Colo. Rev. Stat. § 39-22-302, S corporations

An S corporation shall not be subject to taxation under this article.

Source: L. 64: R&RE, p. 768, � 1. C.R.S. 1963: � 138-1-36. L. 92: Entire section amended, p. 2265, � 3, effective April 16.

39-22-303. Dividends in a combined report - foreign source income - affiliated groups - definitions - rules - repeal.

(1) to (5) (Deleted by amendment, L. 2008, p. 955, � 7, effective January 1, 2009.)

(6) In the case of two or more C corporations, whether domestic or foreign, owned or controlled directly or indirectly by the same interests, the executive director may, to avoid abuse, on a fair and impartial basis, distribute or allocate the gross income and deductions between or among such C corporations in order to clearly reflect income.

(7) (Deleted by amendment, L. 2008, p. 955, � 7, effective January 1, 2009.)

(8) (a) Except as provided in subsection (8)(b) of this section, neither the taxpayer nor the executive director shall include in a combined report any C corporation that conducts business outside the United States if eighty percent or more of the C corporation's property and payroll, as determined by factoring pursuant to section 24-60-1301, is assigned to locations outside the United States. For the purpose of this subsection (8), United States is restricted to the fifty states and the District of Columbia.

(b) (I) For tax years beginning on or after January 1, 2022, a taxpayer shall include in the combined group any member of an affiliated group of C corporations that is incorporated in a foreign jurisdiction for the purpose of tax avoidance.

(II) A C corporation is presumptively incorporated in a foreign jurisdiction for the purpose of tax avoidance if it is incorporated in a listed jurisdiction. A C corporation is not incorporated in a foreign jurisdiction for the purpose of tax avoidance if the taxpayer proves to the satisfaction of the executive director, or if the executive director determines, that such corporation is incorporated in a listed jurisdiction for reasons that meet the economic substance doctrine described in section 7701 (o) of the internal revenue code.

(III) For purposes of this subsection (8)(b), the term C corporation includes any business entity defined as a corporation under the internal revenue code and the rules and regulations promulgated pursuant thereto, regardless of whether such entity is subject to federal income tax. Any business entity included in a combined group under subsection (8)(b)(I) of this section is deemed to be a C corporation for purposes of this article 22, notwithstanding section 39-22-103 (2.5).

(9) Dividends which a C corporation includable in a combined report receives from another C corporation also includable in the combined report shall be excluded from taxable income.

(10) As used in this subsection (10), foreign source income means taxable income from sources without the United States, as used in section 862 of the internal revenue code. In apportioning and allocating income pursuant to section 39-22-303.5, 39-22-303.6, or 39-22-303.7, foreign source income shall be considered only to the extent provided in this subsection (10):

(a) If, for federal income tax purposes, the taxpayer has elected to claim foreign taxes paid or accrued as a deduction, then all foreign source income minus such deduction shall be considered;

(b) (I) If, for federal income tax purposes, the taxpayer has elected to claim foreign taxes paid or accrued as a credit, then foreign source income shall be considered only to the extent that such income exceeds the exclusion provided by this paragraph (b).

(II) For income tax years commencing prior to January 1, 2000, the amount to be excluded is determined by multiplying the foreign source income by a fraction, the numerator of which is the total of taxes paid or accrued to foreign countries and United States possessions by or on behalf of the C corporation pursuant to section 901 of the internal revenue code, deemed paid pursuant to section 960 of the internal revenue code for the tax year, or carried over or carried back to such tax year pursuant to section 904 (c) of the internal revenue code. The denominator of said fraction shall be forty-six percent of the foreign source income.

(III) For income tax years commencing on or after January 1, 2000, the amount to be excluded is determined by multiplying the foreign source income by a fraction, the numerator of which is the total of taxes paid or accrued to foreign countries and United States possessions by or on behalf of the C corporation pursuant to section 901 of the internal revenue code, deemed paid pursuant to section 960 of the internal revenue code for the tax year, or carried over or carried back to such tax year pursuant to section 904 (c) of the internal revenue code. The denominator of said fraction shall be the same percentage as the effective federal corporate income tax rate multiplied by the foreign source income. As used in this subsection (10), effective federal corporate income tax rate means the taxpayer's federal corporate income tax calculated in accordance with section 11 (a) and (b) of the internal revenue code for such tax year divided by the taxpayer's federal taxable income.

(c) Foreign source income from a foreign C corporation within an affiliated group of C corporations shall be determined without regard to section 882 (a)(2) of the internal revenue code.

(11) For tax years beginning before January 1, 2026:

(a) In the case of an affiliated group of C corporations, the executive director may require, or the taxpayer may file, a combined report, but such report shall only include those members of an affiliated group of C corporations as to which any three of the following facts have been in existence in the tax year and the two preceding tax years:

(I) Sales or leases by one affiliated C corporation to another affiliated C corporation constitute fifty percent or more of the gross operating receipts of the C corporation making the sales or leases; or, purchases or leases from one affiliated C corporation by another affiliated C corporation constitute fifty percent or more of the cost of goods sold or leased by the C corporation making the purchases or leases. This subparagraph (I) shall not apply to the following transactions between affiliated C corporations: The issuance of commercial paper or other debt obligations and the use of the proceeds therefrom to make loans or to purchase receivables between affiliated C corporations.

(II) Five or more of the following services are provided by one or more affiliated C corporations for the benefit of another affiliated C corporation: Advertising and public relations services; accounting and bookkeeping services; legal services; personnel services; sales services; purchasing services; research and development services; insurance procurement and servicing exclusive of employee benefit programs; and employee benefit programs including pension, profit-sharing, and stock purchase plans. A service shall be deemed provided if fifty percent or more of the service is provided without provision for an arm's length charge within the meaning of the United States treasury regulation 1.482-2 (b)(3).

(III) Twenty percent or more of the long-term debt of one affiliated C corporation is owed to or guaranteed by another affiliated C corporation. For the purposes of this subparagraph (III), long-term debt means debt which becomes due more than one year after incurred.

(IV) One affiliated C corporation substantially uses the patents, trademarks, service marks, logo-types, trade secrets, copyrights, or other proprietary materials owned by another affiliated C corporation.

(V) Fifty percent or more of the members of the board of directors of one affiliated C corporation are members of the board of directors or are corporate officers of another affiliated C corporation.

(VI) Twenty-five percent or more of the twenty highest-ranking officers of an affiliated C corporation are members of the board of directors or are corporate officers of another affiliated C corporation.

(b) The net income of the affiliated C corporations which are to be included in a combined report shall be determined pursuant to the rules and regulations promulgated pursuant to section 1502 of the internal revenue code, as modified by section 39-22-304.

(c) If an affiliated C corporation is included in a combined report, section 39-22-303.5, 39-22-303.6, or 39-22-303.7 shall be applied with the following modifications:

(I) Intercompany transactions among the affiliated C corporations shall be excluded from the numerator and denominator of the apportionment calculation set forth in section 39-22-303.5, 39-22-303.6, or 39-22-303.7; and

(II) (A) For income tax years commencing before January 1, 2022, the numerator of the apportionment calculation set forth in section 39-22-303.5 or 39-22-303.6 shall be, to the extent applicable, the sum of the sales of those affiliated C corporations doing business in Colorado.

(B) For income tax years commencing on or after January 1, 2022, the combined group apportionment factor is a fraction determined under section 39-22-303.6, as modified, if applicable, by section 39-22-303.7, where the numerator of the factor includes amounts sourced to the state, regardless of the separate entity to which those factors may be attributed, and the denominator of the factor includes amounts associated with the combined group's business wherever located.

(d) The executive director shall not require returns to be made on a consolidated basis, but an affiliated group of C corporations may elect to file a consolidated return as otherwise provided in this article.

(e) (Deleted by amendment, L. 2008, p. 955, � 7, effective January 1, 2009.)

(f) For purposes of this section, any C corporation formed under the laws of any state or the United States with de minimis or no property and payroll, as determined by factoring pursuant to section 24-60-1301, shall be deemed to satisfy the requirements of subsection (11)(a) of this section. The department of revenue shall adopt rules to determine the manner in which the de minimis standard will be uniformly applied to taxpayers.

(g) For the purpose of satisfying the requirements of subsections (11)(a)(I) to (11)(a)(IV) of this section, the activities of any entity formed under the laws of any state or the United States that is treated as a partnership pursuant to part 2 of this article 22, shall be treated as activities performed by the member of the affiliated group of C corporations that owns a portion of the entity if more than fifty percent of the entity's ownership interest is held in the aggregate by one or more members of the affiliated group. If the entity is owned by more than one member of the affiliated group, the activities of the entity shall be treated as activities performed by each member that owns a portion of the entity.

(11.2) Subsection (11) of this section and this subsection (11.2) are repealed, effective December 31, 2031.

