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Colorado Supreme Court rules holding company with no property or payroll not an includable corporation

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May 2019

UPDATE: S.B. 233 was signed by the governor on May 31, 2019.


On May 28, the Colorado Supreme Court rendered two decisions concluding that holding companies with no property or payroll do not satisfy the statutory requirement of an ‘includable corporation’ necessary to be a member of a Colorado combined group. The Court found support in a Colorado Department of Revenue regulation ‘unambiguously’ providing that a corporation with no property and payroll of its own may not be included in a combined return.

Additionally, the Court ruled that the Department could not assert its discretionary allocation powers to adjust the taxpayers’ income because allowing such an adjustment would render meaningless Colorado’s statutory objective test for a combined group member and because the Department failed to prove that such an adjustment was necessary to ‘avoid abuse.’

The takeaway

Although the enactment of S.B. 19-233 would include a holding company with no property or payroll as a member of a Colorado combined group, such treatment would only be effective prospectively, rendering the Agilent and Oracle decisions relevant for open tax years.  

Additionally, the Agilent and Oracle decisions remain instructive for their determinations regarding the Department’s use of discretionary allocation.  Consistent with the Court’s opinion, the Department may be burdened with having to show something beyond a taxpayer’s reduced tax liability and prove taxpayer abuse in order to exercise its discretionary allocation powers.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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