Colorado Partnership Tax Return: Composite Filing, SALT Election, Deadlines

A Colorado partnership tax return is filed on Form DR 0106, the Colorado Partnership and S Corporation Income Tax Return, and it is due on the 15th day of the fourth month after the partnership’s tax year ends (April 15 for calendar-year filers). Every partnership doing business in Colorado or earning income from Colorado sources must file one, issue a Colorado K-1 to each partner, and, in most cases, either file a mandatory composite return covering nonresident partners or elect to pay the tax at the entity level under the SALT Parity Act.¹

Who Has to File

Any partnership doing business in Colorado must file a DR 0106 for each tax year it operates in the state. That includes limited liability companies taxed as partnerships for federal purposes. A partnership is “doing business” in Colorado whenever it earns income from Colorado sources or conducts transactions within the state’s borders under CDOR Rule 39-22-301(1).¹

Along with the return, the partnership prepares a Colorado K-1 (Form DR 0106K) for every partner. The K-1 shows that partner’s share of income, deductions, credits, and Colorado-specific modifications. Copies of all K-1s go to the CDOR with the return, and each partner must receive their K-1 on or before the filing due date, including any extension. Partners then use those figures to complete their own Colorado returns.²

When the Return Is Due

The DR 0106 is due on the fifteenth day of the fourth month after the close of the tax year. For calendar-year partnerships, that is April 15. Any tax owed must be paid by this date even if the partnership plans to file later.¹

Colorado grants an automatic six-month filing extension, which pushes the deadline to October 15 for calendar-year filers. No separate Colorado extension form is needed if the partnership has already filed federal Form 7004 with the IRS. The extension is for filing only. Interest and penalties start running on any unpaid balance the day after the original due date.³

Figuring Colorado-Source Income

Partnerships that operate entirely in Colorado report their total income as Colorado-source income. Multi-state partnerships apportion their business income using a single-factor receipts formula: Colorado sales divided by total sales everywhere, multiplied by the partnership’s apportionable business income. “Sales” means gross receipts, except for sales of intangible property, where only the gain counts.⁴

This apportionment is completed in Part V of the DR 0106. Any partnership with income from both within and outside Colorado must complete Part V. Non-business income, such as rental income from a single property or gains from selling a specific asset, is allocated directly to the state where the property sits rather than run through the formula.¹

Colorado starts from federal taxable income and then applies specific additions and subtractions because its tax code does not follow every federal provision. A common addition is the federal business meals deduction under IRC §274(k), which must be added back. Colorado-licensed marijuana and natural medicine businesses can subtract expenditures otherwise disallowed federally under IRC §280E. The net effect of these modifications, combined with the apportionment percentage, produces the Colorado-source income figure that drives each partner’s K-1.¹

Nonresident Partners: Composite Return Is Now Mandatory

Starting with tax year 2024, Colorado eliminated Form DR 0108 and the old system of withholding on individual nonresident partners. In its place, every partnership filing a DR 0106 that does not make a SALT Parity Act election must complete a nonresident composite return in Part II of the DR 0106 and pay composite tax on behalf of all nonresident partners who are individuals, estates, or trusts. This is not optional.⁵⁶

Partners that are corporations or other partnerships are not included in the composite. Those entities handle their own Colorado filings separately. Composite partners are taxed on their Colorado-source share at the Colorado income tax rate (currently 4.25%). Once the partnership pays, those partners are generally relieved of filing their own Colorado return for that income, though they still receive a K-1 showing what was reported on their behalf.