(11.5) (a) The general assembly finds and declares that:

(I) Subsection (11)(a) of this section was enacted in 1985 to implement unitary combined reporting in Colorado. However, that subsection is unique among states that employ unitary combined reporting, uses arbitrary tests that have been difficult for taxpayers and the department of revenue to apply, and has created unnecessary tax compliance challenges because Colorado's approach diverges from other states.

(II) Including all amounts sourced to Colorado for the combined group best effectuates unitary combined reporting, regardless of the separate entity to which those factors may be attributed. Doing so recognizes that the unitary group is a single taxpayer and prevents corporate form from governing economic substance.

(III) Section 39-22-301 and this section, as amended by House Bill 24-1134, enacted in 2024, allow Colorado to join other states with similar combined reporting standards and implement unitary combined reporting in a manner that simplifies the preparation of corporate income tax returns in Colorado without arbitrary tests that are difficult to apply.

(b) For tax years beginning on and after January 1, 2026:

(I) Except as provided in subsection (8) of this section, all of the members of an affiliated group of C corporations, wherever incorporated or domiciled, that are members of a unitary business shall file a combined report as a combined group.

(II) The net income of each member of the combined group, as determined under section 39-22-304, is combined, eliminating items of income, expense, gain, and loss from transactions between members of the combined group, applying the consolidated filing rules under the internal revenue code, and the regulations thereunder, as if the combined group was a consolidated filing group. Dividends are eliminated to the extent permitted under subsection (9) of this section.

(III) (A) Except as otherwise provided in this section, section 39-22-303.6, as modified, if applicable, by section 39-22-303.7, determines how income or loss, or items making up income or loss, are allocated and apportioned to this state.

(B) The combined group apportionment factor is a fraction determined under section 39-22-303.6, as modified, if applicable, by section 39-22-303.7, where the numerator of the factor includes amounts sourced to the state for the combined group's unitary business, regardless of the separate entity to which those factors may be attributed, and the denominator of the factor includes amounts associated with the combined group's unitary business wherever located.

(C) Intercompany transactions among members of the combined group are excluded from the numerator and denominator of the apportionment calculation set forth in section 39-22-303.6, as modified, if applicable, by section 39-22-303.7.

(D) If a member of the combined group holds a partnership interest from which it derives apportionable income, the share of partnership's apportionment factor to be included in the apportionment factor of the combined group is determined by multiplying the partnership's factor by a ratio, the numerator of which is the amount of the partnership's apportionable income properly included in the member's income, whether received directly or indirectly, and including any guaranteed payments, and the denominator of which is the amount of the partnership's total apportionable income. In the case of a partnership that is unitary with the partner, receipts from intercompany transactions between the partnership and the partner, or any other member of the combined group, are excluded from the numerator and denominator of the apportionment calculation as follows: Receipts from sales by the partner, or any member of the partner's combined group, to the partnership to the extent of the partner's interest in the partnership; and receipts from sales by the partnership to the partner, or any member of the partner's combined group, not to exceed the partner's interest in all partnership sales. If a member of the combined group directly or indirectly receives an allocation of a partnership tax item, such as an item of loss or expense, so that it is not possible to determine the member's share of apportionable income, the executive director may promulgate rules for inclusion of particular partnership factors, or portions of factors, in the combined group's factors.

(IV) The combined report must be filed under the name and federal employer identification number of the parent corporation if the parent is a member of the combined group. If there is no parent corporation, or if the parent is not a group member, the members of the combined group shall choose a member to file the return. The filing member must remain the same in subsequent years unless the filing member is no longer the parent corporation or is no longer a member of the combined group. The return must be signed by a responsible officer of the filing member on behalf of the combined group members as required by section 39-22-601 (2).

(V) Members of the combined group are jointly and severally liable for the tax liability of the combined group included in the combined return.

(VI) The executive director shall not require returns to be made on a consolidated basis, but an affiliated group of C corporations may elect to file a consolidated return as otherwise provided in this article 22.

(12) As used in this section, unless the context otherwise requires:

(a) Affiliated group means:

(I) One or more includable C corporations connected directly or indirectly through stock ownership with a common parent C corporation that is an includable C corporation if:

(A) Stock possessing more than fifty percent of the voting power of all classes of stock and more than fifty percent of each class of the nonvoting stock of each of the includable C corporations, except the common parent C corporation, is owned directly or indirectly by one or more of the other includable C corporations; and

(B) The common parent C corporation owns directly or indirectly stock possessing more than fifty percent of the voting power of all classes of stock and more than fifty percent of each class of the nonvoting stock of at least one of the other includable C corporations.

(II) As used in this subsection (12)(a), the term stock does not include nonvoting stock that is limited and preferred as to dividends, employer securities, within the meaning of section 409 (1) of the internal revenue code, while such securities are held under a tax credit employee stock ownership plan, or qualifying employer securities, within the meaning of section 4975 (e)(8) of the internal revenue code, while such securities are held under an employee stock ownership plan which meets the requirements of section 4975 (e)(7) of the internal revenue code.

(a.3) Combined group means the affiliated group of C corporations that must file a combined report as required by subsection (11.5) of this section.

(a.5) Combined report means a tax return required to be filed for the combined group containing information as provided in this article 22 or required by the executive director.

(b) Listed jurisdiction means:

(I) For income tax years commencing before January 1, 2026, Andorra, Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Bahrain, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Cook Islands, Curaao, Cyprus, Dominica, Gibraltar, Grenada, Guernsey-Sark-Alderney, Isle of Man, Jersey, Liberia, Luxembourg, Malta, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Niue, Panama, Saba, Samoa, San Marino, Seychelles, Sint Eustatius, Sint Maarten, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Turks and Caicos Islands, U.S. Virgin Islands, and Vanuatu; and

(II) For income tax years commencing on or after January 1, 2026, the jurisdictions listed in subsection (12)(b)(I) of this section and Hong Kong, Republic of Ireland, Liechtenstein, Netherlands, and Singapore.

(d) Taxpayer means a C corporation or combined group subject to the tax imposed by section 39-22-301.

(e) Unitary business means a single economic enterprise made up either of separate parts of a single C corporation or of an affiliated group of C corporations that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. A unitary business includes that part of the business that is conducted by a taxpayer through the taxpayer's interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities.

(13) Repealed.

(14) (Deleted by amendment, L. 2008, p. 955, � 7, effective January 1, 2009.)

(15) Repealed.

Source: L. 64: R&RE, p. 769, � 1. C.R.S. 1963: � 138-1-37. L. 79: Entire section R&RE, p. 1443, � 34, effective July 3. L. 80: (7) added, p. 731, � 1, effective March 17. L. 85: (8) to (12) added, p. 1273, � 1, effective June 12. L. 89: (5)(a) and (6) amended and (13) added, p. 1499, � 2, effective July 1, 1990. L. 92: (1) to (3), (4)(a), (4)(d)(I), (4)(d)(V) to (4)(d)(VII), (4)(e), IP(5)(b), (5)(b)(III), (5)(c), (6), (8), (9), (10)(b), (10)(c), (11), (12)(a), and (12)(c) amended, p. 2268, � 8, effective April 16. L. 93: (14) added, p. 1320, � 4, effective June 6. L. 96: (5)(c) amended, p. 165, � 5, effective July 1. L. 99: (10)(b) amended, p. 1282, � 1, effective August 4. L. 2004: (12)(b) amended, p. 1209, � 90, effective August 4. L. 2008: (1), (2), (3), (4), (5), (7), IP(10), (11)(c), (11)(e), and (14) amended, p. 955, � 7, effective January 1, 2009. L. 2019: (8) amended, (11)(f), (11)(g), and (15) added, and (12)(c) repealed, (SB 19-233), ch. 397, p. 3535, � 2, effective August 2; IP(10) and (11)(c) amended, (SB 19-241), ch. 390, p. 3476, � 52, effective August 2. L. 2021: (8), (11)(c)(II), and (12) amended, (HB 21-1311), ch. 298, p. 1775, � 6, effective June 23. L. 2024: (10)(b)(II) and (10)(b)(III) amended, IP(11), (11.2), (11.5), (12)(a.3), (12)(a.5), (12)(d), and (12)(e) added, and (13) and (15) repealed, (HB 24-1134), ch. 172, p. 936, � 5, effective August 7. L. 2025, 1st Ex. Sess.: (8)(b)(II) and (12)(b) amended, (HB 25B-1002), ch. 6, p. 21, � 2, effective August 28.

Cross references: For the legislative declaration in SB 19-233, see section 1 of chapter 397, Session Laws of Colorado 2019. For the legislative declaration in HB 21-1311, see section 1 of chapter 298, Session Laws of Colorado 2021. For the legislative declaration in HB 25B-1002, see section 1 of chapter 6, Session Laws of Colorado 2025, First Extraordinary Session.

