If a Colorado manufacturer sells goods to the U.S. Government for delivery out of state but stores them in Colorado until the government is ready, are those sales sourced to Colorado for income tax apportionment?

Plain-English summary

A C corporation that manufactures in Colorado sells its products to the U.S. Government for use at federal sites outside Colorado. Because those sites often aren't ready to receive the goods, the contract has the company store the goods in Colorado after they're built — and the government performs its "Final Inspection" and "Unconditional Acceptance" in Colorado before the goods are eventually shipped out of state. The company asked: are these receipts sourced to Colorado for income tax apportionment? The Department said no.

Colorado uses a single sales (receipts) factor to apportion a C corporation's income (for tax years starting on or after Jan. 1, 2019). The factor is market-based: receipts from sales of tangible personal property are in Colorado if the property is "delivered or shipped to a purchaser in Colorado," regardless of the f.o.b. point or other conditions of the sale. Here, the U.S. Government takes delivery outside Colorado, so the receipts aren't Colorado receipts. Three Colorado-located facts don't change the answer:

• Where title/acceptance occurs. The statute disregards "the f.o.b. point or other conditions of the sale," so Final Inspection and Unconditional Acceptance happening in Colorado don't source the sale here.
• Storage in Colorado after acceptance. The seller holding the goods in Colorado until the government is ready doesn't make Colorado the market state — the purchaser still hasn't taken delivery.
• No throwback. Colorado's throwback rule pulls a sale back to Colorado only if the seller isn't taxable in the destination state. Here the company is taxable in every state it delivers to, so throwback doesn't apply. (Notably, Colorado's post-2019 statute dropped the special MTC throwback rule for U.S. Government sales, so federal sales are sourced like any other.)

The Department leaned on Lone Star Steel Co. v. Dolan (Colo. 1983): a Colorado steelmaker sent pipe to an unaffiliated Colorado company for coating before out-of-state delivery, and the court held the intermediary (like a carrier) wasn't the "purchaser," so the sale wasn't sourced to Colorado. Same logic here — the government doesn't take delivery in Colorado just because the goods sit in storage here first.

What this means for you

Manufacturers and government contractors based in Colorado

Selling to the federal government from a Colorado plant doesn't automatically make those sales Colorado receipts. What matters is where the purchaser takes delivery — the market state — not where you built, inspected, accepted, or warehoused the goods. If the government's delivery point is out of state and you're taxable there, those receipts stay out of your Colorado numerator.

Multi-state sellers thinking about the throwback rule

Throwback only bites when you're not taxable in the destination state. Confirm your taxability in the states you deliver to; if you're taxable there, sales aren't thrown back to Colorado. And remember Colorado's current apportionment rules no longer carry the old special throwback provision for U.S. Government sales.

Accountants and tax professionals

This is market-based sourcing under § 39-22-303.6(5)(a): "delivered or shipped to a purchaser," f.o.b. and other sale conditions disregarded. The ruling expressly notes Colorado's post-2019 statute omits the MTC model's U.S.-Government-specific throwback (the older MTC Compact apportionment in § 24-60-1301 doesn't apply to years beginning on/after Jan. 1, 2009 per § 24-60-1308). Lone Star Steel governs the "intermediary/storage ≠ delivery to purchaser" point.

Common questions

Q: Are sales to the U.S. Government from a Colorado plant taxed by Colorado?
A: Not as Colorado receipts if the government takes delivery out of state. Sales of tangible personal property are sourced to where they're delivered or shipped to the purchaser, regardless of f.o.b. point.

Q: Does storing the goods in Colorado until the government is ready change the answer?
A: No. Storage by the seller after acceptance doesn't mean the purchaser took delivery in Colorado, so it doesn't source the sale here (per Lone Star Steel).

Q: What about Final Inspection and Acceptance happening in Colorado?
A: Disregarded. The statute sources the sale without regard to the f.o.b. point or other conditions of the sale, including acceptance.

Q: When would the throwback rule apply?
A: Only if the seller is not taxable in the destination state. Here the company was taxable in every delivery state, so throwback didn't apply.

Q: Can other taxpayers rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else.

