How to File a Colorado Partnership Tax Return

A Colorado partnership tax return is an informational filing that reports an entity’s financial activities. A partnership itself does not typically pay income tax; instead, income, deductions, and credits are “passed through” to the individual partners who report these items on their personal returns. The state return, Form DR 0106, is based on the federal Form 1065. It begins with the ordinary business income or loss from the federal return and applies state-specific adjustments. This process determines the amount of income attributable to Colorado, ensuring the state only taxes the portion of activity connected to it.

Determining Your Colorado Filing Requirement

A partnership must file a Colorado return if it engages in activities within the state that would subject a C corporation to state income tax filing requirements. This obligation applies to any entity treated as a partnership for federal tax purposes, including LLCs, regardless of where it was formed. The filing requirement is triggered by having income, loss, or deductions from Colorado sources. This requirement applies even if the partnership has a net loss for the year, as the state’s focus is on economic activity, not profitability.

“Colorado source income” is a broad term covering revenue from business operations, such as providing services or selling goods in Colorado. It also includes income from owning real or tangible personal property located in the state. For multi-state partnerships, business income is apportioned to determine the share connected to Colorado. Therefore, having a physical presence, employees, or substantial sales within Colorado will generally create a filing obligation for the partnership.

Information and Forms for Preparation

Main Form (DR 0106)

The primary document for a Colorado partnership filing is Form DR 0106. This form reconciles the partnership’s federal taxable income with its Colorado-specific income. To complete this form, you will need the finalized federal Form 1065, as the calculation begins with the ordinary business income or loss from federal Schedule K. From there, specific Colorado modifications, known as additions and subtractions, are applied.

Additions are items not taxed federally but taxable in Colorado, such as income from other states’ municipal bonds. Subtractions are items taxed federally but exempt in Colorado. Partnerships operating in multiple states must also complete apportionment schedules to determine the percentage of income attributable to Colorado, typically based on a sales factor.

Colorado K-1s

After determining the total Colorado-source income, the partnership must prepare a Colorado Schedule K-1 (DR 0106K) for each partner. This form is distinct from the federal K-1 and informs each partner of their individual share of the partnership’s Colorado-source income, modifications, and credits. The partnership must submit a copy of every partner’s Colorado K-1 to the Department of Revenue. The sum of the income and other items reported across all individual K-1s must align with the totals reported on the partnership’s main Form DR 0106.

Pass-Through Entity (PTE) Tax Election

Colorado allows partnerships to make an annual election to pay state income tax at the entity level, also known as the SALT Parity Act election. This optional Pass-Through Entity (PTE) tax can provide a federal tax benefit to partners by allowing state taxes to be deducted at the entity level. The election is made on Form DR 0106 or by filing Form DR 1705.

If the partnership makes this election, it calculates and pays the tax due on the total Colorado income for all partners with its Form DR 0106. The election is binding on all partners for that tax year. The partnership must indicate the election on each partner’s Colorado K-1, which will also show the amount of tax paid on that partner’s behalf.

How to File and Pay Your Return

Due Dates

For calendar-year partnerships, the deadline to file Form DR 0106 is April 15. For fiscal-year partnerships, the return is due by the 15th day of the fourth month after the fiscal year ends. Any tax liability, such as the elective PTE tax, must be paid by the original due date to avoid penalties and interest. An extension to file the return does not extend the time to pay the tax. If a partnership’s expected PTE tax liability exceeds $5,000 for the year, it must make quarterly estimated tax payments using Form DR 0106EP.

Filing an Extension

Colorado provides an automatic six-month extension to file the partnership return, moving the deadline to October 15 for calendar-year filers. No form is required to request this extension if no tax is owed. If the partnership has elected to pay the PTE tax and owes money, it must submit payment by the original April 15 deadline. To make a payment with an extension, use Form DR 0158-N, Payment Voucher for Automatic Colorado Partnership and S Corporation Extension of Time to File.

Filing and Payment Methods

Partnerships can file their return electronically through the Colorado Department of Revenue’s Revenue Online portal or with approved third-party software. Alternatively, a paper return, along with all required attachments, can be mailed to the address in the form’s instructions. Payments for the PTE tax can also be made electronically through Revenue Online or via Electronic Funds Transfer (EFT). If paying by mail, send a check or money order payable to the Colorado Department of Revenue with the correct payment voucher.

Partner-Level Tax Obligations

After the partnership files its return, the tax process shifts to the individual partners. Each partner receives a Colorado Schedule K-1 (DR 0106K) from the partnership. This document details their specific share of the partnership’s Colorado-source income, deductions, and credits, which is necessary for the partner’s personal state tax filing. Partners must use the information from this K-1 to complete their Colorado Individual Income Tax Return, Form DR 0104.

If the partnership made the PTE tax election, the K-1 will show the tax paid on the partner’s behalf. The partner can then claim this amount as a refundable credit on their individual return, which reduces their personal tax liability or may result in a refund. For nonresident partners, the partnership is required to file a composite return unless the partner submits Form DR 0107, an agreement to file their own Colorado return. All resident partners, and any nonresidents with other sources of Colorado income, must file a Form DR 0104.