News and Insights

Colorado Law Change Requires Inclusion of Domestic Holding Companies in Combined Returns

Tax Development Jun 10, 2019

After the recent Colorado taxpayer-friendly decisions in Oracle1 and Agilent2, the Colorado Legislature quickly signed into law S.B. 233, amending the state’s combined reporting statute. Previously, CRS 39-22-303 did not allow inclusion of entities with no property or payroll in combined tax returns. This position was affirmed in the recent court cases, citing that the statute in question requires an includible C corporation to have more than 20% of its property and payroll assigned to locations inside the United States. As such, domestic holding companies with no property or payroll failed to qualify for inclusion in Colorado combined returns. 

Although there was no legislative history indicating that the terms of the statute were intended to eliminate only foreign holding companies, policy had developed by applying the statute literally to exclude all entities without a property or payroll factor in their apportionment formula. This policy was challenged in the recent taxpayer wins, which led to the quick passage of S.B. 233 to more clearly state the intent of the original law, according to legislators. Under the new law, domestic companies with de minimis or no property and payroll must be included in Colorado combined returns.

The provisions of the bill become effective prospectively on August 2, 2019, unless a referendum petition requires the bill to become a 2020 ballot issue. The common bill language regarding a referendum timeline is often added to most proposed bills, even when there is no anticipation of a challenge. Although under the state’s Taxpayer’s Bill of Rights, changes in tax policy resulting in a net revenue gain are required to be approved by voters. Legislators feel that this is not a policy change, but rather a “clarification of existing law.”

These two court decisions negated more than $33 million in taxes, interest, and penalties assessed against the corporations. 

1Department of Revenue v. Oracle, 2019 CO 42.

Department of Revenue v. Agilent Technologies, 2019 CO 41.


Mark Nachbar

Mary Bernard

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