Citations and references

Statutes, rules, and cases:
- § 39-22-303.6, C.R.S. (single-factor apportionment, 2019+); (3)(b)/(3)(c) (apportionment required; taxable in another state); (4)(a) (factor formula)
- § 39-22-303.6(5)(a), C.R.S. and 1 CCR 201-2, Rule 39-22-303.6-6 (TPP sourced where delivered/shipped to purchaser, f.o.b. disregarded); (5)(b) (throwback rule)
- § 24-60-1308, C.R.S. (MTC Compact apportionment inapplicable for years beginning on/after Jan. 1, 2009)
- Lone Star Steel Co. v. Dolan, 668 P.2d 916 (Colo. 1983) (intermediary/storage is not delivery to the purchaser)

Related Colorado apportionment ruling: [[plr-26-002-receipts-for-income-apportionment]].

Source

• Landing page: Colorado Letter Rulings
• Original PDF: PLR-24-003.pdf

Original ruling text

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

PLR 24-003
August 21, 2024
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Via Electronic Mail: XXXXXXXXXX
Re: Sourcing of sales to the U.S. Government of property stored by the seller in Colorado
Dear XXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (the “Company”), to the
Colorado Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 24-35-103.5. This letter
is the Department’s private letter ruling. This ruling is binding on the Department to the extent set forth in
1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to
whom the ruling is made.
Issue
Whether Company’s receipts from sales of XXXXXXXXXX to the U.S. Government, as described in this
ruling and made under the contract in effect for XXXXXXXXXX and later, are in Colorado under section
39-22-303.6(5), C.R.S.
Conclusion
Company’s receipts from sales of XXXXXXXXXX to the U.S. Government, as described in this ruling and
made under the contract in effect for XXXXXXXXXX and later, are not in Colorado under section 39-22303.6(5), C.R.S.
Background1
Company is a Delaware corporation headquartered in Colorado. Company is organized as a
C corporation for federal income tax purposes. Company manufactures and sells XXXXXXXXXX. One of
Company’s principal customers is the United States Government and its departments and subdivisions.
Although Company sold XXXXXXXXXX to the U.S. Government prior to XXXXXXXXXX, the following
facts pertain to Company’s contract in effect for XXXXXXXXXX and later.
The XXXXXXXXXX are principally manufactured in Colorado. The U.S. Government purchases the
XXXXXXXXXX for delivery to the U.S. Government locations outside of Colorado. However, because the
U.S. Government facilities are often not ready to receive the XXXXXXXXXX, the U.S. Government
1

Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a statement of facts.
This section generally recites the statement of facts provided in the initial request or in any supplement or amendment thereto,
which is not an indication that the Department found such facts relevant to its analysis. Some relevant facts may be redacted or
omitted to ensure confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the factual
background are generally those of the requester.

PLR 24-003
August 21, 2024
Page 2

contract also requires Company to store the XXXXXXXXXX in Colorado until the U.S. Government is
ready to receive the XXXXXXXXXX. The U.S. Government pays the Company for the XXXXXXXXXX and
pays Company to store and service the XXXXXXXXXX in Colorado until the XXXXXXXXXX are delivered
by Company to the U.S. Government location designated by the U.S. Government.
Upon manufacturing completion, the Company performs XXXXXXXXXX in Colorado XXXXXXXXXX on
every XXXXXXXXXX. Upon successful completion of the XXXXXXXXXX for the XXXXXXXXXX, the U.S.
Government performs a production “Final Inspection.” “Unconditional Acceptance” of the XXXXXXXXXX
occurs upon successful completion of the “Final Inspection.” The XXXXXXXXXX is then immediately
moved to the Company’s storage.
The Company maintains control and possession of the XXXXXXXXXX (in Colorado) until final delivery is
completed at a location outside of Colorado. Company is obligated to store the XXXXXXXXXX for a
period of 30 days as part of the purchase price of the XXXXXXXXXX. The storage and maintenance
services, for which the U.S. Government must pay an additional charge, commence 30 days after the
customer’s “Unconditional Acceptance.”
Once the Government elects to ship the accepted XXXXXXXXXX, Company transports the
XXXXXXXXXX to the U.S. Government designated and operated destination outside of Colorado.
For the purposes of section 39-22-303.6(3)(c), C.R.S., Company is taxable in every state in which it
delivers XXXXXXXXXX to the U.S. Government.
Discussion
For income tax years commencing on or after January 1, 2019, a C corporation must apportion and
allocate its net income pursuant to section 39-22-303.6, C.R.S., if it has income from business activity
that is taxable both within and without Colorado.2 Income is apportioned with a fraction, the numerator of
which is the total receipts of the taxpayer in Colorado during the tax period and the denominator of which
is the total receipts of the taxpayer everywhere during the tax period. 3 State statute and rules prescribing
apportionment are based on models developed by the Multistate Tax Commission (“MTC”) 4 but deviate
from the models with regard to sales to the U.S. government, as discussed later in this ruling.
In general, receipts from the sales of tangible personal property are in Colorado if “[t]he property is
delivered or shipped to a purchaser in Colorado regardless of the f.o.b. point or other conditions of the
sale.”5 Receipts are also sourced to Colorado if the property is shipped from an office, store, warehouse,
factory, or other place of storage in Colorado and the taxpayer is not taxable in the state to which the
property is shipped (the “throwback rule”).6 Although the MTC model also includes a throwback provision
specifically for sales to the U.S. government, this provision is not included in the Colorado statute or rules
applicable to tax years commencing on or after January 1, 2019. 7
The plain language of the statute attributes sales to Colorado if they are “delivered or shipped to a
purchaser in Colorado” and explicitly disregards in making this determination “the f.o.b. point or other