39-22-303.1. Interstate banking or branching - nondiscriminatory tax treatment. (1) On or before June 1, 1997, the executive director shall promulgate regulations to ensure nondiscriminatory tax treatment of financial organizations engaged in interstate banking or interstate branching and, in connection therewith, shall consider:

(a) Any recommendations of the multistate tax commission established under the provisions of section 24-60-1301, C.R.S., regarding the taxation and allocation of income and expenses of financial organizations; and

(b) Applying the multistate tax compact, as set forth in part 13 of article 60 of title 24, C.R.S., to financial organizations.

Source: L. 95: Entire section added, p. 770, � 16, effective July 1.

39-22-303.5. Single-factor apportionment of business income - allocation of nonbusiness income - rules - definitions. (1) As used in this section, unless the context otherwise requires:

(a) Business income means the net income of the taxpayer arising from the transactions and activity in the regular course of a taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. For purposes of administration of this section, the income of the taxpayer is business income unless clearly classifiable as nonbusiness income.

(b) Commercial domicile means the principal place from which the trade or business of the taxpayer is directed or managed.

(d) Sales means all gross receipts of the taxpayer not allocated under subsection (5) of this section and not otherwise excluded from the calculation of net income; except that, for the sale of intangible property, sales means the gain from the sale and not the gross receipts.

(e) State means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof.

(f) Taxpayer means a C corporation or any nonresident individual, nonresident partner, or S corporation that is permitted or required pursuant to another provision of law to apportion and allocate revenue pursuant to this section.

(2) (a) For income tax years commencing prior to January 1, 2009, a taxpayer shall apportion and allocate income pursuant to section 24-60-1301, C.R.S., or apportion income pursuant to section 39-22-303, as those sections existed immediately prior to January 1, 2009.

(b) For income tax years commencing on or after January 1, 2009, but prior to January 1, 2019, a taxpayer shall apportion and allocate the taxpayer's entire net income as provided in this section.

(3) (a) If a taxpayer has no income from business activity outside of Colorado, the taxpayer's entire net income shall be allocated to Colorado.

(b) A taxpayer having income from business activity that is taxable both within and without Colorado shall apportion and allocate the taxpayer's net income as provided in this section.

(c) For purposes of apportionment and allocation of income under this section, a taxpayer is taxable in another state if:

(I) In that state, the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, a corporate stock tax, or any similar tax; or

(II) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state subjects the taxpayer to such tax.

(4) (a) A taxpayer's business income shall be apportioned to Colorado by multiplying such business income by a fraction, the numerator of which is the total sales of the taxpayer in Colorado during the tax period and the denominator of which is the total sales of the taxpayer everywhere during the tax period.

(b) Sales of tangible personal property, including gross receipts from leases and other uses of tangible personal property, are in Colorado if:

(I) The property is delivered or shipped to a purchaser in Colorado regardless of the f.o.b. point or other conditions of the sale; or

(II) The property is shipped from an office, store, warehouse, factory, or other place of storage in Colorado and the taxpayer is not taxable in the state to which the property is shipped.

(I) Revenue from services rendered in Colorado;

(II) Rents and royalties from real property located in Colorado;

(III) Gross proceeds from the sale of real property located in Colorado;

(IV) Interest and dividend income to the extent included in taxable income, if the taxpayer's commercial domicile is in Colorado;

(V) Gain from the sale of intangible property if the taxpayer's commercial domicile is in Colorado;

(VI) Patent and copyright royalties, if and to the extent that:

(A) The patent or copyright is utilized by the payer in Colorado; or

(B) The patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in Colorado; and

(VII) Revenue from the performance of purely personal services, if the income-producing activity is performed in Colorado.

(d) Notwithstanding any other provision of this subsection (4), in apportioning the income of a taxpayer engaged in the business of publishing magazines or periodicals either through print or electronic media, sales related to advertising in magazines or periodicals shall be part of the taxpayer's total sales in Colorado only to the extent that such magazines or periodicals are delivered within Colorado. The determination of the extent to which magazines or periodicals are delivered within Colorado shall be based upon the ratio that the delivery of magazines or periodicals by such taxpayer or tax-reporting entity in Colorado bears to the total delivery of magazines and periodicals by such taxpayer or tax-reporting entity.

(e) Notwithstanding any other provision of law, no foreign source income that is included in taxable income shall be included as sales of the taxpayer in Colorado for purposes of apportioning business income pursuant to this subsection (4).

(f) For purposes of subparagraph (VI) of paragraph (c) of this subsection (4) and paragraph (g) of subsection (5) of this section:

(I) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If the basis of the receipts from the patent royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located.

(II) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.

(5) A taxpayer's rents and royalties from real or tangible personal property, capital gains, interest, dividends, patent or copyright royalties, or other income, to the extent that they constitute nonbusiness income, shall be allocated as follows:

(a) Net rents and royalties from real property located in Colorado shall be allocated to Colorado;

(b) (I) Net rents and royalties from tangible personal property shall be allocated to Colorado:

(A) If and to the extent that the property is utilized in Colorado; or

(B) In their entirety if the taxpayer's commercial domicile is in Colorado and the taxpayer is not organized under the laws of, or taxable in, the state in which the property is utilized.

(II) For purposes of this paragraph (b), the extent of utilization of tangible personal property in Colorado shall be determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in Colorado during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property shall be utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.

(d) Capital gains and losses from sales of tangible personal property shall be allocated to Colorado if:

(I) The property had a situs in Colorado at the time of the sale; or

(II) The taxpayer's commercial domicile is in Colorado and the taxpayer is not taxable in the state in which the property had a situs;

(e) Capital gains and losses from sales of intangible property shall be allocated to Colorado if the taxpayer's commercial domicile is in Colorado;

(f) Interest and dividends shall be allocated to Colorado if the taxpayer's commercial domicile is in Colorado;

(g) Patent and copyright royalties shall be allocated to Colorado if and to the extent that:

(I) The patent or copyright is utilized by the payer in Colorado; or

(II) The patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in Colorado; and

(h) Nonbusiness income that is not otherwise allocated pursuant to this subsection (5) shall be allocated pursuant to subsection (7) of this section.

(6) Notwithstanding any other provision of this section, for each taxable year commencing on or after January 1, 2009, but prior to January 1, 2019, a taxpayer may elect to treat all income as business income. This election shall be made in accordance with rules adopted by the department of revenue and shall be made by the extended due date of the tax return. Once made, the election shall be irrevocable for such tax year.

(7) (a) In the case of certain industries where unusual factual situations produce inequitable results under the apportionment and allocation provisions of this section, the executive director shall promulgate rules for determining the apportionment and allocation factors for each such industry, but such rules shall be applied uniformly.

(b) If the apportionment and allocation provisions of this section do not fairly represent the extent of the taxpayer's activities in Colorado, the taxpayer may petition for, or the executive director may require, with respect to all or any part of the taxpayer's business activities, if reasonable:

(I) Separate accounting;

(II) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in Colorado; or

(III) The employment of any other method to effectuate an equitable apportionment or allocation of the taxpayer's income, fairly calculated to determine the net income derived from or attributable to sources in Colorado.

(c) If the executive director requires the taxpayer to change its present method of reporting, the executive director shall notify the taxpayer in writing of the reason for the required change. The notice shall be made by first-class mail as set forth in section 39-21-105.5 and shall be sufficiently particular to give the taxpayer adequate information as to the reasons for the change so that the taxpayer may frame an answer for and defend its present method of reporting if it decides to appeal.

(d) The department of revenue, from time to time, shall publish all rulings of general public interest with respect to any application of the provisions of this subsection (7).

(e) If requested by the director of research of the legislative council, the executive director shall require taxpayers to provide additional information related to apportionment and allocation of income to support an income tax return for the purpose of providing such information to legislative council staff to improve the accuracy of fiscal notes and reports to the legislature. The executive director shall aggregate such additional information so as to preserve the confidentiality of the taxpayer's information and comply with section 39-21-113.

(8) A bank, savings and loan, credit union, or other taxpayer making or purchasing loans whose only business activity within Colorado is the ownership of property acquired through the process of foreclosure, or was obtained through a procedure exercised in lieu of the entity exercising its right to foreclose, which property is later disposed of within twenty-four months after obtaining ownership, shall directly allocate net income for such property during such time and any gains or losses realized from the sale of such foreclosed property to the state where the property is located. Such limited activities shall not render a bank, savings and loan, credit union, or other entity subject to the other allocation and apportionment provisions of this section.

(9) The executive director shall promulgate rules in accordance with article 4 of title 24, C.R.S., to apply and administer the provisions of this section. Any rules that the executive director promulgated in order to apply and administer section 39-22-303 or 24-60-1301, C.R.S., that may be used to apply and administer the provisions of this section, including provisions to apply and administer the sales factor for special industries, which are set forth in 1 CCR 201-2, shall continue to be in effect unless inconsistent with the provisions of this section or specifically withdrawn by the executive director.

