39-22-303.6–10 Sale of a Service. Basis and Purpose. The bases of this rule are §§ 39-21-112, 39-22-301, 39-22-303,

and 39-22-303.6, C.R.S. The purpose of this rule is to provide guidance for determining which gross receipts from sales of services are included in a taxpayer’s receipts factor. Consistent with the General Assembly’s adoption of § 39-22-303.6, C.R.S., these rules are intended to conform the state’s income tax laws to the Multistate Tax Commission’s model statute and regulation except when those model provisions are inconsistent with Colorado statute. See 2018 Colo. Sess. Laws, ch. 369, § 1(2). (1) General Rule. The receipts from a sale of a service are in Colorado if and to the extent that the service is delivered to a location in Colorado. In general, the term “delivered to a location” refers to the location of the taxpayer’s market for the service, which may not be the location of the taxpayer’s employees or property. The rules to determine the location of the delivery of a service in the context of several specific types of service transactions are set forth in paragraphs (2)–(4). (2) In-Person Services. (a) In General. Except as otherwise provided in this paragraph (2), in-person services are services that are physically provided in person by the taxpayer, where the customer or the customer’s real or tangible property upon which the services are performed is in the same location as the service provider at the time the services are performed. This rule includes situations where the services are provided on behalf of the taxpayer by a third-party contractor. Examples of in-person services include, without limitation, warranty and repair services; cleaning services; plumbing services; carpentry; construction contractor services; pest control; landscape services; medical and dental services, including medical testing, x-rays, and mental health care and treatment; child care; hair cutting and salon services; live entertainment and athletic performances; and in-person training or lessons. In-person services include services within the description above that are performed at (1) a location that is owned or operated by the service provider or (2) a location of the customer, including the location of the customer’s real or tangible personal property. Although various professional services, including legal, accounting, financial, and consulting services, and other similar services as described in paragraph (4), may involve some amount of in-person contact, they are not treated as in-person services within the meaning of this paragraph (2). (b) Assignment of Receipts. (i) Rule of Determination. Except as otherwise provided in this paragraph (2)(b), if the service provided by the taxpayer is an in- person service, the service is delivered to the location where the service is received. Therefore, the receipts from a sale are in Colorado if and to the extent the customer receives the in-person service in Colorado. In assigning receipts from sales of in-person services, a taxpayer must first attempt to determine the location where a service is received, as follows: (A) If the service is performed with respect to the body of an individual customer in Colorado (e.g., hair cutting or x-ray services) or in the physical presence of the customer in Colorado (e.g., live entertainment or athletic performances), the service is received in Colorado. (B) If the service is performed with respect to the customer’s real estate in Colorado, or if the service is performed with respect to the customer’s tangible personal property at the customer’s residence or in the customer’s possession in Colorado, the service is received in Colorado. (C) If the service is performed with respect to the customer’s tangible personal property and the tangible personal property is to be shipped or delivered to the customer, whether the service is performed within or outside Colorado, the service is received in Colorado if the property is shipped or delivered to the customer in Colorado. (c) Rule of Reasonable Approximation. In an instance in which the state or states where a service is actually received cannot be determined, but the taxpayer has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, the taxpayer shall reasonably approximate such state or states. (d) Examples. For purposes of the examples, it is irrelevant whether the services are performed by an employee of the taxpayer or by an independent contractor acting on the taxpayer’s behalf. (i) Example (i). Salon Corp has retail locations in Colorado and in other states where it provides hair cutting services to individual and business customers, the latter of whom are paid for through the means of a company account. The receipts from sales of services provided at Salon Corp’s Colorado locations are in Colorado. The receipts from sales of services provided at Salon Corp’s locations outside Colorado, even when provided to residents of Colorado, are not receipts from Colorado sales. (ii) Example (ii). Landscape Corp provides landscaping and gardening services in Colorado and in neighboring states. Landscape Corp provides landscaping services at the in-state vacation home of an individual who is a resident of another state and who is located outside Colorado at the time the services are performed. The receipts from sale of services provided at the Colorado location are in Colorado. (iii) Example (iii). Same facts as Example (ii), except that Landscape Corp provides the landscaping services to Retail Corp, a corporation with retail locations in several states, and the services are with respect to those locations of Retail Corp that are in Colorado and the other states. The receipts from the sale of services provided to Retail Corp are in Colorado to the extent the services are provided in Colorado. (iv) Example (iv). Camera Corp provides camera repair services at a Colorado retail location to walk-in individual and business customers. In some cases, Camera Corp actually repairs a camera that is brought to its Colorado location at a facility that is in another state. In these cases, the repaired camera is then returned to the customer at Camera Corp’s Colorado location. The receipts from the sale of these services are in Colorado. (v) Example (v). Same facts as Example (iv), except that a customer located in Colorado mails the camera directly to the out-of-state facility owned by Camera Corp to be fixed, and receives the repaired camera back in Colorado by mail. The receipts from the sale of the service are in Colorado. (vi) Example (vi). Teaching Corp provides seminars in Colorado to individual and business customers. The seminars and the materials used in connection with the seminars are prepared outside Colorado, the teachers who teach the seminars include teachers that are resident outside Colorado, and the students who attend the seminars include students that are resident outside Colorado. Because the seminars are taught in Colorado, the receipts from sales of the services are in Colorado. (3) Services Delivered to the Customer or on Behalf of the Customer, or Delivered Electronically Through the Customer. (a) In General. If the