2

Section 39-22-303.6(3)(b), C.R.S.
Section 39-22-303.6(4)(a), C.R.S.
4
See 2018 Colo. Sess. Laws, ch. 369, § 1(2) and the Statement of Basis and Purpose at the beginning of 1 CCR 201-2, Rules 3922-303.6–1 through 39-22-303.6–18.
5
Section 39-22-303.6(5)(a), C.R.S., and 1 CCR 201-2, Rule 39-22-303.6–6.
6
Section 39-22-303.6(5)(b), C.R.S.
7
Compare Multistate Tax Commission Model Compact Art. IV, §16 (as revised July 29, 2015) (prescribing specific sourcing for
sales to the U.S. government) with section 39-22-303.6(5), C.R.S. (omitting these provisions regarding U.S. government sales). The
MTC sourcing provisions for sales to the U.S. government were adopted by the State of Colorado in section 24-60-1301, art. IV,
§16, C.R.S., and the regulations promulgated thereunder in 1 CCR 201-3. However, that statute and accompanying regulations do
not apply to tax years commencing on or after January 1, 2009. See section 24-60-1308, C.R.S.
3

PLR 24-003
August 21, 2024
Page 3
conditions of the sale.”8 As the Hellerstein treatise observes, the “purpose of the sales factor [is] to reflect
the contribution of the market state to the taxpayer’s income.”9 Several MTC model rules adopted by the
state reflect this purpose,10 as does the decision of the Colorado Supreme Court in Lone Star Steel Co. v.
Dolan.11 Nothing in the applicable statute or rules bases the sourcing of a sale on the location of property
at the time title transfers or the storage of the property by the seller for any period of time thereafter. 12
Company has income from business activity that is taxable both within and without Colorado and it
therefore must apportion and allocate its net income pursuant to section 39-22-303.6, C.R.S., for tax
years commencing on or after January 1, 2019. 13 Company is taxable in every state into which it delivers
sales of tangible personal property to the U.S. Government. Therefore, the throwback rule does not apply
in sourcing these sales.
Under section 39-22-303.6(5)(a), C.R.S., receipts from the sales at issue in this ruling are not in Colorado
because the XXXXXXXXXX are not delivered or shipped to the U.S. Government in Colorado. Company
represents that the U.S. Government does not take possession of the XXXXXXXXXX at any time prior to
the delivery of the XXXXXXXXXX to locations outside of Colorado.
The physical location of the XXXXXXXXXX at the time of “Final Inspection” and “Unconditional
Acceptance” does not determine the state to which the sales are sourced. Under section 39-22303.6(5)(a), C.R.S., the location of the sale is determined without regard to “the f.o.b. point or other
conditions of the sale.” Although the federal regulations14 prescribe various rules relating to the conditions
of sales to the U.S. Government, such as final inspection,15 acceptance,16 and delivery,17 sales to the
U.S. Government are nevertheless sourced under section 39-22-303.6(5)(a), C.R.S., like sales to any
other purchaser, to the location where “[t]he property is delivered or shipped to [the] purchaser …
regardless of the f.o.b. point or other conditions of the sale.”
Company’s storage of the XXXXXXXXXX for the U.S. Government after “Final Inspection” and
“Unconditional Acceptance” does not determine the state to which the sales are sourced. The Colorado
Supreme Court considered a case in which an intermediary service was performed by an unaffiliated
company prior to delivery of the purchased property to the customer. In that case, a steel company (Lone
Star) manufactured pipe in Colorado and sold it to customers outside of Colorado but transferred the pipe
to an unaffiliated company (Gaido-Lingle) to wrap the pipe in tar and paper prior to delivery to Lone Star’s
customers outside of Colorado. In determining where to source Lone Star’s sales, the court reasoned:
“The pipe is delivered to Gaido-Lingle, which is not a purchaser, but is instead merely an
intermediary, much as a common carrier is. The difference is that Gaido-Lingle transforms the
pipe physically, while a carrier transports it spatially. There seems little reason in policy to treat
8