Opting Out With Form DR 0107

A nonresident partner who prefers to file their own Colorado return can sign Form DR 0107, the Nonresident Partner or Shareholder Agreement, promising to report their Colorado-source income and pay the tax individually. The partner gives the completed DR 0107 to the partnership, which submits it with the DR 0106. It only needs to be filed for the first year the agreement is made. A partner with a timely DR 0107 on file is excluded from the composite return.⁷

The SALT Parity Act Election

Instead of filing a composite return, a partnership can elect under Colorado’s SALT Parity Act (SB 22-124) to pay Colorado income tax at the entity level. The election exists to work around the $10,000 federal cap on state and local tax deductions: when the entity pays the tax, it becomes a business expense rather than an individual-level state tax payment.⁸

The election is made annually by checking the box on the DR 0106 when the return is filed. A partnership that wants to make the election earlier can file Form DR 1705. Once made, the election is irrevocable for that tax year and binds all partners.⁹

Partners who are unitary C corporations with the electing partnership are excluded from the election. Other partners must add back any federal Section 199A qualified business income deduction they claimed. Partners then take a credit on their individual Colorado returns for their share of the entity-level tax, which prevents double taxation. A partnership that makes the election does not have to file a separate nonresident composite return, because the entity is already paying the tax.¹⁶

Quarterly Estimated Payments

A partnership that will owe more than $5,000 in Colorado tax for the year through either a composite return or a SALT Parity Act election must make quarterly estimated payments using Form DR 0106EP. The threshold applies to the total tax due for the year, not any one partner’s share.¹⁰

For calendar-year filers, installments are due April 15, June 15, September 15, and December 15. Fiscal-year filers follow the same pattern on the fifteenth day of the fourth, sixth, ninth, and twelfth months of the tax year. If a due date lands on a weekend or state holiday, the payment is due the next business day. Each installment is 25% of the required annual payment.¹¹

Colorado’s safe harbor sets the required annual payment at the lesser of 70% of the current-year tax or 100% of the prior year’s tax. The prior-year option is only available if the partnership filed a Colorado return for a full twelve-month prior year and did not have taxable income of $1,000,000 or more in any of the three preceding tax years.¹⁰

How to File and Pay

The CDOR encourages electronic filing through its Revenue Online portal or approved third-party software, and mandatory e-filing is being phased in for partnership returns starting with larger filers. E-filing gives immediate confirmation and faster processing. Paper returns go to the mailing address listed in the DR 0106 instructions.¹²

Payments can be made by ACH debit through Revenue Online or by check noting the tax year and form number. The filing isn’t finished until every partner has their Colorado K-1 in hand, because partners need those figures to meet their own Colorado deadlines.²

Late Filing, Interest, and Records

The late-filing penalty is 5% of the unpaid tax plus 0.5% for each additional month (or partial month) the return is late, with a $5 minimum. Interest on any unpaid balance runs from the original due date until the tax is paid.¹³

For 2026, the interest rate on underpayments is 8% if the partnership pays before receiving a notice of deficiency or within 30 days of receiving one. Miss that window and the rate rises to 11%.¹³

Colorado’s general assessment period is three years from the date the return was filed, with longer periods tied to federal partnership adjustments. There is no time limit on assessment if the partnership never files or files a fraudulent return. Keeping supporting records for at least four years after filing covers the standard assessment window and leaves room for federal adjustment overlap.¹⁴

1
Colorado Department of Revenue. Colorado Partnership and S Corporation Income Tax Return
2
Department of Revenue – Taxation. Filing Requirement Changes for Partnerships and S Corporations
3
Department of Revenue – Taxation. Partnership and S Corporation Filing Information
4
Justia Law. Colorado Revised Statutes 39-22-303.5 – Rules
5
Colorado Department of Revenue. Elimination of Form DR 0108
6
Department of Revenue – Taxation. Changes to Composite Filing
7
Colorado Department of Revenue – Taxation. DR 0107 – Nonresident Partner or Shareholder Agreement
8
Department of Revenue – Taxation. SALT Parity Act Election
9
Department of Revenue – Taxation. Income Tax Topics: SALT Parity Act
10
Colorado Department of Revenue. Colorado Partnership and S Corporation Estimated Income Tax Instructions
11
Department of Revenue – Taxation. Business Income Tax Estimated Payments
12
Justia Law. Colorado Revised Statutes 39-21-119.5
13
Department of Revenue – Taxation. Tax Topics: Penalties and Interest
14
FindLaw. Colorado Revised Statutes Title 39 Taxation 39-21-107 – Limitations