Corporate Income Tax Guide

Part 3: Calculation of Tax

In general, Colorado imposes an income tax on the net income of each C corporation that is subject to Colorado income tax as described in Part 1 of this publication. This Part 3 provides information regarding the calculation of net income, temporary adjustments to the tax rate, and the election to calculate tax alternately on the basis of gross receipts.

A C corporation’s net income is its federal taxable income modified by the additions and subtractions required or permitted under Colorado law and, if applicable, apportioned and allocated as prescribed by Colorado law. Part 4 of this publication discusses required additions to taxable income. Allowable subtractions are described in Part 5. A brief explanation of apportionment and allocation requirements appears in Part 6.

Combined and consolidated returns

The net income of the affiliated C corporations included in any combined, consolidated, or combined/consolidated return is determined pursuant to the rules and regulations promulgated pursuant to section 1502 of the Internal Revenue Code and modified by the additions and subtractions required or permitted by Colorado law, as discussed in Part 4 and Part 5 of this publication.

Dividends that a C corporation includible in a combined report receives from another C corporation also includible in the combined report are excluded from taxable income.

Taxable income for certain foreign entities

For income tax years commencing on or after January 1, 2022, section 39-22-304(1)(b), C.R.S., prescribes specific rules for determining the federal taxable income of a C corporation that is not incorporated in the United States or included in a consolidated federal corporate income tax return. For additional information, please see Department publication Income Tax Topics: Section 303(8)(b) Entities, available online at Tax.Colorado.gov/corporate-income-tax-guidance-publications.

Colorado income tax is calculated as a percentage of Colorado taxable income. The Colorado income tax rate varies based on the date the tax year commences. In the case of a 52-53 week tax year that actually begins in December, but is deemed to have commenced January 1 of the following year for Colorado income tax purposes, the tax rate is determined based on the January 1 date on which the tax year is deemed to begin.  The tax rates for recent tax years are shown below.

For tax years 2022 and later, the Colorado income tax rate is set at 4.4%.

For income tax years commencing prior to January 1, 2023, in lieu of paying an income tax, calculated in the manner described above, any C corporation that meets all of the following conditions may elect to pay a tax of ½% of its annual gross receipts derived from sales in or into Colorado:

• the C corporation is required to file a Colorado return;
• the C corporation’s only activities in Colorado consist of making sales;
• the C corporation does not own or rent real estate within the State of Colorado; and
• the C corporation’s annual gross sales in or into Colorado are $100,000 or less.

In the case of affiliated C corporations filing a combined, consolidated, or combined/consolidated return, the $100,000 limit on annual gross sales in or into Colorado applies to the aggregate sales of all C corporations included in the return.

The following is a list of statutes, regulations, forms, and guidance pertaining to the calculation of Colorado corporate income tax. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Statutes and regulations

• § 39-22-103, C.R.S. Definitions – construction of terms.
• § 39-22-301, C.R.S. Corporate tax imposed.
• § 39-22-303, C.R.S. Dividends in a combined report – foreign source income – affiliated groups – definitions.
• § 39-22-304, C.R.S. Net income of corporation – legislative declaration – definitions – repeal.
• § 39-22-305, C.R.S. Consolidated returns.
• § 39-22-627, C.R.S. Temporary adjustment of rate of income tax – refund of excess state revenues – authority of executive director.
• Rule 39-22-104(5). Gross receipts tax.
• Rule 39-22-301(2).

Forms and guidance

• Tax.Colorado.gov/business-income-tax-forms
• Tax.Colorado.gov/corporate-income-tax-guidance-publications
• Colorado C Corporation Income Tax Return (DR 0112)
• Income Tax Topics: Section 303(8)(b) Entities

Part 4: Additions to Taxable Income

Colorado income tax is based on federal taxable income. However, Colorado law provides for a number of modifications to federal taxable income that apply in the calculation of Colorado tax. Additions are generally required to either (1) subject to Colorado taxation certain types of income that are exempt from federal taxation or (2) eliminate a deduction that is allowed under federal law, but not under state law (referred to as “addbacks” of the amount deducted). This Part 4 provides information regarding the additions to federal taxable income that are required under Colorado law.

Interest on state and local bonds is generally exempt from federal income tax and therefore not included in federal taxable income. However, any state and local bond interest, other than interest from the State of Colorado or any political subdivision thereof, is subject to Colorado income tax and therefore must be added to federal taxable income.

The required addition does not include any amortization of the bond premium and is reduced by the amount of the deductions required by the Internal Revenue Code to be allocated to the interest income.

Colorado generally conforms to federal law and permits in the calculation of Colorado tax the same deductions that are allowed in calculating federal tax. However, Colorado law provides that certain federal deductions are not allowed for Colorado purposes. C corporations that claim any the following deductions in the calculation of their federal taxable income must add back such deductions in the calculation of their Colorado tax.

Deductions for taxes paid

C corporations must add back on their Colorado returns several types of taxes that they may have deducted in the calculation of their federal taxable income. A Colorado addition is required for any of the following taxes the C corporation deducted:

• Colorado income taxes; and
• income, war profits, or excess profits taxes paid or accrued to any foreign country.

An addition is not required for Colorado severance taxes or income taxes imposed by any other state.

Federal net operating loss deduction

A C corporation must make an addition on its Colorado return for any net operating loss deduction claimed in the calculation of its federal taxable income. Under federal law, C corporations may be allowed to claim a net operating loss deduction carried forward or carried back from a prior or subsequent tax year. Colorado also allows a net operating loss deduction that is calculated in the same manner as a federal net operating loss deduction. The amount of the net operating loss that may be carried forward or carried back for Colorado income tax purposes is that portion of the federal net operating loss that is allocated Colorado in the taxable year that the NOL is sustained. Consequently, a C corporation that claims a federal net operating loss deduction must add back that federal deduction on its Colorado return and then claim a separate deduction for its Colorado net operating loss, if applicable.