(10) On or before January 1, 2014, the director of the office of economic development shall prepare a report describing the economic impacts related to apportionment and allocation of taxable income pursuant to this section and deliver the report to the finance committees of the senate and house of representatives, or any successor committees.

Source: L. 2008: Entire section added, p. 958, � 8, effective January 1, 2009. L. 2010: IP(4)(f) amended, (HB 10-1422), ch. 419, p. 2121, � 174, effective August 11. L. 2018: (2)(b) and (6) amended, (HB 18-1185), ch. 369, p. 2231, � 3, effective August 8.

Cross references: For the legislative declaration in HB 18-1185, see section 1 of chapter 369, Session Laws of Colorado 2018.

39-22-303.6. Market-based apportionment of the income of a taxpayer engaged in business - allocation of nonapportionable income - rules - definitions. (1) As used in this section, unless the context otherwise requires:

(a) Apportionable income means:

(I) Any income that would be allocable to this state under the United States constitution, but that is apportioned rather than allocated pursuant to the laws of this state; and

(II) All income that is apportionable under the United States constitution and is not allocated under the laws of this state, including:

(A) Income arising from transactions and activity in the regular course of a taxpayer's trade or business; and

(B) Income arising from tangible and intangible property if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer's trade or business.

(b) Commercial domicile means the principal place from which the trade or business of the taxpayer is directed or managed.

(d) Receipts means all gross receipts of the taxpayer that are not allocated under subsection (7) or (9) of this section, and that are received from transactions and activity in the regular course of the taxpayer's trade or business; except that receipts of a taxpayer from hedging transactions and from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities are excluded.

(f) Taxpayer means any person that is permitted or required pursuant to another provision of law to apportion and allocate income pursuant to this section.

(2) For income tax years commencing on or after January 1, 2019, a taxpayer shall apportion and allocate the taxpayer's entire net income as provided in this section.

(3) (a) A taxpayer that has no income from business activity outside of Colorado shall allocate all net income to Colorado.

(b) A taxpayer that has income from business activity that is taxable both within and without Colorado shall apportion and allocate the taxpayer's net income as provided in this section.

(c) For purposes of apportionment and allocation of income under this section, a taxpayer's income is taxable in another state if:

(II) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state subjects the taxpayer to such tax.

(4) (a) A taxpayer's apportionable income shall be apportioned to Colorado by multiplying such apportionable income by a fraction, the numerator of which is the total receipts of the taxpayer in Colorado during the tax period and the denominator of which is the total receipts of the taxpayer everywhere during the tax period.

(b) Notwithstanding any other provision of law, foreign source income that is included in taxable income is not included as receipts of the taxpayer in Colorado for purposes of apportioning apportionable income pursuant to this section.

(5) Receipts from the sales of tangible personal property are in Colorado if:

(a) The property is delivered or shipped to a purchaser in Colorado regardless of the f.o.b. point or other conditions of the sale; or

(b) The property is shipped from an office, store, warehouse, factory, or other place of storage in Colorado and the taxpayer is not taxable in the state to which the property is shipped.

(6) Receipts, other than receipts described in subsection (5) of this section, are in Colorado if the taxpayer's market for the sales is in Colorado. The taxpayer's market for sales is in Colorado if:

(a) In the case of the sale of a service, to the extent the service is delivered to a location in Colorado;

(b) In the case of the sale, rental, lease, or license of real property, to the extent the real property is located in Colorado;

(c) In the case of the rental, lease, or license of tangible personal property, to the extent the tangible personal property is located in Colorado;

(d) In the case of intangible property:

(I) That is rented, leased, or licensed, to the extent the intangible property is used in Colorado, provided that the intangible property utilized in marketing a good or service to a consumer is used in Colorado if that good or service is purchased by a consumer who is in Colorado; or

(II) That is sold, to the extent the intangible property is used in Colorado, provided that:

(A) A contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is used in Colorado if the geographic area includes all or part of Colorado; and

(B) Receipts from intangible property sales that are contingent on the productivity, use, or disposition of the intangible property are treated as receipts from the rental, lease, or licensing of the intangible property under subsection (6)(d)(I) of this section;

(III) All other receipts for sales of intangible property that are not described in subsection (6)(d)(II) of this section are excluded from the numerator and denominator of the apportionment fraction set forth in subsection (4)(a) of this section;

(e) If the state or states of assignment under this subsection (6) cannot be determined, the state or states of assignment must be reasonably approximated; and

(f) With respect to any receipt, if the state of assignment cannot be determined under this subsection (6) or reasonably approximated under subsection (6)(e) of this section, such receipts are excluded from the denominator of the apportionment fraction set forth in subsection (4)(a) of this section.

(7) A taxpayer's rents and royalties from real or tangible personal property, capital gains, interest, dividends, patent or copyright royalties, or other income, to the extent that they constitute nonapportionable income, are allocated as follows:

(a) Net rents and royalties from real property located in Colorado are allocated to Colorado;

(b) (I) Net rents and royalties from tangible personal property are allocated to Colorado:

(A) If and to the extent that the property is utilized in Colorado; or

(B) In their entirety if the taxpayer's commercial domicile is in Colorado and the taxpayer is not organized under the laws of, or the taxpayer's income is not taxable in, the state in which the property is utilized.

(II) For purposes of this subsection (7)(b), the extent of utilization of tangible personal property in Colorado is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in Colorado during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.

(d) Capital gains and losses from sales of tangible personal property are allocated to Colorado if:

(I) The property had a situs in Colorado at the time of the sale; or

(II) The taxpayer's commercial domicile is in Colorado and the taxpayer's income is not taxable in the state in which the property had a situs;

(e) Capital gains and losses from sales of intangible property are allocated to Colorado if the taxpayer's commercial domicile is in Colorado;

(f) Interest and dividends are allocated to Colorado if the taxpayer's commercial domicile is in Colorado;

(g) (I) Patent and copyright royalties are allocated to Colorado if and to the extent that:

(A) The patent or copyright is utilized by the payer in Colorado; or

(B) The patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in Colorado.

(II) For purposes of this subsection (7)(g), a patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If the basis of the receipts from the patent royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located.

(III) For purposes of this subsection (7)(g), a copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties cannot be reasonably assigned to states or if the accounting procedures do not reflect the states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.

(h) Nonapportionable income that is not otherwise allocated pursuant to this subsection (7) is allocated pursuant to subsection (9) of this section.

(8) Notwithstanding any other provision of this section, for each taxable year commencing on or after January 1, 2019, a taxpayer may elect to treat all income as apportionable income. This election must be made in accordance with rules adopted by the department of revenue and made by the extended due date of the tax return. Once made, the election is irrevocable for the tax year.

(9) (a) (I) If the allocation and apportionment provisions in this section do not fairly represent the extent of business activity in Colorado of taxpayers engaged in a particular industry or in a particular transaction or activity, the executive director may, in addition to the authority provided in subsection (9)(b) of this section, and notwithstanding any other provision in this section, establish appropriate rules, including the application of a variance allowed under subsection (9)(b) of this section on an industry-wide, transaction-wide, or activity-wide basis, for determining alternative allocation and apportionment methods for such taxpayers.

(II) A rule adopted pursuant to this subsection (9)(a) must be applied uniformly; except that, with respect to any taxpayer to whom such rule applies, the taxpayer may petition for, or the executive director may require, adjustment pursuant to subsection (9)(b) of this section.

(b) If the apportionment and allocation provisions of this section do not fairly represent the extent of the taxpayer's business activities in Colorado, the taxpayer may petition for, or the executive director may require, with respect to all or any part of the taxpayer's business activities, if reasonable:

(I) Separate accounting;

(II) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in Colorado;

(III) The inclusion of any receipts of a taxpayer otherwise excluded under subsection (1)(d) of this section, including those from hedging transactions or from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities; or

(IV) The employment of any other method, notwithstanding any other provision of this section, to effectuate an equitable apportionment or allocation of the taxpayer's income, fairly calculated to determine the net income derived from or attributable to sources in Colorado.

(c) (I) The taxpayer petitioning for, or the executive director requiring, the use of any method to effectuate an equitable allocation and apportionment of the taxpayer's income pursuant to subsection (9)(b) of this section shall prove, by a preponderance of the evidence, that:

(A) The allocation and apportionment provisions in this section do not fairly represent the extent of the taxpayer's business activity in Colorado; and

(B) The alternative to such provisions is reasonable.

(II) The same burden of proof applies whether the taxpayer is petitioning for, or the executive director is requiring, the use of any reasonable method to effectuate an equitable allocation and apportionment of the taxpayer's income; except that, if the executive director can show that in any two of the prior five tax years, the taxpayer had used an allocation and apportionment method at variance with its allocation and apportionment method or methods in other tax years, then the executive director does not bear the burden of proof described in subsection (9)(c)(I) of this section in imposing a different method.

