39-22-303.6–12 Sale of Intangible Property. 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 the sale of intangible property 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) Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale or exchange of intangible property depends upon the nature of the intangible property sold. For purposes of this Rule 39-22-303.6–12, a sale or exchange of intangible property includes a license of that property where the transaction is treated for tax purposes as a sale of all substantial rights in the property and the receipts from the transaction are not contingent on the productivity, use, or disposition of the property. For the rules that apply where the consideration for the transfer of rights is contingent on the productivity, use, or disposition of the property, see paragraph (1) of Rule 39-22-303.6–11. (a) Contract Right or Government License that Authorizes Business Activity in Specific Geographic Area. In the case of a sale or exchange of intangible property where the property sold or exchanged is a contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, the receipts from the sale are assigned to a state if and to the extent that the intangible property is used or is authorized to be used within the state. If the intangible property is used or may be used only in Colorado, the taxpayer shall assign the receipts from the sale to Colorado. If the intangible property is used or is authorized to be used in Colorado and one or more other states, the taxpayer shall assign the receipts from the sale to Colorado to the extent that the intangible property is used in or authorized for use in Colorado through reasonable approximation. (b) Sale that Resembles a License (Receipts are Contingent on Productivity, Use, or Disposition of the Intangible Property). In the case of a sale or exchange of intangible property where the receipts from the sale or exchange are contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the rules set forth in Rule 39-22-303.6–11 (pertaining to the license or lease of intangible property). (c) Sale that Resembles a Sale of Goods and Services. In the case of a sale or exchange of intangible property where the substance of the transaction resembles a sale of goods or services, and where the receipts from the sale or exchange do not derive from payments contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the rules set forth in paragraph (5) of Rule 39- 22-303.6–11 (relating to licenses of intangible property that resemble sales of goods and services). Examples of these transactions include those that are analogous to the license transactions cited as examples in paragraph (5) of Rule 39-22-303.6–11. (d) Excluded Receipts. Receipts from the sale of intangible property are not included in the receipts factor in any case in which the sale does not give rise to receipts within the meaning of § 39-22-303.6(1)(d), C.R.S. In addition, in any case in which the sale of intangible property does result in receipts within the meaning of § 39-22-303.6(1)(d), C.R.S., those receipts are excluded from the numerator and the denominator of the taxpayer’s receipts factor if the receipts are not referenced in §§ 39-22-303.6(6)(d)(I), 39-22-303.6(6)(d)(II)(A), or 39-22-303.6(6)(d)(II)(B), C.R.S. See §§ 39-22- 303.6(6)(d)(III), C.R.S. The sale of intangible property that is excluded from the numerator and denominator of the taxpayer’s receipts factor under this provision includes, without limitation, the sale of a partnership interest, the sale of business “goodwill,” the sale of an agreement not to compete, or similar intangible value. (2) Examples. (a) Example (i). Airline Corp, a corporation based outside Colorado, sells its rights to use several gates at an airport located in Colorado to Buyer Corp, a corporation based outside Colorado. The contract of sale is negotiated and signed outside of Colorado. The receipts from the sale are in Colorado because the intangible property sold is a contract right that authorizes the holder to conduct a business activity solely in Colorado. See paragraph (1). (b) Example (ii). Wireless Corp, a corporation based outside Colorado, sells a license issued by the Federal Communications Commission (FCC) to operate wireless telecommunications services in a designated area in Colorado to Buyer Corp, a corporation based outside Colorado. The contract of sale is negotiated and signed outside of Colorado. The receipts from the sale are in Colorado because the intangible property sold is a government license that authorizes the holder to conduct business activity solely in Colorado. See paragraph (1)(a). (c) Example (iii). Same facts as Example (ii) except that Wireless Corp sells to Buyer Corp an FCC license to operate wireless telecommunications services in a designated area in Colorado and an adjacent state. Wireless Corp must attempt to reasonably approximate the extent to which the intangible property is used in or may be used in Colorado. For purposes of making this reasonable approximation, Wireless Corp may rely upon credible data that identifies the percentage of persons that use wireless telecommunications in the two states covered by the license. See paragraph (1)(a). (d) Example (iv). Sports League Corp, a corporation based outside Colorado, sells the rights to broadcast the sporting events played by the teams in its league in all 50 U.S. states to Network Corp. Although the games played by Sports League Corp will be broadcast in all 50 states, the games are of greater interest in the western region of the country, including Colorado. Because the intangible property sold is a contract right that authorizes the holder to conduct a business activity in a specified geographic area, Sports League Corp must attempt to reasonably approximate the extent to which the intangible property is used in or may be used in Colorado. For purposes of making this reasonable approximation, Sports League Corp may rely upon audience measurement information that identifies the percentage of the audience for its sporting events in Colorado and the other states. See paragraph (1)(a). (e) Example (v). Inventor Corp, a corporation based outside Colorado, sells patented technology that it has developed to Buyer Corp, a business customer that is based in Colorado. Assume that the sale is not one in which the receipts derive from payments that are contingent on the productivity, use, or disposition of the property. See paragraph (1)(a). Inventor Corp understands that Buyer Corp is likely to use the patented technology in Colorado, but the patented technology can be used anywhere (i.e., the rights sold are not rights that authorize the holder to conduct a business activity in a specific geographic area). The receipts from the sale of the patented technology are excluded from the numerator and denominator of Inventor Corp’s receipts factor. See § 39-22- 303.6(6)(III), C.R.S., and paragraph (1)(d).