Please see IRS Publication 542, Corporations for information about federal net operating loss deductions. Please see Part 8 of this publication for information about Colorado net operating losses.

Deductions for certain business expenses

Certain business expenses, discussed below, that are deductible in the calculation of federal taxable income pursuant to section 162 of the Internal Revenue Code must be added back in the calculation of Colorado income tax.

Unauthorized alien labor services

C corporations must make an addition on their Colorado returns for any expenses deducted in the calculation of federal taxable income for wages or remuneration paid to an unauthorized alien for the physical performance of services in Colorado. A C corporation is not required to make any addition if:

• the C corporation did not know of the unauthorized status of the worker at the time of hiring; or
• the C corporation is domiciled in Colorado and is exempt from compliance with federal employment verification procedures under federal law that makes the employment of unauthorized aliens unlawful.

Furthermore, the addition is not required if the worker:

• was lawfully admitted to the United States for permanent residence;
• was authorized to work in the United States by Chapter 12 of Title 8 of the U.S. Code or by the U.S. Attorney General;
• was paid less than $600 in wages or remuneration for the year;
• was hired by the C corporation prior to December 31, 2006;
• was not directly compensated or employed by the C corporation; or
• holds and presents to the C corporation a valid license or identification card issued by the Colorado Department of Revenue.

Clubs that restrict membership

C corporations must make an addition on their Colorado returns for any expenses deducted in the calculation of federal taxable income that were incurred with respect to expenditures made at, or payments made to, any club that both:

• is licensed pursuant to section 44-3-418, C.R.S., to sell alcohol beverages by the drink only to members of the club and guests for consumption on the premises of the club; and
• 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.

Gross conservation easement deduction

C corporations may be able to claim both a federal charitable contribution deduction and a Colorado income tax credit for the donation of a gross conservation easement on property located in Colorado. If a taxpayer claims both a federal deduction and a Colorado credit for the same donation, the taxpayer must make an addition on their Colorado return in the amount of the federal deduction, subject to applicable limitations described below. If the taxpayer carries part of the federal deduction forward to subsequent tax years, the addition is required for any year in which the taxpayer claims the deduction to reduce federal taxable income. The addition is required regardless of whether all or part of the credit is:

• waitlisted by the Division of Conservation;
• carried forward to a subsequent tax year; or
• transferred to another taxpayer.

With respect to any single gross conservation easement donation, the aggregate addition required for all tax years in which federal deductions are claimed is limited to the contribution amount upon which the gross conservation easement credit claim is based.

Business interest deduction

For tax years beginning or ending between March 27, 2020 and December 31, 2020, taxpayers who claim a business interest deduction on their federal income tax return may be required to add back some portion of the deduction. For additional information, please see Department publication CARES Act Tax Law Changes & Colorado Impact, available online at Tax.Colorado.gov/corporate-income-tax-guidance-publications.

Food and beverage expense deduction

For tax years commencing on or after January 1, 2022, but prior to January 1, 2023, a taxpayer who claims a business deduction on their federal income tax return for food and beverage expenses may be required to add back a portion of the deduction on their Colorado return. The required addback is equal to the amount of the deduction claimed in excess of 50% of the expenses. In general, the allowable federal deduction is limited to 50% of the total expenses. However, for tax years 2021 and 2022, section 274(n)(2)(D) of the Internal Revenue Code generally permits deduction of 100% of the expense for food and beverages provided by a restaurant.

Business meals deduction

For tax years commencing on or after January 1, 2024, but prior to January 1, 2031, a taxpayer who claims a business deduction on their federal income tax return for business meals must add back the amount of the deduction on their Colorado return. The required addback is equal to the full amount of the deduction allowed to the taxpayer pursuant to section 274(k) of the Internal Revenue Code.

The following is a list of statutes, regulations, forms, and guidance pertaining to required additions to taxable income. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Statutes and regulations

• § 39-22-301, C.R.S. Corporate tax imposed.
• § 39-22-304, C.R.S. Net income of corporation – legislative declaration – definitions – repeal.
• § 39-22-529, C.R.S. Business expense deduction – labor services – unauthorized alien – definitions.
• Rule 39-22-304(2)(f). Gross conservation easement addition.
• Rule 39-22-504-2. C corporation net operating loss.

Forms and guidance

• Tax.Colorado.gov/business-income-tax-forms
• Tax.Colorado.gov/corporate-income-tax-guidance-publications
• Colorado C Corporation Income Tax Return (DR 0112)
• CARES Act Tax Law Changes & Colorado Impact
• IRS Publication 542, Corporations

Part 5: Subtractions from Taxable Income

Colorado income tax is based on federal taxable income. However, Colorado law provides for a number of modifications to federal taxable income that apply in the calculation of Colorado tax. Subtractions are generally allowed to: (1) fully or partially exempt from state taxation an item of income that is subject to federal taxation or (2) provide a state-level tax deduction for an expense that is not allowed in the calculation of federal income tax. Additionally, a subtraction is allowed under House Bill 21-1002 for certain taxpayers whose federal return for tax year 2020 was affected by the CARES Act. This Part 5 provides information regarding the subtractions from federal taxable income that are allowed under Colorado law.

The foreign source income exclusion and the Colorado net operating loss deduction are discussed separately in Part 7 and Part 8 of this publication, respectively.

Various types of income are subject to federal income tax, and therefore included in federal taxable income, but exempt from Colorado taxation. A subtraction is allowed for the following types of income, if included in a taxpayer’s federal taxable income, in order to exempt this income from Colorado taxation.