(d) If the executive director requires any different method to effectuate an equitable allocation and apportionment of the taxpayer's income pursuant to this subsection (9), the executive director shall not impose any civil or criminal penalty with reference to the tax due that is attributable to the taxpayer's reasonable reliance solely on the allocation and apportionment provisions of this section.

(e) A taxpayer that has received written permission from the executive director to use a reasonable method to effectuate an equitable allocation and apportionment of the taxpayer's income shall not have that permission revoked with respect to transactions and activities that have already occurred unless there has been a material change in, or a material misrepresentation of, the facts provided by the taxpayer upon which the executive director reasonably relied.

(f) If the executive director requires the taxpayer to change its present method of reporting, the executive director shall notify the taxpayer in writing of the reason for the required change. The notice must be made by first-class mail as set forth in section 39-21-105.5 and must be sufficiently particular to give the taxpayer adequate information as to the reasons for the change so that the taxpayer may frame an answer for and defend its present method of reporting if it decides to appeal.

(g) The department of revenue, from time to time, shall publish all rulings of general public interest with respect to any application of this subsection (9).

(h) If requested by the director of research of the legislative council, the executive director shall require taxpayers to provide additional information related to apportionment and allocation of income to support an income tax return for the purpose of providing such information to legislative council staff to improve the accuracy of fiscal notes and reports to the legislature. The executive director shall aggregate such additional information so as to preserve the confidentiality of the taxpayer's information and comply with section 39-21-113.

(10) A bank, savings and loan, credit union, or other taxpayer making or purchasing loans whose only business activity in Colorado is the ownership of property acquired through the process of foreclosure, or was obtained through a procedure exercised in lieu of the entity exercising its right to foreclose, which property is later disposed of within twenty-four months after obtaining ownership, shall directly allocate net income for such property during such time and any gains or losses realized from the sale of such foreclosed property to the state where the property is located. Such limited activities do not render a bank, savings and loan, credit union, or other entity subject to the other allocation and apportionment provisions of this section.

(11) The executive director shall promulgate rules in accordance with article 4 of title 24 to apply and administer this section. Any rules that the executive director promulgated in order to apply and administer section 39-22-303, 39-22-303.5, or 24-60-1301 that may be used to apply and administer this section, including provisions to apply and administer the sales factor for special industries, which are set forth in 1 CCR 201-2, continue to be in effect unless inconsistent with this section or specifically withdrawn by the executive director.

(12) On or before January 1, 2024, the director of the office of economic development shall prepare a report describing the economic impacts related to apportionment and allocation of taxable income pursuant to this section and deliver the report to the finance committees of the senate and house of representatives, or any successor committees.

Source: L. 2018: Entire section added, (HB 18-1185), ch. 369, p. 2225, � 2, effective August 8.

Cross references: For the legislative declaration in HB 18-1185, see section 1 of chapter 369, Session Laws of Colorado 2018.

39-22-303.7. Sourcing of sales of mutual fund service corporations - definitions. (1) As used in this section, unless the context otherwise requires:

(a) Administration services includes, but is not limited to, clerical, fund, or shareholder accounting and participant record keeping, transfer agency, bookkeeping, data processing, custodial, internal auditing, legal, and tax services performed for a regulated investment company. Services qualify as administrative services only if the provider of such services during the taxable year also provides, or is affiliated with a person that provides, management or distribution services to a regulated investment company during the same taxable year.

(b) Distribution services includes, but is not limited to, the services of advertising, servicing, marketing, or selling shares of a regulated investment company. The services of advertising, servicing, or marketing shares qualify as distribution services only when the service is performed by a person that is, or in the case of a closed-end company was, either engaged in the business of selling regulated investment company shares or affiliated with a person that is engaged in the service of selling regulated investment company shares. In the case of an open-end company, such service of selling shares must be performed pursuant to a contract entered into pursuant to 15 U.S.C. sec. 80a-15 (b), as amended.

(c) Domicile presumptively means the shareholder's mailing address on the records of the regulated investment company. If, however, the regulated investment company or the mutual fund service corporation has actual knowledge that the shareholder's primary residence or principal place of business is different from the shareholder's mailing address, the presumption shall not control. If the shareholder of record is a company that holds the shares of the regulated investment company as depositor for the benefit of a separate account, then the shareholder shall be the contract owners or policyholders of the contracts or policies supported by the separate account determined using any reasonable basis, such as zip codes of underlying shareholders or United States census bureau data in order to determine the proper location for the assignment of these shares. If the regulated investment company or the mutual fund service corporation has actual knowledge that the shareholder's principal place of business is different from the shareholder's mailing address, the presumption shall not control.

(d) Management services includes, but is not limited to, any of the following: The rendering of investment advice, directly or indirectly, to a regulated investment company, making determinations as to when sales and purchases of securities are to be made on behalf of the regulated investment company, or providing services related to the selling or purchasing of securities constituting assets of a regulated investment company, and related activities. Services qualify as management services only when such activity or activities are performed pursuant to a contract with the regulated investment company entered into pursuant to 15 U.S.C. sec. 80a-15 (a), as amended, for a person that has entered into such contract with the regulated investment company or for a person that is affiliated with a person that has entered into such a contract with a regulated investment company.

(e) Mutual fund sales means gross receipts derived within the taxable year directly or indirectly from the rendering of management, distribution, or administration services to a regulated investment company, including gross receipts received directly or indirectly from trustees, sponsors, and participants of employee benefit plans that have accounts in a regulated investment company.

(f) Mutual fund service corporation means any corporation doing business in Colorado that derives gross income from the provision directly or indirectly of management, distribution, or administration services to or on behalf of a regulated investment company and from trustees, sponsors, and participants of employee benefit plans that have accounts in a regulated investment company.

(g) Regulated investment company means a regulated investment company as defined in section 851 of the federal Internal Revenue Code of 1986, as amended.

(2) Notwithstanding any provision of section 39-22-303.5 or 39-22-303.6, for taxable years commencing on or after January 1, 2009, mutual fund sales by a mutual fund service corporation shall be considered Colorado sales for purposes of section 39-22-303.5 (4)(c) and section 39-22-303.6 (6), to the extent that shareholders of the regulated investment company are domiciled in Colorado as follows:

(a) (I) By multiplying the mutual fund service corporation's total dollar amount of mutual fund sales of such services on behalf of each regulated investment company by a fraction, the numerator of which shall be the average of the number of shares owned by the regulated investment company's shareholders domiciled in Colorado at the beginning of and at the end of the regulated investment company's taxable year that ends with or within the mutual fund service corporation's taxable year, and the denominator of which shall be the average of the number of shares owned by the regulated investment company shareholders everywhere at the beginning of and at the end of the regulated investment company's taxable year that ends with or within the mutual fund service corporation's taxable year.

(II) Notwithstanding subparagraph (I) of this paragraph (a), a mutual fund service corporation may use the year-end of the regulated investment company's fund advisor for this calculation, as long as the mutual fund service corporation consistently uses this method from year to year. For purposes of this paragraph (a), a regulated investment company's fund advisor is the person that is directly and primarily responsible for providing investment advice to the regulated investment company under a contract entered into pursuant to 15 U.S.C. sec. 80a-15 (a).

(b) If the domicile of a shareholder is unknown to the mutual fund service corporation because the shareholder of record is a person that holds the shares of a regulated investment company as a depositor for the benefit of others, the mutual fund service corporation may utilize any reasonable basis, such as zip codes of underlying shareholders or United States census bureau data, in order to determine the proper location for the assignment of the shares.

(c) A separate computation shall be made to determine the mutual fund sales for each regulated investment company, the sum of which shall equal the total mutual fund sales sourced to Colorado.

Source: L. 2008: Entire section added, p. 958, � 8, effective January 1, 2009. L. 2009: (1)(e), (1)(f), IP(2), and (2)(c) amended, (HB 09-1311), ch. 275, p. 1237, � 1, effective May 18. L. 2019: IP(2) amended, (SB 19-241), ch. 390, p. 3477, � 53, effective August 2.

39-22-303.9. Apportionment of the income of a taxpayer with enterprise data center operations in the state - definitions. (1) As used in this section, unless the context otherwise requires:

(a) Capital investment means the:

(I) Purchase and construction of real estate; or

(II) Purchase and deployment of capital equipment, machines, building systems, infrastructure, or other depreciable assets, including capital leases.

(b) Enterprise data center operation means a business that:

(I) Physically houses information technology equipment such as servers, switches, routers, data storage devices, or related equipment;

(II) Manages and processes digital data and information to provide application services or management for data processing, such as web hosting, internet, intranet, telecommunication, and information technology services;

(III) Is owned by a taxpayer; and

(IV) Is operated substantially for the taxpayer's own use.

(c) Office of economic development or office means the Colorado office of economic development created in section 24-48.5-101.

(d) Person has the same meaning as provided in section 39-21-101 (3).