service provided by the taxpayer is not an in-person service within the meaning of paragraph (2), or a professional service within the meaning of paragraph (4), and the service is delivered to or on behalf of the customer, or delivered electronically through the customer, the receipts from a sale are in Colorado if and to the extent that the service is delivered in Colorado. (i) For purposes of this paragraph (3): (A) A service that is delivered “to” a customer is a service in which the customer and not a third party is the recipient of the service. (B) A service that is delivered “on behalf of” a customer is one in which a customer contracts for a service but one or more third parties, rather than the customer, is the recipient of the service, such as fulfillment services or the direct or indirect delivery of advertising to the customer’s intended audience. (See paragraph (3)(b)(i) and Example (iv) under paragraph (3)(b)(i)(C)) (C) A service can be delivered to or on behalf of a customer by physical means or through electronic transmission. (D) A service that is delivered electronically “through” a customer is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to an end user or other third-party recipient. (b) Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale of a service that is delivered to the customer or on behalf of the customer, or delivered electronically through the customer, depends upon the method of delivery of the service and the nature of the customer. Separate rules of assignment apply to services delivered by physical means and services delivered by electronic transmission. (For purposes of this paragraph (3), a service delivered by an electronic transmission is not a delivery by a physical means). If a rule of assignment set forth in this paragraph (3) depends on whether the customer is an individual or a business customer, and the taxpayer acting in good faith cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. (i) Delivery to or on Behalf of a Customer by Physical Means Whether to an Individual or Business Customer. Services delivered to a customer or on behalf of a customer through physical means include, for example, product delivery services where property is delivered to the customer or to a third party on behalf of the customer; the delivery of brochures, fliers, or other direct mail services; the delivery of advertising or advertising-related services to the customer’s intended audience in the form of a physical medium; and the sale of custom software (e.g., when software is developed for a specific customer in a case where the transaction is properly treated as a service transaction for purposes of corporate income taxation) when the taxpayer installs the custom software at the customer’s site. The rules in this paragraph (3)(b)(i) apply whether the taxpayer’s customer is an individual customer or a business customer. (A) Rule of Determination. In assigning the receipts from a sale of a service delivered to a customer or on behalf of a customer through physical means, a taxpayer must first attempt to determine the state or states where the service is delivered. If the taxpayer is able to determine the state or states where the service is delivered, it shall assign the receipts to that state or states. (B) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the service is actually delivered, but has sufficient information regarding the place of delivery from which it can reasonably approximate the state or states where the service is delivered, it shall reasonably approximate the state or states. (C) Examples. (I) Example (i). Direct Mail Corp, a corporation based outside Colorado, provides direct mail services to its customer, Business Corp. Business Corp contracts with Direct Mail Corp to deliver printed fliers to a list of customers that is provided to it by Business Corp. Some of Business Corp’s customers are in Colorado and some of those customers are in other states. Direct Mail Corp will use the postal service to deliver the printed fliers to Business Corp’s customers. The receipts from the sale of Direct Mail Corp’s services to Business Corp are assigned to Colorado to the extent that the services are delivered on behalf of Business Corp to Colorado customers (i.e., to the extent that the fliers are delivered on behalf of Business Corp to Business Corp’s intended audience in Colorado). (II) Example (ii). Ad Corp is a corporation based outside Colorado that provides advertising and advertising- related services in Colorado and in neighboring states. Ad Corp enters into a contract at a location outside Colorado with an individual customer, who is not a Colorado resident, to design advertisements for billboards to be displayed in Colorado, and to design fliers to be mailed to Colorado residents. All of the design work is performed outside Colorado. The receipts from the sale of the design services are in Colorado because the service is physically delivered on behalf of the customer to the customer’s intended audience in Colorado. (III) Example (iii). Same facts as Example (ii), except that the contract is with a business customer that is based outside Colorado. The receipts from the sale of the design services are in Colorado because the services are physically delivered on behalf of the customer to the customer’s intended audience in Colorado. (IV) Example (iv). Fulfillment Corp, a corporation based outside Colorado, provides product delivery fulfillment services in Colorado and in neighboring states to Sales Corp, a corporation located outside Colorado that sells tangible personal property through a mail order catalog and over the Internet to customers. In some cases when a customer purchases tangible personal property from Sales Corp to be delivered in Colorado, Fulfillment Corp will, pursuant to its contract with Sales Corp, deliver that property from its fulfillment warehouse located outside Colorado. The receipts from the sale of the fulfillment services of Fulfillment Corp to Sales Corp are assigned to Colorado to the extent that Fulfillment Corp’s deliveries on behalf of Sales Corp are to recipients in Colorado. (V) Example (v). Software Corp, a software development corporation, enters into a contract with a business customer, Buyer Corp, which is physically located in Colorado, to develop custom software to be used in Buyer Corp’s business. Software Corp develops the custom software outside Colorado, and then physically installs the software on Buyer Corp’s computer hardware located in Colorado. The development and sale of the custom software is properly characterized as a service transaction, and the receipts from the sale are assigned to Colorado because the software is physically delivered to the customer in Colorado. (ii) Delivery to a Customer by Electronic Transmission. Services delivered by electronic transmission include, without limitation, services that are transmitted through the means of wire, lines, cable, fiber optics, electronic signals, satellite transmission, audio or radio waves, or other similar means, whether or not the service provider owns, leases, or otherwise controls the transmission