Income from U.S. government obligations

A subtraction is allowed for certain types of income from U.S. government obligations to the extent such income is included in federal taxable income. The subtraction applies to interest income on obligations of the United States and its possessions, as well as interest or dividend income on obligations or securities of any authority, commission, or instrumentality of the United States. No subtraction is allowed for any obligation or payment from the U.S. government for services rendered or for income from instruments issued by private financial institutions and guaranteed by the U.S. government.

Colorado income tax refunds

A subtraction is allowed for the amount of any refund or credit for the overpayment of Colorado income taxes that is included in a C corporation’s federal taxable income. The subtraction is not allowed for refunds of Colorado severance taxes or income taxes imposed by any other state.

Section 78 gross-up

A subtraction is allowed for any amount treated as a section 78 dividend under section 78 of the Internal Revenue Code and included in a C corporation’s federal taxable income. Section 78 requires any C corporation that claims a federal foreign tax credit for taxes deemed paid on its behalf pursuant to section 960 to include in its federal taxable income as a dividend an amount equal to such taxes deemed to be paid.

No subtraction is allowed for any amount treated as a dividend pursuant to section 78 of the Internal Revenue Code that is attributable to global intangible low-taxed income (GILTI) and deducted, pursuant to section 250(a)(1)(B)(ii) of the Internal Revenue Code, in the calculation of federal taxable income.

Gain from a “qualified sale”

Prior to January 1, 2024, a subtraction is allowed for any gain from a qualified sale that is included in a C corporation’s federal taxable income. A "qualified sale" is a sale of real or personal property that meets all of the following criteria:

• the sale is between a buyer and a seller who are not related in any manner described in section 267(b) of the Internal Revenue Code;
• the sale is made in good faith
• the buyer initiates the transaction to purchase the property;
• the buyer had or could have obtained the power to condemn such property; and
• the seller does not qualify under section 1033 of the Internal Revenue Code for deferral of the gain due to the absence of condemnation or the threat or imminence thereof and the buyer of the property purchased initiates the transaction.

Income taxed prior to 1965

For income tax years commencing prior to January 1, 2023, a subtraction is allowed for the amount of any annuity, income, or gain included in a C corporation’s federal taxable income if such income was properly included in taxable income in any tax year prior to 1965 and therefore previously taxed by Colorado. The subtraction is allowed if the tax imposed on the income in a year prior to 1965 was incurred by:

• the taxpayer claiming the subtraction; 
• a decedent by reason of whose death the taxpayer acquired the right to receive the income or gain; or
• a trust or estate from which the taxpayer received the income or gain.

Gain from assets acquired prior to 1965

A subtraction is allowed with respect to any gain or loss included in a C corporation’s federal taxable income that is attributable to property that meets all of the following requirements:

• the property was acquired prior to January 1, 1965;
• the property was sold or disposed of in a transaction in which gain or loss was recognized and included in federal taxable income for the tax year; and
• the property had a higher adjusted basis for Colorado income tax purposes than for federal income tax purposes on the date of the sale or disposition.

The subtraction is allowed for the difference in basis, but, if a gain is considered a long-term capital gain for federal income tax purposes, the subtraction is limited to the portion of the gain that is included in federal taxable income.

Capital gain subtraction

Qualifying taxpayers can claim a subtraction for qualifying capital gains included in their federal taxable income. For additional information, please see Department publication Income Tax Topics: Colorado Capital Gain Subtraction, available online at Tax.Colorado.gov/corporate-income-tax-guidance-publications.

Colorado allows subtractions for various types of expenses that do not qualify for deduction in the calculation of federal taxable income. A subtraction is allowed for the following types of expenses.

Wages not deductible due to IRC § 280C

A subtraction is allowed for any portion of wages or salaries paid or incurred by a C corporation for the tax year, but which are not deductible in the calculation of federal taxable income due to section 280C of the Internal Revenue Code. Section 280C disallows or reduces deduction for wages or salaries for which a C corporation claims certain federal credits, such as:

• the Indian employment credit;
• the credit for employer differential wages payments;
• the employer credit for paid family and medical leave;
• the work opportunity credit;
• the empowerment zone employment credit;
• the orphan drug credit;
• the mine rescue team training credit; and
• the credit for increasing research activities.

No subtraction is allowed for any federal deduction disallowed because a C corporation claimed a credit for employer social security and Medicare taxes paid on certain employee tips.

MSA contributions

A subtraction is allowed for any contribution a C corporation makes to an employee’s medical savings account (MSA) during the tax year, unless the C corporation has claimed a deduction for the contribution on its federal income tax return. If a C corporation claims a deduction for the contribution on its federal income tax return, no subtraction may be claimed on the Colorado return. The contribution must meet the requirements of sections 39-22-504.6 and 39‑22‑504.7, C.R.S., to qualify for the subtraction.

Marijuana business expenses

A subtraction is allowed to any C corporation licensed under the Colorado Marijuana Code for an amount equal to any expenditure that would be eligible to be claimed as a federal income tax deduction, but for which deduction is disallowed by section 280E of the Internal Revenue Code because marijuana is a controlled substance under federal law.

Oil shale depletion

Prior to January 1, 2024, a subtraction for oil depletion is allowed to any C corporation that is allowed a deduction for oil depletion pursuant to section 611 of the Internal Revenue Code in the calculation of its federal taxable income. The allowable subtraction is 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 27.5%; 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.