(e) Taxpayer means a person or an affiliated group of C corporations authorized to elect to make a consolidated return under section 39-22-305, and an affiliated group as defined in section 39-22-303 (12).

(2) Notwithstanding any provision of section 39-22-303.5, for taxable years commencing on or after the July 1 in the year in which the office provides written certification to the taxpayer and to the department of revenue that the requirements described in subsection (3)(a) of this section have been met by the taxpayer, but no sooner than the taxable year commencing July 1, 2018, pursuant to the schedule set by the office as described in subsection (3)(c)(II) of this section, in apportioning the income of a taxpayer with enterprise data center operations in the state, sales from services are Colorado sales for purposes of section 39-22-303.5 (4)(c)(I) to the extent such sales constitute revenues from services that are delivered to the taxpayer's customer's location in the state, as demonstrated by the customer's billing address.

(3) (a) Except as provided in subsection (3)(d) of this section, if a taxpayer makes a capital investment in an enterprise data center operation in the state as described in subsection (3)(b) of this section and enters into a memorandum of understanding with the office as described in subsection (3)(c) of this section, then the taxpayer is authorized to use the apportionment method set forth in subsection (2) of this section pursuant to the schedule set forth in the memorandum of understanding when the capital investment is fully funded.

(b) The taxpayer shall make a capital investment in an enterprise data center in the state equal to at least one hundred fifty million dollars within any consecutive five-year period commencing on or after January 1, 2013.

(A) The amount of the capital investment;

(B) The specific consecutive five-year period in which the capital investment will occur;

(D) Any other investments or actions on the part of the taxpayer that will support the economic development of the state.

(II) The memorandum of understanding must include a schedule, to be set by the office, that incrementally transitions the taxpayer, over a period not to exceed eight years, to the apportionment method described in subsection (2) of this section.

(III) When negotiating the terms of the memorandum of understanding with the taxpayer, the office may seek input from the department of revenue. The department of revenue shall provide taxpayer-specific information that will assist the office in setting the terms of the memorandum of understanding. Notwithstanding section 39-21-113, it is lawful for the department of revenue to provide such taxpayer-specific information to the office. The office shall not disclose taxpayer-specific information to the public that it receives pursuant to this subsection (3)(c)(III) and subsection (3)(c)(V) of this section and shall keep such taxpayer-specific information confidential. All employees of the office are subject to the limitations set forth in section 39-21-113 (4) and the penalties set forth in section 39-21-113 (6).

(IV) (A) The memorandum of understanding must be signed by the office and the taxpayer no later than one year after the last year of the consecutive five-year capital investment period described in subsection (3)(b) of this section.

(B) When the taxpayer fully funds the capital investment and signs the memorandum of understanding, the office shall provide written certification to the taxpayer and the department of revenue that the requirements described in subsection (3)(a) of this section have been met by the taxpayer and the taxpayer shall attach a copy of the signed memorandum of understanding with its tax return in order to provide the department of revenue with the transition schedule described in subsection (3)(c)(II) of this section for the apportionment method.

(V) The taxpayer shall provide any information required by the office for the office to determine compliance with the terms of the memorandum of understanding.

(VI) The office and the department of revenue have the right to audit compliance with the memorandum of understanding and review any information provided by the taxpayer pursuant to the memorandum of understanding or requested by the office as allowed under subsection (3)(c)(V) of this section.

(d) If the taxpayer fails to fully fund the capital investment or fails to fulfill the obligations established in the memorandum of understanding, the taxpayer may no longer use the apportionment method set forth in subsection (2) of this section and apportionment shall be determined pursuant to section 39-22-303.5.

(4) Notwithstanding section 24-1-136 (11), on November 1, 2019, and each November 1 thereafter, the office and the department of revenue shall submit a report to the finance committee of the house of representatives and the finance committee of the senate, or any successor committees, that includes a summary of the use of this section, the capital investments made, and the number of memoranda of understanding entered into and that includes an update on the use of market-based apportionment in the state.

Source: L. 2017: Entire section added, (SB 17-299), ch. 318, p. 1710, � 1, effective August 9.

39-22-304. Net income of corporation - legislative declaration - definitions - repeal. (1) (a) The net income of a C corporation means the C corporation's federal taxable income, as defined in the internal revenue code, for the taxable year, with the modifications specified in this section.

(b) (I) For income tax years commencing on or after January 1, 2022, in the case of a C corporation that is not incorporated in the United States, or included in a consolidated federal corporate income tax return, federal taxable income means the C corporation's income or loss as determined from a profit and loss statement prepared for that C corporation on a separate entity basis in the currency in which its books of account are regularly maintained, provided this profit and loss statement is subject to an independent audit, adjusted to conform to the accounting principles generally accepted in the United States for the preparation of such statements and further modified to take into account any book-tax adjustments necessary to reflect federal and state tax law. Income or loss so computed includes all income wherever derived and is not limited to items of income from sources within the United States or effectively connected income within the meaning of the internal revenue code. Items of income, expense, gain or loss, and related apportionment factors that are denominated in a foreign currency must also be translated into United States dollars on a reasonable basis consistently applied year-to-year and entity-by-entity. Unrealized foreign currency gains and losses are not recognized. Income apportioned to this state is to be expressed in United States dollars.

(II) In lieu of the procedures set forth in subsection (1)(b)(I) of this section, or in any case where it is necessary to fairly and consistently reflect the income or loss and apportionment factors of foreign operations included in a combined report, the executive director may provide for other procedures to reasonably approximate the income or loss and apportionment factors of members with foreign operations.

(2) There shall be added to federal taxable income:

(a) Any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States that were deducted on the federal income tax return;

(b) Interest income less amortization of premium on obligations of any state or any political subdivision thereof, other than interest income on obligations of this state or a political subdivision thereof which are issued on or after May 1, 1980. Interest income on obligations of this state or a political subdivision thereof which were issued before May 1, 1980, shall be exempt from income tax to the extent that such interest is specifically so exempt under the laws of this state authorizing the issuance of such obligations. The amount of such interest shall be the net amount after reduction by the amount of the deductions related thereto which are required by the internal revenue code to be allocated to such classes of interest.

(d) Income taxes imposed by this state to the extent deducted in determining federal taxable income, except the tax imposed by article 29 of this title;

(e) (I) Any expenses incurred by a taxpayer with respect to expenditures made at, or payments made to, a club licensed pursuant to section 44-3-418 that has a policy to restrict membership on the basis of sex, sexual orientation, gender identity, gender expression, marital status, race, creed, religion, color, ancestry, or national origin. Any such club shall provide on each receipt furnished to a taxpayer a printed statement as follows:

The expenditures covered by this receipt are

nondeductible for state income tax purposes.

(II) The general assembly finds, determines, and declares that the people of the state of Colorado desire to promote and achieve tax equity and fairness among all the state's citizens and further desire to conform to the public policy of nondiscrimination. The general assembly further declares that the provisions of this paragraph (e) are enacted for these reasons and for no other purpose.

(f) For the income tax years commencing on or after January 1, 2000, an amount equal to the charitable contribution deduction allowed by section 170 of the internal revenue code to the extent such deduction includes a contribution of real property to a charitable organization for a conservation purpose for which an income tax credit is claimed pursuant to section 39-22-522;

(g) Repealed.

(h) An amount equal to a business expense for labor services that is deducted pursuant to section 162 (a)(1) of the internal revenue code but that is prohibited from being claimed as a deductible business expense for state income tax purposes pursuant to section 39-22-529;

(i) For income tax years ending on and after the enactment of the March 2020 Coronavirus Aid, Relief, and Economic Security Act, Pub.L. 116-136, referred to in this section as the CARES Act, but before January 1, 2021, and for income tax years beginning on and after the enactment of the CARES Act, but before January 1, 2021, an amount equal to the amount in excess of the limitation on business interest under section 163 (j) of the internal revenue code without regard to the amendments made by section 2306 of the CARES Act.

(j) (I) For income tax years commencing on or after January 1, 2022, but before January 1, 2023, an amount equal to a federal deduction claimed for the income tax year for a food and beverage expense that exceeds fifty percent of the amount of the expense and that was allowed under section 274 (n)(2)(D) of the internal revenue code.

(II) This subsection (2)(j) is repealed, effective December 31, 2030.

(k) (I) For income tax years commencing on or after January 1, 2024, but before January 1, 2031, an amount equal to a federal deduction claimed for a business meal pursuant to section 274 (k) of the internal revenue code.

(II) This subsection (2)(k) is repealed, effective December 31, 2035.

(l) For income tax years commencing on or after January 1, 2026, an amount equal to a federal deduction claimed for the income tax year for foreign-derived deduction eligible income pursuant to section 250 of the internal revenue code.