equipment. In the case of the delivery of a service by electronic transmission to a customer, the following rules apply. (A) Services Delivered By Electronic Transmission to an Individual Customer. (I) Rule of Determination. In the case of the delivery of a service to an individual customer by electronic transmission, the service is delivered in Colorado if and to the extent that the taxpayer’s customer receives the service in Colorado. If the taxpayer can determine the state or states where the service is received, it shall assign the receipts from that sale to that state or states. (II) Rules of Reasonable Approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states. If a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, it shall reasonably approximate the state or states using the customer’s billing address. (B) Services Delivered By Electronic Transmission to a Business Customer. (I) Rule of Determination. In the case of the delivery of a service to a business customer by electronic transmission, the service is delivered in Colorado if and to the extent that the taxpayer’s customer receives the service in Colorado. If the taxpayer can determine the state or states where the service is received, it shall assign the receipts from that sale to the state or states. For purposes of this paragraph (3)(b)(ii)(B), it is intended that the state or states where the service is received reflect the location at which the service is directly used by the employees or designees of the customer. (II) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states. (III) Secondary Rule of Reasonable Approximation. In the case of the delivery of a service to a business customer by electronic transmission where a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, the taxpayer shall reasonably approximate the state or states as set forth in this paragraph (3)(b)(ii)(B)(III). In these cases, unless the taxpayer can apply the safe harbor set forth in paragraph (3)(b)(ii)(B)(IV), the taxpayer shall reasonably approximate the state or states in which the service is received as follows: (1) first, by assigning the receipts from the sale to the state where the contract of sale is principally managed by the customer; (2) second, if the state where the customer principally manages the contract is not reasonably determinable, by assigning the receipts from the sale to the customer’s place of order; and (3) third, if the customer’s place of order is not reasonably determinable, by assigning the receipts from the sale using the customer’s billing address; provided, however, if the taxpayer derives more than 5% of its receipts from sales of services from any single customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by that customer. (IV) Safe Harbor. In the case of the delivery of a service to a business customer by electronic transmission, a taxpayer may not be able to determine or reasonably approximate under paragraph (3)(b)(ii)(B)(II) the state or states in which the service is received. In these cases, the taxpayer may, in lieu of the rule stated in paragraph (3)(b)(ii)(B)(III), apply the safe harbor stated in this paragraph. Under this safe harbor, a taxpayer may assign its receipts from sales to a particular customer based upon the customer’s billing address in a taxable year in which the taxpayer: (1) engages in substantially similar service transactions with more than 250 customers, whether business or individual, and (2) does not derive more than 5% of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of services delivered by electronic transmission to a business customer, and not otherwise. (V) Related Party Transactions. In the case of a sale of a service by electronic transmission to a business customer that is a related party, the taxpayer may not use the secondary rule of reasonable approximation in (3)(b)(ii)(B)(III) but may use the rule of reasonable approximation in paragraph (3)(b)(ii)(B)(II) and the safe harbor in paragraph (3)(b)(ii)(B)(IV), provided that the Department may aggregate sales to related parties in determining whether the sales exceed 5% of receipts from sales of all services under that safe harbor provision if necessary or appropriate to prevent distortion. (C) Examples. In these examples, unless otherwise stated, assume that the taxpayer is not related to the customer to which the service is delivered. Further, assume if relevant, unless otherwise stated, that the safe harbor set forth in paragraph (3)(b)(ii)(B)(IV) does not apply. (I) Example (i). Support Corp, a corporation based outside Colorado, provides software support and diagnostic services to individual and business customers that have previously purchased certain software from third-party vendors. These individual and business customers are located in Colorado and other states. Support Corp supplies its services on a case by case basis when directly contacted by its customer. Support Corp generally provides these services through the Internet but sometimes provides these services by phone. In all cases, Support Corp verifies the customer’s account information before providing any service. Using the information that Support Corp verifies before performing a service, Support Corp can determine where its services are received, and therefore must assign its receipts to these locations. The receipts from sales made to Support Corp’s individual and business customers are in Colorado to the extent that Support Corp’s services are received in Colorado. See paragraph (3)(b)(ii)(A) and (B). (II) Example (ii). Online Corp, a corporation based outside Colorado, provides web-based services through the Internet to individual customers who are resident in Colorado and in other states. These customers access Online Corp’s web services primarily in their states of residence, and sometimes, while traveling, in other states. For a substantial portion of its receipts from the sale of services, Online Corp can either determine the state or states where the services are received, or, where it cannot determine the state or states, it has sufficient information regarding the place of receipt to reasonably approximate the state or states. However, Online Corp cannot determine or reasonably approximate the state or states of receipt for all of the sales of its services. Assuming that Online Corp reasonably believes, based on all available information, that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its services generally tracks those for which it does have this information, Online Corp must assign to Colorado the receipts from sales for which it does not know the customers’ location in the same proportion as those receipts for which it has this information. See paragraph (3)(b) of Rule 39-22-303.6–7. (III) Example (iii). Same facts as Example (ii), except that Online Corp reasonably believes that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its web-based services do not generally track the sales for which it does have this information. Online Corp must assign the receipts from sales of its services for which it lacks information as provided to its individual customers using the customers’ billing addresses. See paragraph (3)(b)(ii)(A). (IV) Example (iv). Net Corp, a corporation based outside Colorado, provides web-based services to a business customer, Business Corp, a company with offices in Colorado and two neighboring states. Particular employees of Business Corp access the services from computers in each Business Corp office. Assume that Net Corp determines that Business Corp employees in Colorado were responsible for 75% of Business Corp’s use of Net Corp’s services, and Business Corp employees in other states were responsible for 25% of Business Corp’s use of Net Corp’s services. In this case, 75% of the receipts from the sale are received in Colorado. See paragraph (3)(b)(ii)(B)(I). (V) Example (v). Same facts as Example (iv), except assume alternatively that Net Corp lacks sufficient information regarding the location or locations where Business Corp’s employees used the services to determine or reasonably approximate the location or locations. Under these circumstances, if Net Corp derives 5% or less of its receipts from sales to Business Corp, Net Corp must assign the receipts under paragraph (3)(b)(ii)(B)(III) to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp’s billing address. If Net Corp derives more than 5% of its receipts from sales of services to Business Corp, Net Corp is required to identify the state in which its contract of sale is principally managed by Business Corp and must assign the receipts to that state. (VI) Example (vi). Net Corp, a corporation based outside Colorado, provides web-based services through the Internet to more than 250 individual and business customers in Colorado and in other states. Assume that for each customer Net Corp cannot determine the state or states where its web services are actually received, and lacks sufficient information regarding the place of receipt to reasonably approximate the state or states. Also assume that Net Corp does not derive more than 5% of its receipts from sales of services to a single customer. Net Corp may apply the safe harbor stated in paragraph (3)(b)(ii)(B)(IV), and may assign its receipts using each customer’s billing address. (iii) Services Delivered Electronically Through or on Behalf of an Individual or Business Customer. A service delivered electronically “on behalf of” the customer is one in which a customer contracts for a service to be delivered electronically but one or more third parties, rather than the customer, is the recipient of the service, such as the direct or indirect delivery of advertising on behalf of a customer to the customer’s intended audience. A service delivered electronically “through” a customer to third-party recipients is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other third-party recipients. (A) Rule of Determination. In the case of the delivery of a service by electronic transmission, where the service is delivered electronically to end users or other third-party recipients through or on behalf of the customer, the service is delivered in Colorado if and to the extent that the end users or other third-party recipients are in Colorado. For example, in the case of the direct or indirect delivery of advertising on behalf of a customer to the customer’s intended audience by electronic means, the service is delivered in Colorado to the extent that the audience for the advertising is in Colorado. In the case of the delivery of a service to a customer that acts as an intermediary in reselling the service in substantially identical form to third- party recipients, the service is delivered in Colorado to the extent that the end users or other third-party recipients receive the services in Colorado. The rules in this paragraph (3)(b)(iii) apply whether the taxpayer’s customer is an individual customer or a business customer and whether the end users or other third-party recipients to which the services are delivered through or on behalf of the customer are individuals or businesses. (B) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the services are actually delivered to the end users or other third-party recipients either through or on behalf of the customer, but has sufficient information regarding the place of delivery from which it can reasonably approximate the state or states where the services are delivered, the taxpayer shall reasonably approximate the state or states. (C) Select Secondary Rules of Reasonable Approximation. (I) If a taxpayer’s service is the direct or indirect electronic delivery of advertising on behalf of its customer to the customer’s intended audience, and if the taxpayer lacks sufficient information regarding the location of the audience from which it can determine or reasonably approximate that location, the taxpayer shall reasonably approximate the audience in a state for the advertising using the following secondary rules of reasonable approximation. If a taxpayer is delivering advertising directly or indirectly to a known list of subscribers, the taxpayer shall reasonably approximate the audience for advertising in a state using a percentage that reflects the ratio of the state’s subscribers in the specific geographic area in which the advertising is delivered relative to the total subscribers in that area. For a taxpayer with less information about its audience, the taxpayer shall reasonably approximate the audience in a state using the percentage that reflects the ratio of the state’s population in the specific geographic area in which the advertising is delivered relative to the total population in that area. (II) If a taxpayer’s service is the delivery of a service to a customer that then acts as the taxpayer’s intermediary in reselling that service to end users or other third party recipients, and if the taxpayer lacks sufficient information regarding the location of the end users or other third party recipients from which it can determine or reasonably approximate that location, the taxpayer shall reasonably approximate the extent to which the service is received in a state by using the percentage that reflects the ratio of the state’s population in the specific geographic area in which the taxpayer’s intermediary resells the services, relative to the total population in that area. (III) When using the secondary reasonable approximation methods provided above, the relevant specific geographic area of delivery includes only the areas where the service was substantially and materially delivered or resold. Unless the taxpayer demonstrates the contrary, it will be presumed that the area where the service was substantially and materially delivered or resold does not include areas outside the United States. (D) Examples. (I) Example (i). Cable TV Corp, a corporation based outside of Colorado, has two revenue streams. First, Cable TV Corp sells advertising time to business customers pursuant to which the business customers’ advertisements will run as commercials during Cable TV Corp’s televised programming. Some of these business customers, though not all of them, have a physical presence in Colorado. Second, Cable TV Corp sells monthly subscriptions to individual customers in Colorado