For income tax years beginning on or after January 1, 2021, but before January 1, 2022, a subtraction from federal taxable income is allowed for taxpayers who added back on their Colorado return for a prior year all or part of the business interest deducted on their federal return. For additional information, please see Department publication CARES Act Tax Law Changes & Colorado Impact, available online at Tax.Colorado.gov/corporate-income-tax-guidance-publications.

The following is a list of statutes, regulations, forms, and guidance pertaining to subtractions allowed in the calculation of Colorado income tax. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Statutes and regulations

• § 39-22-301, C.R.S. Corporate tax imposed.
• § 39-22-304, C.R.S. Net income of corporation – legislative declaration – definitions – repeal.
• § 39-22-504.6, C.R.S. Definitions.
• § 39-22-504.7, C.R.S. Medical savings accounts – establishment – contributions – distributions – restrictions – taxation – portability.
• § 39-22-509, C.R.S. Mass transit and ridesharing arrangements – employer deductions.
• § 39-22-518, C.R.S. Tax modification for net capital gains.
• Rule 39-22-504(2). C corporation net operating loss.

Forms and guidance

• Tax.Colorado.gov/business-income-tax-forms
• Tax.Colorado.gov/corporate-income-tax-guidance-publications
• Colorado C Corporation Income Tax Return (DR 0112)
• Income Tax Topics: Colorado Capital Gain Subtraction
• CARES Act Tax Law Changes & Colorado Impact
• IRS Publication 542, Corporations

Part 8: Colorado Net Operating Losses

A Colorado net operating loss deduction is allowed in the same manner as the federal net operating loss deduction, except as otherwise provided in Colorado law. The deduction is subject to several limitations. This Part 8 discusses calculation, carryforward, and deduction of Colorado net operating losses.

Colorado net operating losses are determined with respect to only those C corporations included in the Colorado return. In general, the term C corporation is used in this Part 8 to include all members of a group of C corporations filing a combined, consolidated, or combined-consolidated Colorado return.

A C corporation’s Colorado net operating loss is the portion of its federal net operating loss that is allocated to Colorado in the tax year that the net operating loss is sustained. If a C corporation does not have a federal net operating loss for a tax year, then it does not have a Colorado net operating loss for that tax year.

The portion of the federal net operating loss that is allocated to Colorado is determined by modifying the federal net operating loss by any applicable Colorado additions and subtractions and then apportioning and allocating the resulting modified federal net operating loss, if any, as prescribed by state statute and rule. In general, for a C corporation that has a federal net operating loss, its Colorado net operating loss is any negative amount of “Colorado taxable income before net operating loss deduction” properly determined and reported on its Colorado C Corporation Income Tax Return (DR 0112).

Combined, consolidated & separate returns

In some cases, a group of C corporations included in a federal consolidated return will be different than the group of C corporations included in a combined, consolidated, combined-consolidated, or separate Colorado return. A Colorado net operating loss is determined with respect to only those C corporations included in the Colorado return.

In the case of a combined, consolidated, or combined-consolidated Colorado return, the Colorado net operating loss is based upon the federal net operating loss determined with respect to only the group of C corporations included in the Colorado return. If a group of C corporations filing a combined, consolidated, or combined-consolidated Colorado return does not collectively have a federal net operating loss for a tax year, as determined with respect to only that group of C corporations, the group does not have a Colorado net operating loss for that tax year.

In the case of a separate Colorado return filed by a single C corporation, the Colorado net operating loss is based upon the federal net operating loss determined with respect to only that C corporation. If a C corporation filing a separate Colorado return does not have a federal net operating loss for a tax year, as determined with respect to only that C corporation, it does not have a Colorado net operating loss for that year.

Colorado modifications

In determining a C corporation’s Colorado net operating loss, its federal net operating loss, represented as a negative amount, is modified by any applicable Colorado additions and subtractions required in determining the C corporation’s Colorado income tax for that tax year. Modifications are made on the Colorado C Corporation Income Tax Return (DR 0112) and include the following:

• any addition required by section 39-22-304(2), C.R.S.;
• any subtraction allowed by section 39-22-304(3), C.R.S.; and
• any exclusion of foreign source income pursuant to section 39-22-303(10), C.R.S.

Modifications are determined in accordance with the law in effect for the tax year in which the loss was sustained.

Allocation and apportionment

In determining a C corporation’s Colorado net operating loss, its modified federal net operating loss is allocated and apportioned to Colorado in three steps, all of which are performed on the C corporation’s Apportionment Schedule (Schedule RF).

1. First, unless the C corporation has made an election to treat all income as apportionable income, any nonapportionable income included in a C corporation’s federal taxable income is subtracted from its modified federal net operating loss.
2. Next, the C corporation’s apportionable income is multiplied by the receipts factor calculated on its Apportionment Schedule (Schedule RF).
3. Finally, any nonapportionable income allocated to Colorado is added to the income apportioned to Colorado in the preceding step.

The preceding allocation and apportionment steps apply for tax years commencing on or after January 1, 2019. For prior tax years, a C corporation’s modified federal net operating loss is allocated and apportioned in accordance with the law in effect for the tax year in which the loss was sustained.

Nonapportionable income

Nonapportionable income subtracted in Step 1 and added in Step 3 is the net of the nonapportionable income and any federal expenses, losses, and other deductions and any Colorado modifications that are properly apportioned or allocated to such nonapportionable income.

Example 1. A taxpayer has $110,000 of apportionable income, $90,000 of nonapportionable income, $250,000 of federal deductions, and no Colorado modifications. The result is a modified federal net operating loss of $50,000. To determine the modified federal net operating loss after deduction of nonapportionable income, the $90,000 of nonapportionable income is subtracted from negative $50,000. The result is negative $140,000.

