Tax Insight

Colorado enacts worldwide combined reporting regime with water’s-edge election, repeals 80/20 company treatment

Insight
9 minute read
June 19, 2026

What happened?

On June 4 Colorado enacted legislation providing for default worldwide unitary combined reporting with a 10-year water’s-edge election. The legislation also repeals the 80/20 rule, under which a C corporation is excluded from the unitary combined return if 80% or more of its property and payroll are assigned to locations outside the United States. These changes are effective for tax years beginning on or after January 1, 2027.

[H.B. 1289, enacted 6/3/26]

Why is it relevant?

This legislation continues a significant shift in Colorado’s unitary combined reporting regime. Under 2024 legislation, Colorado replaced its historic “3 of 6” unitary test with a statement of constitutional principles for determining if a unitary business exists, effective for tax years beginning on or after January 1, 2026, among other unitary combined reporting changes. (Click here for PwC’s Insight on the changes.) Now, for the 2027 tax year and forward, Colorado unitary combined groups will need to determine whether to compute income and apportionment on a worldwide basis or make a water’s-edge election that is binding for 10 years (unless otherwise allowed by the Department of Revenue).

Actions to consider

Taxpayers filing on a unitary combined basis should model the potential impact of the legislation’s worldwide and water’s-edge reporting rules, incorporating changes to the unitary combined group test adopted in the prior legislation. Both the worldwide and water’s-edge rules appear to be based on the Multistate Tax Commission (MTC) model statute, but with some significant divergences. Unitary combined groups will need to determine the impact of the unitary definition changes for 2026 tax year filings and apply these determinations in deciding whether to make a water’s-edge election beginning with the 2027 tax year return filing.