "true object" of the transaction and the
educational services are incidental, then the transaction will generally be viewed as the sale
of taxable tangible personal property and the entire charge, including the charge
for non-optional but incidental educational services, are taxable. See, General Information
1
Letter 08-010 (Home study course material subject to sales tax) .
Colorado imposes income tax on corporations that derive income from sources within
2
Colorado.
For out-of-state corporations, there are at least two issues to address.
First, has the corporation derived income from sources within Colorado? Second, does the
corporation have sufficient nexus with Colorado to permit Colorado to levy income tax on
such income? Your reference to the employees occasionally within Colorado

I
You can view this general information letter on the Department's web site at www.colorado.gov/revenue/tax >Tax
Library > Rulings > Rulings by Number
2
§39-22-301 (1)(a), C.R.S. You can view this statute on the Department's web site at www .colorado.gov/revenue
/tax >Tax Library > Statutes

2

suggests that you are interested in the latter question of whether such activity constitutes
sufficient nexus.
Colorado has adopted a test to determine whether a Company's activities within this state
to create nexus. Department Regulation 39-22-301.1 (2)(b) (Doing Business in Colorado)
generally states that a corporation will have nexus with Colorado if it exceeds one of the
following four criteria: (1) sales exceed $500,000 per year, or (2)corporate property in
Colorado exceed $50,000, or (3) corporate payroll for
employees located in Colorado exceeds $50,000, or (4) twenty-five percent of the
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company's total sales, total payroll, or total property is in Colorado.
When a corporation carries on a trade or business in Colorado and in other states,
Colorado apportions the corporation's income using a single sales factor apportionment
formula, which is a ratio of sales within Colorado to total sales. §39-22-303.5, C.R.S.
Income from the sales of services rendered in Colorado is included in the numerator of the
apportionment formula. For more information about how income is apportioned, see
Department Regulation 39-22-303.5.4(a), "Calculation of Sales
4
Factor." You should also be aware that employees who are performing services in
Colorado are liable for Colorado income tax and the Company is liable for wage
withholding tax on those employees. For more information about wage withholding, see
5
Department Publication FYI Withholding 5 (Colorado Withholding Tax Requirements).
If you would like a specific ruling on the issues you raise, you can request a private letter ruling by
submitting a request with more specific information and fee in compliance with Department
Regulation 24-35-103.5.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are
knowledgeable on state taxes issues. However, the Department does not make a specific
determination here on any of the issues raised and the Department is not bound by this
general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home- rule
counties. You may wish to consult with local governments which administer their own sales or use
taxes about the applicability of those taxes. Visit our web site at
www.colorado.gov/revenue/tax for more information about state and local sales taxes.
3 You can view this Regulation on the Department's web site at www.colorado.gov/revenue/tax >Tax Library

Rules and Regulations > Final Tax Regulations > Income and Withholding Tax . 39-22-301.1.
4 You can view this Regulation on the Department's web site at www.colorado.gov/revenue/tax >Tax Library >
Rules and Regulations > Final Tax Regulations > Income and Withholding Tax > 39-22-303 .5.4(a).
5 You can view this FYI on the Department's web site at www.colorado .gov/revenue/tax >Tax Library >
FYI Publications > Withholding .

3

Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted
letter will be made public within 60 days of the date of this letter. Please let me know in writing
within that 60 day period whether you have any suggestions or concerns about this redacted
letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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