Key Takeaways

  • A Colorado S corporation is not taxed at the corporate level; profits and losses pass through to shareholders.
  • Businesses must still file Form 106 with the Colorado Department of Revenue to report income and deductions.
  • Federal filings include Form 1120S and Schedule K-1, which detail shareholder income allocations.
  • Colorado S corporations must register with the Colorado Secretary of State and maintain compliance through annual filings.
  • Sales, use, payroll, and local business taxes may still apply depending on your operations.
  • The S corporation election is made by filing IRS Form 2553 after forming a Colorado LLC or corporation.

When filing a Colorado S corporation tax return, there are some state-specific filing requirements and guidelines you need to be aware of. 

Colorado Taxation for S Corporation

In comparison to partnerships and sole proprietorships, Colorado S corporations are typically audited less frequently. Although the corporation itself does not pay any taxes, an informational tax return must be filed. In terms of the corporation's income and losses, these values are reported on each shareholder's personal tax return. In turn, all losses help offset other forms of income. 

All losses and income are allocated based on each owner's percentage of the corporation. Under certain circumstances, Colorado offers an alternative to income tax. This is known as a gross receipts tax, and in order to qualify:

  • Your only activity in the state of Colorado must be making sales. 
  • Of those sales, the total must equal $100,000 or less in total.
  • You may not own or rent any real estate in Colorado. 

Understanding Colorado S Corporation Status

A Colorado S corporation is a federal tax designation that allows business income to “pass through” to shareholders, avoiding double taxation at the corporate and personal level. To become a Colorado S corporation, a business must first form either a Colorado corporation or LLC with the Secretary of State and then elect S corp status by filing IRS Form 2553.

Colorado recognizes the federal S corporation election automatically — no separate state-level filing is needed for recognition. However, S corporations must still comply with Colorado’s corporate reporting, sales tax, and employment tax requirements.

Key advantages of electing S corp status in Colorado include:

  • Avoidance of double taxation on corporate income.
  • Ability for shareholders to take reasonable salaries and receive distributions taxed at lower rates.
  • Limited liability protection for shareholders.

However, not all businesses qualify. The IRS restricts S corp eligibility to U.S.-based corporations with no more than 100 shareholders, one class of stock, and eligible shareholders (individuals, certain trusts, or estates).

What Are the State Tax Filing Requirements for a Colorado S Corporation?

By creating an S corporation, you will be able to avoid double taxation. This means that your company will be treated as a pass-through entity. All associated income will be passed on to the company's shareholders and directors. With that being said, just because an S corporation does not need to pay federal taxes, does not mean that the company is not expected to file a return. In fact, in the state of Colorado, corporations must file an informational tax return at both the state and federal levels. 

To qualify as an S-Corp in the state of Colorado, you must file Form 2553 with the IRS. In certain states, you must also file at the state level. This applies to corporations based only in New Jersey, Arkansas, Ohio, New York, and Wisconsin. In addition, unlike most states, Colorado does not charge a franchise tax to businesses. 

Colorado S Corporation Annual and Payroll Tax Obligations

Although Colorado S corporations generally don’t pay corporate income tax, they must file Form 106 (Colorado S Corporation Income Tax Return) each year to report income, losses, and credits. Shareholders report their share of income on their personal Colorado income tax returns (Form 104).

S corporations that hire employees are subject to Colorado payroll tax requirements, including:

  • Withholding state income tax from employee wages.
  • Paying unemployment insurance (UI) through the Colorado Department of Labor and Employment.
  • Filing periodic wage and tax reports.

If your S corporation sells goods or taxable services, you must also register for a sales tax license through the Colorado Department of Revenue. Businesses that operate in multiple cities or counties should verify local sales tax rates, as these can vary significantly across jurisdictions.

Federal Tax Requirements 

All Colorado S corporations are required to file a tax return at the federal level. More specifically, as an S-Corp in the state of Colorado, you need to file Form 1120S. Your Colorado tax return will refer to your federal tax return, so it is important that you complete all federal paperwork first. Since the S Corporation has to distribute a 1120S Schedule K-1 to each shareholder, each individual is able to better understand their share of the company's deductions, profits, and credits. In turn, these values are reported on their personal tax returns. 