Example 2. A taxpayer has $95,000 of apportionable income, a $30,000 loss that is nonapportionable income, $150,000 of federal deductions, and no Colorado modifications. This results in a modified federal net operating loss of $85,000. To determine the modified federal net operating loss after deduction of nonapportionable income, the negative $30,000 of nonapportionable loss is subtracted from negative $85,000. The result is negative $55,000.

Colorado net operating loss limitation

A C corporation’s Colorado net operating loss is the portion of its federal net operating loss that is allocated to Colorado. Consequently, a C corporation’s Colorado net operating loss is limited to the amount of its federal net operating loss.

If a group of C corporations filing a combined, consolidated, or combined-consolidated Colorado return does not collectively have a federal net operating loss for a tax year, as determined with respect to only that group of C corporations, the group does not have a Colorado net operating loss for that tax year. If a C corporation filing a separate Colorado return does not have a federal net operating loss for a tax year, as determined with respect to only that C corporation, it does not have a Colorado net operating loss for that year.

Colorado net operating losses may be carried forward to the next tax year. The entire amount of any Colorado net operating loss is first carried forward to the tax year immediately following the tax year in which the loss was sustained. Colorado net operating losses may not be carried back to any prior year.

If a C corporation has available for deduction Colorado net operating losses originating in multiple tax years, the C corporation must first deduct the loss arising from the earliest tax year. If all or any part of an available net operating loss may not be deducted because of any applicable limitations (discussed later in this publication), the part that may not be deducted may be carried forward to the next tax year. However, a net operating loss may not be carried forward beyond the following time periods prescribed law.

The deduction a C corporation may claim for a Colorado net operating loss carryforward is limited in multiple ways. First, the Colorado net operating loss deduction a C corporation may claim for any given tax year is limited to amount of the C corporation’s Colorado taxable income for the tax year. A C corporation’s Colorado taxable income is its federal taxable income modified, apportioned, and allocated pursuant to Colorado law.

Additionally, the Colorado net operating loss deduction a C corporation may claim is subject to the same limitations that apply with respect to federal net operating loss deductions. These limitations include, but are not limited to, the following limitations, each of which is discussed later in this publication:

• 80% limitation;
• section 382 limitation;
• section 860E limitation for REMICs; and
• separate return limitation year (SRLY) limitation.

80% limitation

Any deduction claimed for a Colorado net operating loss arising in a tax year beginning after December 31, 2017, is limited to 80% of the C corporation’s Colorado taxable income after the deduction of any Colorado net operating losses arising in tax years beginning prior to January 1, 2018. A C corporation’s Colorado taxable income is its federal taxable income modified, apportioned, and allocated pursuant to Colorado law. The Colorado C Corporation Income Tax Return (DR 0112) for tax years 2019 and later has dedicated lines specifically to impose the 80% limitation.

Section 382 limitation

Section 382 of the Internal Revenue Code limits the use of net operating loss deductions by corporations after a change in ownership. Section 382 provides that, after an ownership change, the amount of a loss corporation's taxable income for any post-change year that may be offset by pre-change losses may not exceed the section 382 limitation for that year. The section 382 limitation generally equals the fair market value of the old loss corporation multiplied by the long-term tax-exempt rate. A loss corporation is any corporation that has a net operating loss, a net operating loss carryforward, or a net unrealized built-in loss for the taxable year in which the ownership change occurs. An ownership change is a greater than 50-percentage-point increase in ownership by 5-percent shareholders during the testing period, which is generally three years. Congress intended the section 382 limitation to apply when shareholders that did not bear the economic burden of the losses acquire a controlling interest in the loss corporation.

For its application to a Colorado net operating loss deduction, the section 382 limitation determined for a federal net operating loss must be apportioned to Colorado using the Colorado apportionment fraction for the old loss corporation for the last full tax year prior to the change in ownership. If the old loss corporation’s Colorado apportionment fraction for the last full tax year prior to the change in ownership does not fairly represent the extent of the old loss corporation's business activity in Colorado, the new loss corporation may petition for, or the executive director may require, an alternative method for apportioning the limitation prescribed by section 382.

Section 860E limitation for REMICs

Pursuant to section 860E of the Internal Revenue Code, the excess inclusion of any holder of a residual interest in a real estate mortgage investment conduit (REMIC) may not be offset by a Colorado net operating loss. In determining the portion, if any, of a C corporation’s Colorado taxable income that may be offset by a Colorado net operating loss, a C corporation’s federal taxable income must first be reduced, prior to modification, allocation, and apportionment, by any excess inclusion determined pursuant to section 860E of the Internal Revenue Code for the tax year.

SRLY limitation

Treasury Regulation 26 CFR § 1.1502-21 prescribes limitations on net operating loss carryforwards from separate return limitation years (“SRLY”). The SRLY rules limit a consolidated group's ability to offset separate return year losses of one member against the income of other members. SRLY losses are usable by a group only to the extent of the positive income contribution of the SRLY member. The SRLY regulations replicate, to the extent possible, separate entity treatment of the SRLY member.

The applicability of the SRLY limitation is determined with respect to the filing of the corporation’s federal income tax return, not its Colorado income tax return. If the SRLY limitation applies to a C corporation’s federal net operating loss, it also applies to the C corporation’s Colorado net operating loss from the same tax year.   

Please see 1 CCR 201-2, Rule 39-22-504-2(3)(v) for guidance regarding the application of the SRLY limitation to Colorado net operating losses.

The following is a list of statutes, regulations, forms, and guidance pertaining to Colorado net operating losses for C corporations. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Statutes and regulations

• § 39-22-504, C.R.S. Net operating losses.
• Rule 39-22-504-2. Colorado Net Operating Losses for C Corporations.
• 26 U.S.C. § 172. Net operating loss deduction.
• 26 CFR § 1.1502-1. Definitions.
• 26 CFR § 1.1502-11. Consolidated taxable income.
• 26 CFR § 1.1502-21. Net operating losses.