(3) There shall be subtracted from federal taxable income:

(a) Interest income on obligations of the United States and its possessions to the extent included in federal taxable income;

(b) Interest or dividend income on obligations or securities of any authority, commission, or instrumentality of the United States to the extent included in federal taxable income but exempt from state income taxes under the laws of the United States;

(c) The portion of any gain or loss from the sale or other disposition of property having a higher adjusted basis for Colorado income tax purposes than for federal income tax purposes on the date such property was sold or disposed of in a transaction in which gain or loss was recognized for purposes of federal income tax that does not exceed such difference in basis, but, if a gain is considered a long-term capital gain for federal income tax purposes, the modification shall be limited to the portion of such gain which is included in federal taxable income;

(d) (I) Prior to January 1, 2024, the portion of any gain received during the taxable year from a qualified sale.

(II) As used in this paragraph (d), qualified sale means a sale, in good faith, of real or personal property to a buyer who initiates the transaction to purchase real or personal property of the seller and who had or could have obtained the power to condemn such property, if the transaction was not between persons defined in section 267 (b) of the internal revenue code.

(III) The purpose of this paragraph (d) is, for purposes of Colorado income tax, to accord a seller in a qualified sale the same treatment received by a taxpayer under section 1033 of the internal revenue code relating to gains from involuntary conversion, even though said seller does not qualify under said section 1033 due to the absence of condemnation or the threat or imminence thereof and the buyer of the property purchased initiates the transaction. The executive director shall promulgate such reasonable rules and regulations as are necessary to accomplish the purpose of this paragraph (d).

(IV) This subsection (3)(d) is repealed, effective December 31, 2028.

(e) Repealed.

(f) (I) The amount of any refund or credit for overpayment of income taxes imposed by this state to the extent included in federal taxable income;

(II) The purpose of the subtraction authorized in this subsection (3)(f) is to avoid re-taxing a taxpayer's state income tax refund when a state refund is required to be included as income on the taxpayer's federal return pursuant to the internal revenue code; and

(III) The effectiveness of the subtraction authorized in this subsection (3)(f) is measured by the number of taxpayers claiming the subtraction and the total amount of state refunds claimed as subtractions from Colorado taxable income;

(g) The net operating loss deduction allowed under section 39-22-504;

(h) (I) Prior to January 1, 2024, an amount equal to the difference between the depletion allowance permitted under the internal revenue code for oil shale and an amount which would be permitted as the depletion allowance for oil shale if: The percentage depletion rate were twenty-seven and one-half percent; and the crushing, retorting, condensing, and other processes by which oil, gas, or both oil and gas are removed from oil shale, were deemed to be treatment processes considered as mining.

(II) This subsection (3)(h) is repealed, effective December 31, 2028.

(i) That portion of wages or salaries paid or incurred for the taxable year, the deduction for which is disallowed by section 280C of the internal revenue code;

(j) Any amount treated as a section 78 dividend under section 78 of the internal revenue code;

(k) (I) Prior to January 1, 2025, any amount contributed to a medical savings account pursuant to section 39-22-504.7 (2)(e), to the extent such amount is not claimed as a deduction on the taxpayer's federal tax return.

(II) This subsection (3)(k) is repealed, effective December 31, 2028.

(l) Repealed.

(m) For income tax years commencing on or after January 1, 2014, if a taxpayer is licensed under the Colorado Marijuana Code, article 10 of title 44, or its predecessor codes, an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed by section 280E of the internal revenue code because marijuana is a controlled substance under federal law;

(m.5) For income tax years commencing on or after January 1, 2024, if a taxpayer is licensed pursuant to the Colorado Natural Medicine Code, article 50 of title 44, an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed by section 280E of the internal revenue code because natural medicine is a controlled substance under federal law;

(n) and (o) Repealed.

(p) (I) (A) Except as provided in subsections (3)(p)(I)(B) and (3)(p)(II) of this section, for income tax years beginning on or after January 1, 2021, but before January 1, 2022, the sum of the amount by which taxable income for the specified tax years exceeds the taxable income for the modified specified tax years computed separately for each income tax year, plus the amount added back by the taxpayer as specified in subsection (2)(i) of this section.

(B) For any income tax year included in the calculation under subsection (3)(p)(I)(A) of this section in which the taxpayer was required to apportion or allocate income to Colorado under the provisions of this article 22 applicable to that income tax year, the amount included in the calculation under subsection (3)(p)(I)(A) is the following amount multiplied by the taxpayer's apportionment factor for the tax year: The amount by which taxable income for the specified tax year exceeds the taxable income for the modified specified tax year, plus the amount added back by the taxpayer as specified in subsection (2)(i).

(II) (A) The subtraction calculated under subsection (3)(p)(I) of this section applies after the application of the other subtractions provided for in this subsection (3) and is limited to the lesser of the taxpayer's Colorado taxable income or three hundred thousand dollars.

(B) Any amount of the subtraction calculated under subsection (3)(p)(I) of this section that a taxpayer may not claim by operation of subsection (3)(p)(II)(A) of this section may be carried forward to subsequent tax years as a subtraction from the taxpayer's federal taxable income until exhausted; except that each tax year's subtraction may not exceed the lesser of the taxpayer's Colorado taxable income or one hundred fifty thousand dollars for the income tax years commencing on or after January 1, 2022, but before January 1, 2026, and each year's subtraction may not exceed the taxpayer's Colorado taxable income in any income tax years thereafter. Any subtraction must be applied first to the earliest income tax years possible.

(C) In the case of a taxpayer that apportions and allocates net income as required by section 39-22-303.6 (3)(b) in the taxpayer's income tax year beginning on or after January 1, 2021, but before January 1, 2022, the subtraction applies to the taxpayer's net income apportioned and allocated to Colorado. Any carry forward amount subtracted in a subsequent tax year under subsection (3)(p)(II)(B) of this section is applied to net income apportioned and allocated to Colorado for that subsequent tax year.

(III) A taxpayer that applies the subtraction allowed in this subsection (3)(p) with respect to qualified improvement property shall calculate the gain or loss on a sale of such qualified improvement property for purposes of the subtraction in subsection (3)(c) of this section using the basis reported on their federal income tax return at the time of the sale.

(IV) As used in this subsection (3)(p), unless the context otherwise requires:

(A) CARES Act means the March 2020 Coronavirus Aid, Relief, and Economic Security Act, Pub.L. 116-136.

(B) Colorado taxable income means federal taxable income as modified by this article 22 without regard to this subsection (3)(p).

(C) Retroactive provisions of the CARES Act means the changes made to the internal revenue code in sections 2306 and 2307 of the CARES Act.

(D) Taxable income for the modified specified tax years means the taxpayer's Colorado taxable income for tax years ending before March 27, 2020, as calculated under the internal revenue code and Colorado law applicable to the taxpayer's return as of the date the return was due, as modified by the application of the retroactive provisions of the CARES Act applied to the calculation of the taxpayer's federal taxable income, but only to the extent the taxpayer appropriately applied those provisions to the taxpayer's federal income tax returns for each tax year.

(E) Taxable income for the specified tax years means the taxpayer's Colorado taxable income for tax years ending before March 27, 2020, as calculated under Colorado law applicable to the taxpayer's return as of the date the return was due.

(q) (I) Any amount included in federal taxable income pursuant to section 951 (a) of the internal revenue code with respect to a controlled foreign corporation that is a C corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance pursuant to section 39-22-303 (8)(b)(II); and

(II) The amount of any income included in federal taxable income pursuant to section 951A (a) of the internal revenue code with respect to a controlled foreign corporation that is a C corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance pursuant to section 39-22-303 (8)(b)(II), less any amount deducted under section 250 (a)(1)(B) of the internal revenue code with respect to such income.

(r) Repealed.

(s) (I) For income tax years commencing on or after January 1, 2027, but before January 1, 2038, an amount equal to qualifying capital gains that are subject to tax under this article 22 and that are realized by an owner during the taxable year for the qualified sale of a qualified business.

(II) As used in this subsection (3)(s), unless the context otherwise requires:

(A) Office means the Colorado office of economic development created in section 24-48.5-101.

(B) Owner has the same meaning as set forth in section 39-22-542 (2)(h).

(D) Qualified employee-owned business has the same meaning as set forth in section 39-22-542 (2)(j).

(E) Qualified sale means the conversion to a qualified employee-owned business; except that the conversion must be by an increment of at least twenty percent of the total ownership of the entire qualified employee-owned business.

(F) Qualifying capital gains means the amount of net capital gains, as defined in section 1222 (11) of the internal revenue code, subject to the limitation set forth in subsection (3)(s)(V) of this section.

(III) In accordance with section 39-21-304 (1), which requires each bill that creates a new tax expenditure to include a tax preference performance statement as part of a statutory legislative declaration, the general assembly finds and declares that the purpose of the income tax subtraction provided in this subsection (3)(s) is to:

(A) Induce certain designated behavior by taxpayers, specifically for businesses to establish employee stock ownership plans or employee ownership trusts or to convert to a worker-owned cooperative; and

(B) Provide tax relief for certain businesses or individuals, specifically to businesses that establish employee stock ownership plans or employee ownership trusts or that convert to a worker-owned cooperative.