and in other states. The receipts from Cable TV Corp’s sale of advertising time to its business customers are assigned to Colorado to the extent that the audience for Cable TV Corp’s televised programming during which the advertisements run is in Colorado. See paragraph (3)(b)(iii)(A). If Cable TV Corp is unable to determine the actual location of its audience for the programming, and lacks sufficient information regarding audience location to reasonably approximate the location, Cable TV Corp must approximate its Colorado audience using the percentage that reflects the ratio of its Colorado subscribers in the geographic area in which Cable TV Corp’s televised programming featuring the advertisements is delivered relative to its total number of subscribers in that area. See paragraph (3)(b)(iii)(C)(I). To the extent that Cable TV Corp’s sales of monthly subscriptions represent the sale of a service, the receipts from these sales are properly assigned to Colorado in any case in which the programming is received by a customer in Colorado. See paragraph (3)(b)(ii)(A). In any case in which Cable TV Corp cannot determine the actual location where the programming is received, and lacks sufficient information regarding the location of receipt to reasonably approximate the location, the receipts from these sales of Cable TV Corp’s monthly subscriptions are assigned to Colorado where its customer’s billing address is in Colorado. See paragraph (3)(b)(ii)(A)(II). Note that whether and to the extent that the monthly subscription fee represents a fee for a service or for a license of intangible property does not affect the analysis or result as to the state or states to which the receipts are properly assigned. See paragraph 5 of Rule 39- 22-303.6–11. (II) Example (ii).Network Corp, a corporation based outside of Colorado, sells advertising time to business customers pursuant to which the customers’ advertisements will run as commercials during Network Corp’s televised programming as distributed by unrelated cable television and satellite television transmission companies. The receipts from Network Corp’s sale of advertising time to its business customers are assigned to Colorado to the extent that the audience for Network Corp’s televised programming during which the advertisements will run is in Colorado. See paragraph (3)(b)(iii)(A). If Network Corp cannot determine the actual location of the audience for its programming during which the advertisements will run, and lacks sufficient information regarding audience location to reasonably approximate the location, Network Corp must approximate the receipts from sales of advertising that constitute Colorado sales by multiplying the amount of advertising receipts by a percentage that reflects the ratio of the Colorado population in the specific geographic area in which the televised programming containing the advertising is run relative to the total population in that area. See paragraphs (3)(b)(iii)(C)(II) and (III). (III) Example (iii). Web Corp, a corporation based outside of Colorado, provides Internet content to viewers in Colorado and other states. Web Corp sells advertising space to business customers pursuant to which the customers’ advertisements will appear in connection with Web Corp’s Internet content. Web Corp receives a fee for running the advertisements that is determined by reference to the number of times the advertisement is viewed or clicked upon by the viewers of its website. The receipts from Web Corp’s sale of advertising space to its business customers are assigned to Colorado to the extent that the viewers of the Internet content are in Colorado, as measured by viewings or clicks. See paragraph (3)(b)(iii)(A). If Web Corp is unable to determine the actual location of its viewers, and lacks sufficient information regarding the location of its viewers to reasonably approximate the location, Web Corp must approximate the amount of its Colorado receipts by multiplying the amount of receipts from sales of advertising by a percentage that reflects the Colorado population in the specific geographic area in which the content containing the advertising is delivered relative to the total population in that area. See paragraph (3)(b)(iii)(C). (IV) Example (iv). Retail Corp, a corporation based outside of Colorado, sells tangible property through its retail stores located in Colorado and other states, and through a mail order catalog. Answer Co, a corporation that operates call centers in multiple states, contracts with Retail Corp to answer telephone calls from individuals placing orders for products found in Retail Corp’s catalogs. In this case, the phone answering services of Answer Co are being delivered to Retail Corp’s customers and prospective customers. Therefore, Answer Co is delivering a service electronically to Retail Corp’s customers or prospective customers on behalf of Retail Corp and must assign the proceeds from this service to the state or states from which the phone calls are placed by the customers or prospective customers. If Answer Co cannot determine the actual locations from which phone calls are placed, and lacks sufficient information regarding the locations to reasonably approximate the locations, Answer Co must approximate the amount of its Colorado receipts by multiplying the amount of its fee from Retail Corp by a percentage that reflects the Colorado population in the specific geographic area from which the calls are placed relative to the total population in that area. See paragraph (3)(b)(iii)(C)(I). (V) Example (v). Web Corp, a corporation based outside of Colorado, sells tangible property to customers via its Internet website. Design Co. designed and maintains Web Corp’s website, including making changes to the site based on customer feedback received through the site. Design Co.’s services are delivered to Web Corp, the proceeds from which are assigned pursuant to paragraph (3)(b)(ii). The fact that Web Corp’s customers and prospective customers incidentally benefit from Design Co.’s services, and may even interact with Design Co in the course of providing feedback, does not transform the service into one delivered “on behalf of” Web Corp to Web Corp’s customers and prospective customers. (VI) Example (vi). Wholesale Corp, a corporation based outside of Colorado, develops an Internet-based information database outside Colorado and enters into a contract with Retail Corp whereby Retail Corp will market and sell access to this database to end users. Depending on the facts, the provision of database access may be either the sale of a service or the license of intangible property or may have elements of both, but for purposes of analysis it does not matter. See paragraph (5) of Rule 39-22-303.6– 11. Assume that on the particular facts applicable in this example, Wholesale Corp is selling database access in transactions properly characterized as involving the performance of a service. When an end user purchases access to Wholesale Corp’s database from Retail Corp, Retail Corp in turn compensates Wholesale Corp in connection with that transaction. In this case, Wholesale Corp’s