Forms and guidance

• Colorado C Corporation Income Tax Return (DR 0112)
• Apportionment Schedule (Schedule RF)

Part 10: Filing and Recordkeeping

Colorado law imposes both filing and recordkeeping requirements on C corporations. Every C corporation that is subject to Colorado income tax must file an annual income tax return and make timely payment of any tax due. Additionally, an amended return must be filed to correct any errors in, or report any changes to, the original return. Finally, C corporations are required to retain any and all records necessary in order to determine the correct amount of tax they owe.

This Part 10 outlines filing and recordkeeping requirements applicable to C corporations.

In general, C corporations are required to file original income tax returns annually, as well as amended returns to correct any errors in, or report any changes to, their original returns. Returns may be filed electronically either directly through the Department’s RevenueOnline filing system or through the IRS’s Modernized e-File (MeF) Program. C corporations may also elect to file a paper, rather than electronic return. Please visit Tax.Colorado.gov and IRS.gov for additional information about filing options.

Filing periods

A C corporation’s taxable year for Colorado income tax purposes is the same as the C corporation’s taxable year for federal income tax purposes, regardless of whether such taxable year is a calendar year, fiscal year, or short year. If a C corporation’s taxable year is changed for federal income tax purposes, its taxable year for Colorado income tax purposes will be similarly changed.

In the application of any provision of Colorado income tax law to a C corporation whose tax year is a 52-53 week tax year, the tax year is deemed to have commenced on the first day of the calendar month beginning nearest to the first day of the 52-53 week year.

See IRS Publication 538, Accounting Periods and Methods for additional information regarding filing periods.

Original returns

Every C corporation that is subject to Colorado income taxation is required to file a Colorado C Corporation Income Tax Return (DR 0112). The return must be signed by the president, vice-president, treasurer, assistant treasurer, chief accounting officer, or other officer duly authorized to act on the C corporation’s behalf. In any case where a receiver, trustee in bankruptcy, or assignee is operating the property or business of a C corporation, such receiver, trustee, or assignee must file a return for the C corporation.

Colorado C Corporation Income Tax Returns are due on the 15^th day of the fourth month following the close of the tax year. For calendar year filers, returns are due April 15^th of the next year. All C corporations are allowed an automatic six-month extension for filing of their income tax returns. 

If either the regular or extended due date falls on a Saturday, Sunday, or legal holiday, the due date will be extended to the next business day.

If a C corporation fails or refuses to file any required return, the executive director of the Department may file a return on the C corporation’s behalf with such information as may be available. The assessment of tax based on the executive director’s filing is as good and sufficient as an assessment based on a return filed by a C corporation.

Amended returns

A C corporation is required to file a Colorado Amended C corporation Income Tax Return (DR 0112X) to report any change made to the federal taxable income originally reported by the C corporation. An amended Colorado return is required whether the change resulted from the filing of an amended federal income tax return or from any final determination made by the Internal Revenue Service (IRS).

A final determination of federal income tax necessitating the filing of an amended Colorado return is the first of the following to occur:

• the C corporation's execution of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (IRS Form 870) with acceptance by the IRS;
• the acceptance by the IRS of an Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (IRS Form 870) executed by the C corporation;
• the payment of any additional tax by the C corporation; or
• any judgment becoming final, whether by stipulation or otherwise, in any judicial proceeding affecting such change in reported federal taxable income.

The C corporation must file the amended Colorado return within 30 days of the filing of the amended federal return or the final determination, whichever applies. If a C corporation fails to file an amended return within the prescribed 30-day period, the period provided for assessment will be extended. Please see Part 11 for additional information regarding the period provided for assessment.

Any C corporation that files or is required to file a Colorado income tax return must disclose to the Department any listed or reportable transactions that may result in a Colorado tax benefit. A Colorado tax benefit includes a tax benefit applied at the federal level or to another state’s income tax or other similar tax, but the consequence of which flows through to reduce Colorado income tax liability. Listed transactions, reportable transactions, and Colorado tax benefits, are defined in section 39‑22‑652, C.R.S., and 1 CCR 201-2, Rule 39‑22‑652.

The disclosure requirement applies regardless of whether the C corporation files or is required to file a Colorado income tax return separately or as a member of an affiliated group included in a combined, consolidated or combined consolidated return.

A C corporation that is required to disclose a listed or reportable transaction must submit such disclosure along with the C corporation’s Colorado income tax return and check the appropriate box on the return to indicate the disclosure is being made. In the case of listed or reportable transaction the C corporation is required to report to the Internal Revenue Service, the C corporation must submit with its Colorado income tax return a complete copy of the entire federal Form 8886, along with any amendments thereto. In the case of listed or reportable transaction the C corporation is not required to report to the Internal Revenue Service, the C corporation must submit with its Colorado income tax return a complete copy of Form DR 1831, Taxpayer Disclosure Statement for Colorado Listed Transaction.

A C corporation that fails to disclose a reportable transaction is subject to a penalty of up to $15,000. A C corporation that fails to disclose a listed transaction is subject to a penalty of up to $50,000. These penalties are in addition to any other penalties the C corporation incurs.

Full payment of Colorado income tax for C corporations is due on the 15^th day of the fourth month following the close of the tax year. For calendar year filers, full payment of tax is due April 15^th of the next year. Interest is due on any tax not paid by the applicable due date, along with penalty, unless certain conditions, described below, are met.

