When a partnership makes a one-off sale of Colorado real estate outside its regular business, do those gross receipts go into the apportionment factor that determines its owner's Colorado-source income?
Plain-English summary
A multi-state business that earns income in more than one state uses an apportionment factor to figure how much of its income Colorado may tax. Under Colorado's single-factor formula, that fraction is Colorado receipts ÷ total receipts everywhere. The question here: when a partnership sells a big piece of Colorado real estate in a one-time deal, do the gross receipts from that sale go into the factor? The Department said no.
The taxpayer was an out-of-state S corporation that files in Colorado on a unitary basis with several partnerships and subsidiaries. One of those partnerships ("CO Partnership") ran assisted-living facilities, then sold a large Colorado property for a substantial gain because it was winding down that location and dissolving. Real-estate sales were infrequent, extraordinary events for the partnership — not part of its regular business of operating assisted-living facilities.
The key is the statutory definition of "receipts." Section 39-22-303.6(1)(d) defines receipts as gross receipts "received from transactions and activity in the regular course of the taxpayer's trade or business." Because the property sale was not in the regular course of the partnership's business, the proceeds are not "receipts" — so they drop out of both the numerator and denominator of the partnership's apportionment factor. And since a corporate partner includes its share of the partnership's factor in its own, none of those sale receipts flow up into the S corporation's apportionment factor either.
Important nuance: this is about the factor, not about taxability. The gain can still be apportionable income (the partnership elected to treat all its income as apportionable under § 39-22-303.6(8)); it just doesn't enter the receipts factor. Colorado rules expressly contemplate that "an amount may be included in apportionable income without also being included in the apportionment factor."
What this means for you
Multi-state businesses and their owners
A one-off, non-recurring sale of property — even valuable Colorado property — generally does not swell your apportionment factor, because the proceeds aren't "receipts" from the regular course of business. That matters: dumping a huge one-time sale into the Colorado numerator could badly distort the share of income Colorado taxes. The character of the activity (regular vs. extraordinary), not the size of the check, controls whether it counts as a receipt.
Partnerships and S corporations filing unitary
The analysis flows up the chain. If receipts are excluded at the partnership level because the sale was extraordinary, no share of those receipts is included when the corporate partner builds its own factor. Keep the documentation that shows the transaction was infrequent and outside the entity's regular trade or business.
Accountants and tax professionals
Two distinct questions stay separate: (1) is the gain apportionable income? and (2) does the receipt belong in the apportionment factor? Here the election under § 39-22-303.6(8) makes the gain apportionable, but § 39-22-303.6(1)(d)'s "regular course of business" limit keeps the gross proceeds out of the factor — exactly the scenario Rule 39-22-303.6-1(1)(l)(ix) anticipates. The partner's inclusion of the partnership's factor runs through § 39-22-303(11.5)(b)(III)(D).
Common questions
Q: Does a partnership's real-estate sale increase its Colorado apportionment factor?
A: Not if the sale is infrequent and outside the regular course of its business. The proceeds aren't "receipts" under § 39-22-303.6(1)(d), so they're excluded from both parts of the factor.
Q: Does that mean the gain isn't taxed?
A: No — different question. The gain can still be apportionable income (here the partnership elected to treat all income as apportionable). It simply doesn't go into the receipts factor used to apportion that income.
Q: How does this affect the corporate owner?
A: A corporate partner includes its share of the partnership's apportionment factor in its own. Because the sale receipts are excluded at the partnership level, none flow into the S corporation's factor.
Q: What makes a sale "extraordinary"?
A: Here, the partnership operated assisted-living facilities and rarely bought or sold property; the sale happened because it was closing that location and dissolving. Infrequent, non-recurring transactions outside the entity's normal line of business.
Q: Can my business 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 and rules:
- § 39-22-303.6, C.R.S. (apportionment of apportionable income); § 39-22-303.6(4)(a) (the factor formula)
- § 39-22-303.6(1)(d), C.R.S. (definition of "receipts" — regular course of business)
- § 39-22-303.6(8), C.R.S. (election to treat all income as apportionable); § 39-22-203(1)(a) (nonresident partner election)
- § 39-22-321(1), C.R.S. (S corporation income attributable to the state)
- § 39-22-303(11.5)(b)(III)(D), C.R.S. (partner includes share of partnership's factor)
- 1 CCR 201-2, Rule 39-22-303.6-1 ¶(1)(l)(ix) (in apportionable income but not in the factor)
Source
- Landing page: Colorado Letter Rulings
- Original PDF: PLR-26-002.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 26-002
February 17, 2026
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Via Electronic Mail: XXXXXXXXX
Re: Receipts for Income Apportionment
Dear XXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXX (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 gross receipts from CO Partnership’s sale of Colorado real estate are included in receipts for the
purpose of calculating the apportionment factor that determines Company’s Colorado-source
apportionable income under section 39-22-303.6, C.R.S.
Conclusion
No, gross receipts from CO Partnership’s sale of Colorado real estate are not included in receipts for the
purpose of calculating the apportionment factor that determines Company’s Colorado-source
apportionable income under section 39-22-303.6, C.R.S.
