Colorado: Proposed regulations address holding company inclusion in combined group

In 2019, legislation (Senate Bill 233) was enacted in Colorado providing that domestic corporations with no property and payroll or de minimis property or payroll can be included in a Colorado combined group. The legislation was in response to two Colorado Supreme Court decisions (Dep’t of Rev. v. Agilent and Dep’t of Rev. v. Oracle) holding that domestic holding companies that had no property and payroll could not be required to be included in a Colorado combined report with their affiliates because a company with no property or payroll by definition cannot have 20 percent of its property and payroll in the U.S.

The Colorado Department of Revenue has proposed three rules addressing this law change. The first, proposed Rule 39-22-303.1, clarifies that Senate Bill 233 took effect on August 2, 2019 and applies to tax periods beginning on and after September 1, 2019.  The original legislation did not specify the tax years to which Senate Bill 233 applied.  Proposed Rule 39-22-303(11)(f) defines “de minimis” to mean less than $100,000 of property and payroll, combined.  The third proposed rule would repeal a current rule stating that because companies with no property or payroll of their own cannot have twenty percent or more of their factors assigned to locations in the United States, such corporations, by definition, cannot be included in a combined report.  The Department is holding a virtual hearing on the proposed rules on September 30, 2020. Please contact Derek Weisbruch at (303) 382-7299 with questions.