Interest accrues on any late payment of tax from the original due date of the tax, not including any extension, to the date the tax is paid. An extension of the time to file a return does not similarly extend the time to pay the tax. Interest accrues from the original due date until the any tax balance reported on the return is paid. Interest also accrues on any additional tax assessed as the result or an audit or the filing of an amended return. 

The rate of interest accrual depends on the calendar year(s) over which the deficiency continues. Additionally, a discounted rate is allowed if:

• the C corporation pays the tax in full prior to the issuance of a notice of deficiency;
• the C corporation pays the tax in full within 30 days of the issuance of a notice of deficiency; or
• within 30 days of the issuance of a notice of deficiency, the C corporation enters into an agreement to pay the tax in monthly installments.

The discounted and non-discounted, regular interest rates for recent years are listed in the following table.

If a C corporation fails to pay any tax by the applicable due date, the C corporation will owe a late payment penalty. The late payment penalty is the greater of five dollars or 5% of the unpaid tax, plus an additional 0.5% for each month the tax remains unpaid, not to exceed a total of 12%. However, the penalty is waived if all of the following conditions are met:

• the C corporation has paid at least 90% of the tax due by the original due date, not including any extensions;
• the C corporation files a return by the extended due date; and
• the C corporation pays any tax balance reported on the return at the time of filing.

In addition to the late payment penalty, statute authorizes a number of other penalties for:

• failure to pay a notice and demand for payment (collection penalty);
• fraudulent or willful failure to file;
• filing a fraudulent, frivolous, or willfully false return;
• fraudulent failure to pay tax when due or willful attempt to evade tax;
• negligence or disregard for laws, rules, or regulations, without intent to defraud; and
• a tax preparer’s penalty for willful or reckless disregard for applicable laws or rules.

Every C corporation that is subject to Colorado income tax or otherwise required to file a return must keep and preserve such books, accounts, and records as may be necessary to determine the correct amount of tax. Such books, accounts, and records must be kept and preserved for a period of four years following the due date of the return or the payment of the tax. All such books, accounts, and records shall be open for examination by the Department at any time.

The following is a list of statutes, regulations, forms, and guidance pertaining to filing and recordkeeping requirements. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Forms and guidance

• Tax.Colorado.gov
• Tax.Colorado.gov/business-income-tax-forms
• Colorado.gov/RevenueOnline
• Colorado C Corporation Income Tax Return (DR 0112)
• Amended Colorado C Corporation Income Tax Return (DR 0112X)
• Taxpayer Disclosure Statement for Colorado Listed Transaction (DR 1831)
• IRS Publication 538, Accounting Periods and Methods

Statutes and regulations

• § 39-21-109, C.R.S. Interest on underpayment, non-payment, or extensions of time for payment of tax.
• § 39-21-110.5, C.R.S. Rate of interest to be fixed.
• § 39-21-113, C.R.S. Reports and returns – rule.
• § 39-21-119, C.R.S. Filing with executive director – when deemed to have been made.
• § 39-22-111, C.R.S. Accounting periods and methods.
• § 39-22-306, C.R.S. Accounting periods and methods.
• § 39-22-601, C.R.S. Returns.
• § 39-22-608, C.R.S. Form, place, and date of filing return – extension – electronic filing.
• § 39-22-609, C.R.S. Payment of tax – applicable when.
• § 39-22-621, C.R.S. Interest and penalties.
• § 39-22-626, C.R.S. Applicability of amendments to this article to income tax years.
• § 39-22-652, C.R.S. Definitions.
• § 39-22-653, C.R.S. Taxpayer disclosure of reportable or listed transactions.
• § 39-22-655, C.R.S. Penalty for failure to disclose a reportable or listed transaction.
• Rule 39-22-608. Due date for filing income tax returns and payments.
• Rule 39-22-621(2)(j).
• Rule 39-22-652. Definitions.
• Rule 39-22-653. Taxpayer disclosure of reportable or listed transactions.

Part 11: Refunds and Assessments

State law prescribes the period of time for a C corporation to claim a refund for an overpayment of tax or for the Department to issue an assessment for an underpayment of tax. However, statute also provides for the extension of the period for refund or assessment under various circumstances.

A C corporation must file any claim for refund for any year not later than the period provided for filing a claim for refund of federal income tax plus one year. The period provided for filing a claim for refund of federal income tax is affected by various factors, including the date the original return is filed, the date any payment of tax was made, any agreement for extension between the taxpayer and the taxing authority, and a number of other factors not discussed in this publication. The period for filing a claim for refund of Colorado income tax is similarly affected by these factors.

In general, the period provided for claiming a refund of federal income tax is three years. Consequently, the period provided for claiming a refund of Colorado income tax is generally four years. The application of this time period in various circumstances, as well as other factors that may affect the period provided for claiming a refund of Colorado income tax, are discussed in the following sections.

A claim for refund of Colorado corporate income tax is made with the filing of either an original Colorado C Corporation Income Tax Return (DR 0112) or an Amended Colorado C Corporation Income Tax Return (DR 0112X).

Any request made by a C corporation to apply an overpayment toward the estimated tax due for the following tax year is a claim for refund subject to the limitations discussed in this Part 11. If the period for claiming a refund has expired and no refund may be claimed, the crediting of any overpayment toward the following year’s estimated tax is similarly prohibited.

Refunds claimed with original returns

A C corporation may file an original return to claim a refund any time within four years of the due date of the return, not including any extension of the time to file. The claim may include any estimated payments made prior to the due date of the return and any other allowable credits, to the extent either exceed the tax due. No refund is allowed to any taxpayer who fails to file an original income tax return within four years of the due date of the return, not including any extension of the time to file.