How to Elect S Corporation Status in Colorado

To qualify as a Colorado S corporation, you must first form a Colorado LLC or corporation and then file IRS Form 2553 (Election by a Small Business Corporation) within:

  • 75 days of forming the entity, or
  • By March 15 of the tax year for existing corporations wanting to switch to S corp status.

If the business misses the deadline, it may request late election relief under IRS Revenue Procedure 2013-30.

Once approved by the IRS, the election automatically applies in Colorado — no additional state filing is required. The entity remains responsible for annual filings with the Secretary of State, including the Periodic Report due each year on the anniversary month of formation.

Other Business Taxes

Even though S Corporations do not need to pay state business taxes, they may be subject to other state taxes. For example, depending on the type of business, you may also be responsible for collecting sales tax. If your corporation currently sells physical property, you must seek a Colorado sales tax license and charge sales tax on each purchase. 

In addition, if you are making sales at a location other than your primary location, you need to obtain a "special event" license. This can be obtained from the Department of Revenue. You are responsible for maintaining all associated sales records. It is important to remain organized, as you need to file a sales tax return annually. 

Local and Industry-Specific Tax Considerations

Colorado’s tax landscape includes both state and local obligations, and these can affect S corporations differently depending on industry and location. Examples include:

  • Special District Taxes: Some areas impose additional local sales taxes for transportation, tourism, or public improvements.
  • Use Tax: If your business purchases taxable goods without paying Colorado sales tax (e.g., online or out-of-state purchases), you may owe use tax.
  • Excise and Lodging Taxes: Industries such as alcohol, fuel, and short-term rentals may face additional taxes or reporting requirements.

S corporations engaging in multi-state business must apportion income based on where the income is earned. Colorado uses sales factor apportionment, meaning income is attributed to Colorado based on in-state sales relative to total sales.

Form 106 Instructions 

All S corporations in Colorado need to complete and file Form 106. Simply complete lines 11-31 in order to pay tax on Colorado sourced income. You do not need to complete any other forms. Once you have completed this form, you can submit the paperwork on your computer or your tablet on the Colorado Department of Revenue website. If for whatever reason you cannot file online, you can mail your forms and payment to the following address: COLORADO DEPARTMENT OF REVENUE, Denver, CO 80261-0006.

When preparing your Colorado tax return, it is imperative that you fully understand what you are required to file and when. This is particularly the case for S corporations who are in their first year of business. To avoid any penalties and to remain in good standing, do not be shy to ask questions. If at any time you are unclear about what you are required to report and file, seek professional advice. 

Filing Deadlines, Penalties, and Extensions

Colorado S corporation returns (Form 106) are due by the 15th day of the fourth month after the end of the tax year — typically April 15 for calendar-year filers. If you need additional time, you may request an automatic six-month extension, but this does not extend the time to pay taxes owed.

Common penalties include:

  • $5 per month for each month a return is late, up to a maximum of $50.
  • 1% monthly interest on unpaid tax liabilities.
  • Additional penalties for underpayment or failure to remit employee withholding taxes.

To avoid penalties, ensure all required forms — including federal Form 1120S, Schedule K-1, and Colorado Form 106 — are submitted accurately and on time. Keep organized records of income, deductions, and payroll throughout the year.

Frequently Asked Questions

  1. Does Colorado recognize S corporation status automatically?
    Yes. Colorado recognizes your federal S corporation election automatically once the IRS approves your Form 2553 — no separate state filing is needed.
  2. Do Colorado S corporations pay franchise tax?
    No. Colorado does not impose a franchise or privilege tax on S corporations. However, they must still file annual reports and comply with other tax obligations.
  3. What is the due date for Colorado Form 106?
    Form 106 is due by the 15th day of the fourth month after your tax year ends, usually April 15 for calendar-year filers.
  4. Are S corporations subject to Colorado sales tax?
    Yes, if your business sells taxable goods or services. You must collect and remit sales tax to the Colorado Department of Revenue.
  5. How can I get help filing a Colorado S corporation return?
    If you need assistance, you can find an experienced tax attorney or business lawyer on UpCounsel, which connects you with vetted professionals for S corp and tax compliance matters.

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