Section 39-22-303.6(5)(a), C.R.S., and 1 CCR 201-2, Rule 39-22-303.6–6.
Hellerstein & Hellerstein. State Taxation, ¶ 9.18[3][a].
10
See, for example, paragraphs (2), (3), and (4) of 1 CCR 201-2, Rule 39-22-303.6–6.
11
Lone Star Steel Co. v. Dolan, 668 P.2d 916 (Colo. 1983). The court concluded that the intervening transfer of pipe purchased
from a steel company to a third-party service provider in Colorado prior to delivery by common carrier to an out-of-state purchaser
did not result in the sourcing of the sale to Colorado for income tax purposes.
12
By contrast, see Mich. Comp. Laws Ann. § 206.665(1)(a), which sources to the state sales of property that is “stored in transit”
within the state for a period of 60 days or more.
13
Section 39-22-303.6(3)(b), C.R.S.
14
Federal Acquisition Regulation in Chapter 1 of Title 48 of the Code of Federal Regulations.
15
See, for example, 48 CFR §§ 46.402 and 46.403, prescribing rules for determining whether inspection is performed at the source
or at the destination, respectively.
16
See, for example, 48 CFR § 46.101 (“Acceptance means the act of an authorized representative of the Government by which the
Government, for itself or as agent of another, assumes ownership of existing identified supplies tendered or approves specific
services rendered as partial or complete performance of the contract.”) and 48 CFR § 46.501 (“Acceptance may take place before
delivery, at the time of delivery, or after delivery, depending on the provisions of the terms and conditions of the contract.”).
17
See, for example, 48 CFR § 47.302(c)(1): “The place of performance of Government acquisition quality assurance actions and the
place of acceptance shall not control the delivery term, except that if acceptance is at destination, transportation shall be f.o.b.
destination (see 47.304–1(f)).”
9

PLR 24-003
August 21, 2024
Page 4

the two kinds of transactions differently. In neither case has the purchaser actually taken delivery
of the pipe.”18
Similarly, the U.S. Government does not take delivery of the XXXXXXXXXX in Colorado, notwithstanding
Company’s storage of the XXXXXXXXXX in Colorado after “Final Inspection” and “Unconditional
Acceptance.”
Miscellaneous
This ruling is premised on the assumption that Company has completely and accurately disclosed all
material facts, that all representations are true and complete, and that Company has otherwise complied
with the requirements of section 24-35-103.5, C.R.S., and the rules promulgated pursuant thereto. The
Department reserves the right, among others, to independently evaluate Company’s facts,
representations, and assumptions. The ruling is null and void if any such fact, representation, or
assumption is incorrect and has a material bearing on the conclusions reached in this ruling. This ruling is
binding on the Department, and is subject to modification or revocation, in accordance with 1 CCR 201-1,
Rule 24-35-103.5.
Thank you for your request.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom the
ruling is made.

18

Lone Star Steel Co. v. Dolan, 668 P.2d 920 (Colo. 1983).