Background1
Company is a subchapter S corporation, based in XXXXXXXXX and wholly owns or has majority interests
in several partnerships and other entities. Company files Federal Form 1120-S U.S. Income Tax Return
for an S Corporation and Colorado DR 0106 Partnership and S Corporation Tax Return. Profits and
losses from its various partnership interests and subsidiary entities are passed through to Company’s net
income, and its tax return is filed on a unitary basis with these related entities.
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 26-002
February 17, 2026
Page 2
Company is engaged in a variety of distinct business activities, each conducted through separate entities
included in its unitary tax filing. These operations include XXXXXXXXXX. Additional income streams also
include XXXXXXXXXX.
Although Company has engaged in the occasional purchase and sale of real estate, these transactions
are infrequent occurrences for all the entities comprising the unitary filing group and are not in the regular
course of business.
Company owns greater than 50% of a partnership (“CO Partnership”), thus having a controlling interest
and the income from CO Partnership passes through to Company on its subchapter S corporation tax
return. CO Partnership’s primary business is the operation of assisted living facilities that provide its
residents with medical care, meals, and other day-to-day care.
CO Partnership sold a substantial piece of real property in Colorado to an unrelated buyer, resulting in
over $XXXXXXXXXX in proceeds from the sale, with a net amount of over $XXXXXXXXXX ultimately
received by CO Partnership after paying the mortgage and other closing expenses in XXXXXXXXXX of
last year, realizing a substantial gain. CO Partnership sold the property because it is discontinuing its
operation of the assisted care facility at that location and sought to recover funds for future investment by
its majority owner. CO Partnership is in the process of dissolving its business after the sale of this
property.
The sale of this real property and subsequent distribution of the net amount received by the Company
constituted an extraordinary event for CO Partnership and was not a transaction in the normal course of
business. CO Partnership’s primary activities are leasing and managing assisted living facilities; it is not
engaged in the regular acquisition or sale of properties. This is consistent with the other entities in the
unitary filing group, each of which has its own distinct line of business, and for which the sale of real
estate would also be considered an extraordinary event.
CO Partnership will make the election under section 39‑22‑203(1)(a) to determine the Colorado-source
portion of nonresident partners’ distributive shares using the procedure outlined in section 39‑22‑303.6.
In turn, CO Partnership will make the election provided under section 39-22-303.6(8), C.R.S., to treat all
of its income as apportionable income.
Discussion
Gross receipts from CO Partnership’s sale of Colorado real estate are not included in receipts for the
purpose of calculating the apportionment factor that determines Company’s Colorado-source
apportionable income under section 39-22-303.6, C.R.S. Section 39-22-303.6(4)(a), C.R.S., provides that
“a taxpayer’s apportionable income shall be apportioned to Colorado by multiplying such apportionable
income by 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.” This fraction is called an “apportionment factor.” In some circumstances, a particular amount may
be included in a taxpayer’s apportionable income without also being included in the calculation of the
taxpayer’s apportionment factor.2
For Colorado income tax purposes, CO Partnership elects to treat its income as apportionable income
under sections 39-22-203(1)(a) and 39-22-303.6(8), C.R.S.3 Pursuant to section 39-22-303.6(4)(a),
therefore, CO Partnership’s apportionable income shall be apportioned to Colorado by its apportionment
factor.
The gross receipts from CO Partnership’s sale of the Colorado real estate are excluded from the
2
3
1 CCR 201-2, Rule 39-22-303.6–1, paragraph (1)(l)(ix).
Section 39-22-303.6(1)(a)(II)(B), C.R.S.
PLR 26-002
February 17, 2026
Page 3
numerator and denominator of CO Partnership’s apportionment factor. Section 39-22-303.6(1)(d),
C.R.S., defines receipts as “all gross receipts that are . . . received from transactions and activity in the
regular course of the taxpayer’s trade or business . . . .”4 Though the Colorado real estate at issue is
related to the operation of CO Partnership’s business, the sale of real estate is not a transaction or
activity in the regular course of CO Partnership’s regular trade or business. Such transactions are
infrequent occurrences for CO Partnership, which primarily operates assisted living facilities. Because the
sale of the Colorado real estate was not a transaction or activity in the regular course of CO Partnership’s
trade or business, the gross receipts from the sale of the Colorado real estate are not receipts under the
relevant definition.
The income of an S corporation attributable to this state is determined by apportioning and allocating the
S corporation’s income pursuant to section 39-22-303.6, C.R.S.5 In general, a corporation that holds a
partnership interest from which it derives apportionable income must include its share of the partnership’s
apportionment factor in the corporation’s own apportionment factor. 6 Because the gross receipts from the
sale of the Colorado real estate are not included in the CO Partnership’s apportionment factor, no share
of the gross receipts are included in the calculation of the Company’s apportionment factor.
Thus, gross receipts from CO Partnership’s sale of Colorado real estate are not included in receipts for
the purpose of calculating the apportionment factor that determines Company’s Colorado-source
apportionable income under section 39-22-303.6, C.R.S.
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.
4
5
6
Section 39-22-303.6(1)(d), C.R.S.
Section 39-22-321(1), C.R.S.; 1 CCR 201-2, Rule 39-22-109, paragraph (3)(f)(i).
See section 39-22-303(11.5)(b)(III)(D), C.R.S.