(IV) The general assembly and the state auditor shall measure the effectiveness of the subtraction in achieving the purpose specified in subsection (3)(s)(III) of this section based on the number and aggregate amount of subtractions claimed in a tax year.

(V) (A) On or before June 30, 2026, the office shall establish and post on its website the total amount of capital gains that may be subtracted from an owner's federal taxable income pursuant to this subsection (3)(s), which amount is in effect for income tax years commencing on or after January 1, 2027, but before January 1, 2038, or until the office adjusts the amount as set forth in subsection (3)(s)(V)(B) of this section.

(B) After June 30, 2026, on or before June 30, 2027, and on or before June 30 of each year thereafter until June 30, 2036, the office may adjust the total amount of capital gains that may be subtracted from an owner's federal taxable income that the office has previously established in accordance with this subsection (3)(s)(V). The adjusted amount must be posted on the office's website and is in effect for income tax years commencing on or after January 1 of the year immediately following the year in which the adjustment is made but before January 1, 2038, or until the office subsequently adjusts the amount as set forth in this subsection (3)(s)(V)(B).

(C) An owner may not subtract more than the amount of capital gains established by the office in accordance with subsection (3)(s)(V)(A) or (3)(s)(V)(B) of this section in the income tax year.

(D) Beginning in January 2027, and in January every year thereafter following a year in which the office adjusts the amount of capital gains that may be subtracted from an owner's federal taxable income pursuant to subsection (3)(s)(V)(B) of this section, the office shall include, as part of its presentation during its SMART Act hearing required by section 2-7-203, information concerning the amount of capital gains that may be subtracted from an owner's federal taxable income that the office has established pursuant to subsection (3)(s)(V)(A) or (3)(s)(V)(B) of this section and the method that the office used to establish the amount.

(VI) This subsection (3)(s) is repealed, effective July 1, 2042.

(t) (I) For income tax years commencing on or after January 1, 2027, but before January 1, 2038, an amount equal to a qualified taxpayer's federal taxable income for the tax year not to exceed one million dollars.

(II) As used in this subsection (3)(t), unless the context otherwise requires:

(A) Qualified taxpayer means a taxpayer that is subject to tax under this article 22 and that is a worker-owned cooperative.

(B) Worker-owned cooperative has the same meaning as set forth in section 1042 (c)(2) of the internal revenue code.

(A) Induce certain designated behavior by taxpayers, specifically for businesses to convert to a worker-owned cooperative; and

(B) Provide tax relief for certain businesses, specifically to provide ongoing support to businesses that convert to a worker-owned cooperative.

(IV) The general assembly and the state auditor shall measure the effectiveness of the subtraction in achieving the purpose specified in subsection (3)(t)(III) of this section based on the number and aggregate amount of subtractions claimed in a tax year and the number of subtractions claimed year over year.

(V) This subsection (3)(t) is repealed, effective July 1, 2042.

Source: L. 64: R&RE, p. 771, � 1. C.R.S. 1963: � 138-1-38. L. 67: p. 854, �� 1, 2. L. 77: (3) amended, p. 1795, � 1, effective May 26; (3) R&RE, p. 1784, � 2, effective June 19. L. 78: (3) R&RE, p. 490, � 2, effective March 24. L. 79: (3)(a) amended, p. 1453, � 2, effective March 26. L. 80: (3)(a) amended, p. 727, � 22, effective January 1, 1981. L. 87: Entire section R&RE, p. 1442, � 9, effective June 22. L. 92: (1) amended, p. 2272, � 9, effective April 16; (2)(c) and (2)(d) amended and (2)(e) added, p. 2279, � 3, effective June 1. L. 94: (3)(k) added, p. 2840, � 5, effective January 1, 1995. L. 95: (3)(l) added, p. 1199, � 1, effective May 31. L. 97: (2)(e)(I) amended, p. 304, � 21, effective July 1. L. 99: (2)(f) added, p. 977, � 3, effective August 4. L. 2000: (2)(g) added, p. 1322, � 4, effective August 2. L. 2004: (2)(f) amended, p. 1209, � 91, effective August 4. Referred 2006: (2)(h) added, L. 2006, 1st Ex. Sess., p. 1, � 2, effective December 31. L. 2008: (2)(e)(I) amended, p. 1604, � 36, effective May 29. L. 2010: (2)(g) repealed, (SB 10-212), ch. 412, p. 2032, � 1, effective July 1; (2)(g) repealed, (HB 10-1256), ch. 133, p. 440, � 3, effective August 11. L. 2013: (3)(n) added, (SB 13-283), ch. 332, p. 1896, � 19, effective May 28; (3)(m) added, (HB 13-1042), ch. 327, p. 1820, � 2, effective August 7. L. 2016: (3)(o) added, (HB 16-1194), ch. 252, p. 1031, � 2, effective August 10. L. 2018: (2)(e)(I) amended, (HB 18-1025), ch. 152, p. 1082, � 21, effective October 1; (3)(m) and (3)(n) amended, (HB 18-1023), ch. 55, p. 591, � 24, effective October 1. L. 2019: (3)(m) amended and (3)(n) repealed, (SB 19-224), ch. 315, p. 2943, � 32, effective January 1, 2020. L. 2020: (2)(i) added, (HB 20-1420), ch. 277, p. 1359, � 3, effective July 11. L. 2021: (3)(p) added, (HB 21-1002), ch. 5, p. 32, � 3, effective January 21; (1) and (3)(j) amended and (2)(j) and (3)(q) added, (HB 21-1311), ch. 298, p. 1777, � 7, effective June 23; (3)(r) added, (HB 21-1327), ch. 300, p. 1804, � 3, effective June 23; (2)(e)(I) amended, (HB 21-1108), ch. 156, p. 898, � 47, effective September 7. L. 2022: (3)(r) repealed, (SB 22-124), ch. 164, p. 1021, � 8, effective May 16; (3)(e) amended, (HB 22-1025), ch. 145, p. 946, � 5, effective August 10. L. 2023: (3)(m.5) added, (SB 23-290), ch. 249, p. 1423, � 43, effective July 1; (2)(k) added, (HB 23-1008), ch. 338, p. 2029, � 4, effective August 7; (3)(d)(I) and (3)(h) amended and (3)(d)(IV) added, (HB 23-1121), ch. 35, p. 119, � 2, effective August 7. L. 2024: (3)(k) amended, (HB 24-1036), ch. 373, p. 2527, � 9, effective August 7. L. 2025: (3)(f) amended, (SB 25-026), ch. 362, p. 1965, � 6, effective August 6; (3)(s) and (3)(t) added, (HB 25-1021), ch. 311, p. 1619, � 2, effective August 6. L. 2025, 1st Ex. Sess.: (2)(l) added and (3)(j) and (3)(q)(II) amended, (HB 25B-1002), ch. 6, p. 22, � 3, effective August 28.

Editor's note: (1) Amendments to subsection (3) by House Bill 77-1402 and House Bill 77-1519 were harmonized.

(2) Subsection (3)(l)(II) provided for the repeal of subsection (3)(l), effective January 1, 2001. (See L. 95, p. 1199.)

(3) Subsection (2)(h) was enacted by House Bill 06S-1020 at the first extraordinary session of the sixty-fifth general assembly. That bill contained a referendum clause and was approved by a vote of the registered electors of the state of Colorado on November 7, 2006. Subsection (2)(h) was effective upon proclamation of the governor, December 31, 2006. The vote count for the measure was as follows:

FOR: 744,475

AGAINST: 722,651

(4) Subsection (3)(e)(II) provided for the repeal of subsection (3)(e), effective July 1, 2024. (See L. 2022, p. 946.)

(5) Subsection (3)(o)(VII) provided for the repeal of subsection (3)(o), effective December 31, 2023. (See L. 2016, p. 1031.)

Cross references: (1) For the legislative declaration contained in the 2008 act amending subsection (2)(e)(I), see section 1 of chapter 341, Session Laws of Colorado 2008.

(2) For the short title (Tax Fairness Act) in HB 20-1420, see section 1 of chapter 277, Session Laws of Colorado 2020.

(3) For the legislative declaration in HB 21-1108, see section 1 of chapter 156, Session Laws of Colorado 2021. For the legislative declaration in HB 21-1311, see section 1 of chapter 298, Session Laws of Colorado 2021.

(4) For the legislative declaration in HB 23-1008, see section 1 of chapter 338, Session Laws of Colorado 2023.

(5) For the legislative declaration in HB 24-1036, see section 1 of chapter 373, Session Laws of Colorado 2024.

(6) For the legislative declaration in HB 25B-1002, see section 1 of chapter 6, Session Laws of Colorado 2025, First Extraordinary Session.