services are being delivered through Retail Corp to the end user. Wholesale Corp must assign its receipts from sales to Retail Corp to the state or states in which the end users receive access to Wholesale Corp’s database. If Wholesale Corp cannot determine the state or states where the end users actually receive access to Wholesale Corp’s database, and lacks sufficient information regarding the location from which the end users access the database to reasonably approximate the location, Wholesale Corp must approximate the extent to which its services are received by end users in Colorado by using a percentage that reflects the ratio of the Colorado population in the specific geographic area in which Retail Corp regularly markets and sells Wholesale Corp’s database relative to the total population in that area. See paragraph (3)(b)(iii)(C)(II). Note that it does not matter for purposes of the analysis whether Wholesale Corp’s sale of database access constitutes a service or a license of intangible property, or some combination of both. See paragraph (5) of Rule 39-22-303.6–11. (4) Professional Services. (a) In General. Except as otherwise provided in this paragraph (4), professional services are services that require specialized knowledge and in some cases require a professional certification, license, or degree. These services include the performance of technical services that require the application of specialized knowledge. Professional services include, without limitation, management services, bank and financial services, financial custodial services, investment and brokerage services, fiduciary services, tax preparation, payroll and accounting services, lending services, credit card services (including credit card processing services), data processing services, legal services, consulting services, video production services, graphic and other design services, engineering services, and architectural services. (b) Overlap with Other Service Categories. (i) Certain services that fall within the definition of “professional services” set forth in this paragraph (4) are nevertheless treated as “in-person services” within the meaning of paragraph (2), and are assigned under the rules of paragraph (2). Specifically, professional services that are physically provided in person by the taxpayer such as carpentry, certain medical and dental services, or child care services, where the customer or the customer’s real or tangible property upon which the services are provided is in the same location as the service provider at the time the services are performed, are “in-person services” and are assigned as such, notwithstanding that they may also be considered to be “professional services.” However, professional services where the service is of an intellectual or intangible nature, such as legal, accounting, financial, and consulting services, are assigned as professional services under the rules of this paragraph (4), notwithstanding the fact that these services may involve some amount of in-person contact. (ii) Professional services may, in some cases, include the transmission of one or more documents or other communications by mail or by electronic means. In some cases, all or most communications between the service provider and the service recipient may be by mail or by electronic means. However, in these cases, despite this transmission, the assignment rules that apply are those set forth in this paragraph (4), and not those set forth in paragraph (3), pertaining to services delivered to a customer or through or on behalf of a customer. (c) Assignment of Receipts. In the case of a professional service, it is generally possible to characterize the location of delivery in multiple ways by emphasizing different elements of the service provided, no one of which will consistently represent the market for the services. Therefore, the location of delivery in the case of professional services is not susceptible to a general rule of determination, and must be reasonably approximated. The assignment of receipts from a sale of a professional service depends, in many cases, upon whether the customer is an individual or business customer. In any instance in which the taxpayer, acting in good faith, cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. For purposes of assigning the receipts from a sale of a professional service, a taxpayer’s customer is the person who contracts for the service, irrespective of whether another person pays for or also benefits from the taxpayer’s services. (i) General Rule. Receipts from sales of professional services other than those services described in paragraph (4)(c)(ii) (architectural and engineering services), paragraph (4)(c)(iii) (services provided by a financial institution) and paragraph (4)(h)(iv) (transactions with related parties) are assigned in accordance with this paragraph (4)(c)(i). (A) Professional Services Delivered to Individual Customers. Except as otherwise provided in this paragraph (4) (see, in particular, paragraph (4)(c)(v)), in any instance in which the service provided is a professional service, and the taxpayer’s customer is an individual customer, the state or states in which the service is delivered must be reasonably approximated as set forth in this paragraph (4)(c)(i)(A). In particular, the taxpayer shall assign the receipts from a sale to the customer’s state of primary residence, or, if the taxpayer cannot reasonably identify the customer’s state of primary residence, to the state of the customer’s billing address; provided, however, in any instance in which the taxpayer derives more than 5% of its receipts from sales of all services from an individual customer, the taxpayer shall identify the customer’s state of primary residence and assign the receipts from the service or services provided to that customer to that state. (B) Professional Services Delivered to Business Customers. Except as otherwise provided in paragraph (4), in any instance in which the service provided is a professional service and the taxpayer’s customer is a business customer, the state or states in which the service is delivered must be reasonably approximated as set forth in this paragraph (4)(c)(i)(B). In particular, unless the taxpayer may use the safe harbor set forth in paragraph (4)(c)(i)(C), the taxpayer shall assign the receipts from the sale as follows: (I) first, by assigning the receipts to the state where the contract of sale is principally managed by the customer; (II) second, if the place of customer management is not reasonably determinable, to the customer’s place of order; and (III) third, if the customer’s place of order is not reasonably determinable, to the customer’s billing address; provided, however, in any instance in which the taxpayer derives more than 5% of its receipts from sales of all services from any single customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by the customer. (C) Safe Harbor. Large Volume Transactions. Notwithstanding the rules set forth in paragraph (4)(c)(i)(A) and (B), a taxpayer may assign its receipts from sales to a particular customer based on the customer’s billing address in any taxable year in which the taxpayer (1) engages in substantially similar service transactions with more than 250 customers, whether individual or business, and (2) does not derive more than 5% of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of paragraph (4)(c)(i) and not otherwise. (ii) Architectural and Engineering Services with Respect to Real or Tangible Personal Property. Architectural and engineering services with respect to real or tangible personal property are professional services within the meaning of this paragraph (4). However, unlike in the case of the general rule that applies to professional services, (a) the receipts from a sale of an architectural service are assigned to a state or states if and to the extent that the services are with respect to real estate improvements located, or expected to be located, in the state or states; and (b) the receipts from a sale of an engineering service are assigned to a state or states if and to the extent that the services are with respect to tangible or real property located in the state or states, including real estate improvements located in, or expected to be located in, the state or states. These rules apply whether or not the customer is an individual or business customer. In any instance in which architectural or engineering services are not described in this paragraph (4)(c)(ii), the receipts from a sale of these services must be assigned under the general rule for professional services. See paragraph (4)(c)(i). (iii) Services Provided by a Financial Institution. The apportionment rules that apply to financial institutions are set forth in 1 CCR 201-2, Special Rule 7A, which includes specific rules for determining a financial institution’s receipts factor. However, 1 CCR 201-2, Special Rule 7A also provides that receipts from sales, other than sales of tangible personal property, including service transactions that are not otherwise apportioned under 1 CCR 201-2, Special Rule 7A, are to be assigned pursuant to § 39-22-303.6, C.R.S., and these rules. In any instance in which a financial institution performs services that are to be assigned pursuant to § 39-22-303.6, C.R.S., and these rules, including, for example, financial custodial services, those services are considered professional services within the meaning of this paragraph (4) and are assigned according to the general rule for professional service transactions as set forth paragraph (4)(c)(i). (iv) Services Provided by a Mutual Fund Service Corporation. To the extent the services that give rise to “mutual fund sales” as defined in § 39-22-303.7(1)(e), C.R.S., would be considered professional services, the apportionment rules that apply to “mutual fund sales” by a “mutual fund service corporation,” as that term is defined in § 39-22-303.7(1)(f), C.R.S., are set forth in § 39-22-303.7, C.R.S., and the rules thereunder. (v) Related Party Transactions. In any instance in which the professional service is sold to a related party, rather than applying the rule for professional services delivered to business customers in paragraph (4)(c)(i)(B), the state or states to which the service is assigned is the place of receipt by the related party as reasonably approximated using the following hierarchy: (A) if the service primarily relates to specific operations or activities of a related party conducted in one or more locations, then to the state or states in which those operations or activities are conducted in proportion to the related party’s payroll at the locations to which the service relates in the state or states; or (B) if the service does not relate primarily to operations or activities of a related party conducted in particular locations, but instead relates to the operations of the related party generally, then to the state or states in which the related party has employees, in proportion to the related party’s payroll in those states. The taxpayer may use the safe harbor provided in paragraph (4)(c)(i)(C) provided that the Department may aggregate the receipts from sales to related parties in applying the 5% rule if necessary or appropriate to avoid distortion. (vi) Examples. Unless otherwise stated, assume in each of these examples that the customer is not a related party and that the safe harbor set forth in paragraph (4)(c)(i)(C) does not apply. (A) Example (i). Broker Corp provides securities brokerage services to individual customers who are residents in Colorado and in other states. Assume that Broker Corp knows the state of primary residence for many of its customers, and where it does not know the state of primary residence, it knows the customer’s billing address. Also assume that Broker Corp does not derive more than 5% of its receipts from sales of all services from any one individual customer. If Broker Corp knows its customer’s state of primary residence, it shall assign the receipts to that state. If Broker Corp does not know its customer’s state of primary residence, but rather knows the customer’s billing address, it shall assign the receipts to that state. See paragraph (4)(c)(i)(A). (B) Example (ii). Same facts as Example (i), except that Broker Corp has several individual customers from whom it derives, in each instance, more than 5% of its receipts from sales of all services. Receipts from sales to customers from whom Broker Corp derives 5% or less of its receipts from sales of all services must be assigned as described in Example (i). For each customer from whom it derives more than 5% of its receipts from sales of all services, Broker Corp is required to determine the customer’s state of primary residence and must assign the receipts from the services provided to that customer to that state. In any case in which a 5% customer’s state of primary residence is Colorado, receipts from a sale made to that customer must be assigned to Colorado; in any case in which a 5% customer’s state of primary residence is not Colorado receipts from a sale made to that customer are not assigned to Colorado. (C) Example (iii). Architecture Corp provides building design services for buildings located, or expected to be located, in Colorado to individual customers who are resident in Colorado and other states, and to business customers that are based in Colorado and other states. The receipts from Architecture Corp’s sales are assigned to Colorado because the locations of the buildings to which its design services relate are in Colorado, or are expected to be in Colorado. For purposes of assigning these receipts, it is not relevant where, in the case of an individual customer, the customer primarily resides or is billed for the services, and it is not relevant where, in the case of a business customer, the customer principally manages the contract, placed the order for the services, or is billed for the services. Further, these receipts are assigned to Colorado even if Architecture Corp’s designs are either physically delivered to its customer in paper form in a state other than Colorado or are electronically delivered to its customer in a state other than Colorado. See paragraphs (4)(b)(ii) and (c)(ii). (D) Example (iv). Law Corp provides legal services to individual clients who are resident in Colorado and in other states. In some cases, Law Corp may prepare one or more legal documents for its client as a result of these services and/or the legal work may be related to litigation or a legal matter that is ongoing in a state other than where the client is a resident. Assume that Law Corp knows the state of primary residence for many of its clients, and where it does not know the state of primary residence, it knows the client’s billing address. Also assume that Law Corp does not derive more than 5% of its receipts from sales of all services from any one individual client. If Law Corp knows its client’s state of primary residence, it shall assign the receipts to that state. If Law Corp does not know its client’s state of primary residence, but rather knows the client’s billing address, it shall assign the receipts to that state. For purposes of the analysis, it is irrelevant whether the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or the litigation or other legal matter that is the underlying predicate for the services is in another state. See paragraphs (4)(b)(ii) and (c)(i). (E) Example (v). Law Corp provides legal services to several multistate business clients. In each case, Law Corp knows the state in which the agreement for legal services that governs the client relationship is principally managed by the client. In one case, the agreement is principally managed in Colorado; in the other cases, the agreements are principally managed in states other than Colorado. If the agreement for legal services is principally managed by the client in Colorado, the receipts from sale of the services are assigned to Colorado; in the other cases, the receipts are not assigned to Colorado. In the case of receipts that are assigned to Colorado, the receipts are so assigned even if (1) the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or (2) the litigation or other legal matter that is the underlying predicate for the services is in another state. See paragraphs (4)(b)(ii) and (c)(i). (F) Example (vi). Consulting Corp, a company that provides consulting services to law firms and other customers, is hired by Law Corp in connection with legal representation that Law Corp provides to Client Co. Specifically, Consulting Corp is hired to provide expert testimony at a trial being conducted by Law Corp on behalf of Client Co. Client Co pays for Consulting Corp’s services directly. Assuming that Consulting Corp knows that its agreement with Law Corp is principally managed by Law Corp in Colorado, the receipts from the sale of Consulting Corp’s services are assigned to Colorado. It is not relevant for purposes of the analysis that Client Co is the ultimate beneficiary of Consulting Corp’s services, or that Client Co pays for Consulting Corp’s services directly. See paragraph (4)(c)(i)(B). (G) Example (vii). Bank Corp provides financial custodial services, including the safekeeping of some of its customers’ financial assets, to 100 individual customers who are resident in Colorado and in other states. Assume for purposes of this example that Bank Corp knows the state of primary residence for many of its customers, and where it does not know the state of primary residence, it knows the customer’s billing address. Also assume that Bank Corp does not derive more than 5% of its receipts from sales of all of its services from any single customer. Note that because Bank Corp does not have more than 250 customers, it may not apply the safe harbor for professional services stated in paragraph (4)(c)(i)(C). If Bank Corp knows its customer’s state of primary residence, it must assign the receipts to that state. If Bank Corp does not know its customer’s state of primary residence, but rather knows the customer’s billing address, it must assign the receipts to that state. Bank Corp’s receipts are assigned to Colorado if the customer’s state of primary residence (or billing address, in cases where it does not know the customer’s state of primary residence) is in Colorado, even if Bank Corp’s financial custodial work, including the safekeeping of the customer’s financial assets, takes place in a state other than Colorado. See paragraph (4)(c)(i)(A). (H) Example (viii). Same facts as Example (vii), except that Bank Corp has more than 250 customers, individual or business. Bank Corp may apply the safe harbor for professional services stated in paragraph (4)(c)(i)(C), and may assign its receipts from sales to a state or states using each customer’s billing address. (I) Example (ix). Same facts as Example (viii), except that Bank Corp derives more than 5% of its receipts from sales from a single individual customer. As to the sales made to this customer, Bank Corp is required to determine the individual customer’s state of primary residence and must assign the receipts from the service or services provided to that customer to that state. See paragraphs (4)(c)(i)(A) and (c)(iii). Receipts from sales to all other customers are assigned as described in Example (viii). (J) Example (x). Advisor Corp, a corporation that provides investment advisory services, provides these advisory services to Investment Co. Investment Co is a multistate business client of Advisor Corp that uses Advisor Corp’s services in connection with investment accounts that it manages for individual clients, who are the ultimate beneficiaries of Advisor Corp’s services. Assume that Investment Co’s individual clients are persons that are resident in numerous states, which may or may not include Colorado. Assuming that Advisor Corp knows that its agreement with Investment Co is principally managed by Investment Co in Colorado, receipts from the sale of Advisor Corp’s services are assigned to Colorado. It is not relevant for purposes of the analysis that the ultimate beneficiaries of Advisor Corp’s services may be Investment Co’s clients, who are residents of numerous states. See paragraph (4)(c)(i)(B). (K) Example (xi). Advisor Corp provides investment advisory services to Investment Fund LP, a partnership that invests in securities and other assets. Assuming that Advisor Corp knows that its agreement with Investment Fund LP is principally managed by Investment Fund LP in Colorado, receipts from the sale of Advisor Corp’s services are assigned to Colorado. See paragraph (4)(c)(i)(B). Note that it is not relevant for purposes of the analysis that the partners in Investment Fund LP are residents of other states. (L) Example (xii). Design Corp is a corporation based outside Colorado that provides graphic design and similar services in Colorado and in neighboring states. Design Corp enters into a contract at a location outside Colorado with an individual customer to design fliers for the customer. Assume that Design Corp does not know the individual customer’s state of primary residence and does not derive more than 5% of its receipts from sales of services from the individual customer. All of the design work is performed outside Colorado. Receipts from the sale are in Colorado if the customer’s billing address is in Colorado. See paragraph (4)(c)(i)(A).