Refunds claimed with amended returns

A C corporation generally must file an amended return to claim a refund within four years of the date the original return was filed. If the C corporation did not file its original return timely (by the original due date, including extensions), the refund claim allowable with the amended return is generally limited to payments made within the four years immediately preceding the filing of the amended return. In determining the timeliness of a refund claim, any estimated payments remitted for the tax year are deemed to have been paid on the due date of the original return, not including any extensions.

Any refund claim made with an amended return filed more than four years after the C corporation’s original return is limited to payments made in the three years immediately preceding the filing of the amended return.

Example #1

A C corporation files an original return late, on June 20, 2018 for tax year 2015. The return reports $12,000 of tax, claims $10,000 in estimated payments, and is accompanied by a payment of $2,000 for the remaining tax balance. The C corporation files an amended return on August 15, 2020 reporting a $6,000 decrease in tax and claiming a refund for the $6,000 reduction in tax.

Since the amended return was filed within four years of the original return, but the original return was not filed timely, the refund that may be claimed with the amended return is limited to payments made in the four years preceding the filing of the amended return. The estimated payments were made more than four years prior to the filing of the amended return. Therefore, no refund is allowed for any part of the estimated payments and the refund allowed to the C corporation is limited to the $2,000 of tax paid with the original return within the four years preceding the filing of the amended return.     

Example #2

A C corporation files an original return under extension, on October 15, 2016 for tax year 2015. The return reports $10,000 of tax and claims $6,000 in estimated payments. The C corporation does not remit payment of the remaining $4,000 tax balance until May 10, 2019. The C corporation files an amended return November 20, 2020 reporting a $5,000 decrease in tax and claiming a refund for the $5,000 reduction in tax.

Since the amended return was not filed within four years of the original return, the refund that may be claimed with the amended return is limited to payments made in the three years preceding the filing of the amended return. The estimated payments were made more than three years prior to the filing of the amended return. Therefore, no refund is allowed for any part of the estimated payments and the refund allowed to the C corporation is limited to the $4,000 of tax paid within the three years preceding the filing of the amended return.

Extensions of the period for claiming refunds

If a C corporation and the Internal Revenue Service enter into an agreement to extend the period provided for claiming a refund of federal income tax, the period for claiming a refund of Colorado income tax is extended by the same amount of time. The C corporation may file a claim for refund of Colorado income tax at any time within one year following the expiration of the period agreed upon by the C corporation and the IRS for the claiming of a refund of federal income tax.

The period provided for claiming a refund for Colorado income tax may also be extended by agreement between the C corporation and the Colorado Department of Revenue. Any agreement to extend the period provided for assessment will extend the period provided for filing a claim for refund by the same amount of time. Unless the C corporation fails to file a return or files a false or fraudulent return with intent to evade tax, the time allowed for claiming a refund for any tax year will not expire prior to the expiration of the time allowed for the assessment of any deficiency for the same tax year.

Refund rejections

In the event that Department has, upon review of any return, rejected either in whole or in part a claim for refund made therewith, the Department will mail to the taxpayer a notice of refund rejection. The taxpayer may submit a protest or request a hearing with respect to the rejected refund claim. Please see the section titled Protests and appeals for additional information.

An assessment may be made either by the filing of a return reporting tax due or by the mailing or issuance by the Department of a notice and demand for payment for any additional tax due.

In general, any assessment of tax, penalties, and interest must be made within one year after the expiration of the time provided for assessing a deficiency in federal income tax. The period provided for the assessment of federal income tax is generally three years from the time of filing of the taxpayer’s original return. Consequently, the period provided for assessment of Colorado income tax is generally four years from the filing of the taxpayer’s original return. If the original return was filed prior to the due date, not including any extensions, the original return is considered to be filed on the due date.

In the case of the filing of a false or fraudulent return with intent to evade tax, the tax due may be assessed and collected at any time.

Assessments based on a return

The filing of a return by a C corporation constitutes an assessment with respect to the tax, penalty, and interest reported on the return. If a C corporation has not previously filed an original return for the tax period, the tax due may be assessed at any time the C corporation files a return. If a C corporation fails or refuses to file any required return, the Department may, at any time, file a return on the C corporation’s behalf with such information as may be available, and assess the resulting tax. The assessment based on the executive director’s filing is as good and sufficient as an assessment based on a return filed by a C corporation.

In general, an amended return that reports and assesses any additional tax due must be filed within four years of the filing of the original return.

Assessments resulting from adjustments

At any time within four years of the filing of an original return, whether filed timely, under extension, or otherwise, the Department may examine the return, determine the correct amount of tax, and issue a notice of deficiency for any additional tax due. Following the resolution of any protest and request for hearing or, if the C corporation files no protest or request within the prescribed time, the Department will issue a notice of final determination for any additional tax due.

The period allowed for the Department to assess additional tax may be extended if there is any change made to the C corporation’s federal taxable income. A C corporation is required, as described in Part 11 of this publication, to file an amended return to report any change to the C corporation’s federal taxable income. The Department may assess additional tax any time within one year after the C corporation files the required amended return or the Department discovers the change to federal taxable income, whichever occurs first.

Extensions of the period for assessment

Under various circumstances, the period for assessment may be extended.

Written agreements with the Department

The period allowed for assessment may be extended by written agreement between a C corporation and the Department made prior to the expiration of the period otherwise prescribed by law for assessment. The period established in the written agreement may be further extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Extension of the period for assessment of federal tax

Any extension of the period allowed for the assessment of federal income tax will similarly extend the period for the assessment of Colorado income tax. The period for the assessment of federal tax may be extended by:

• an agreement between the taxpayer and the Internal Revenue Service (IRS) for an extension, or renewals thereof;
• a taxpayer’s filing of a federal income tax refund claim; or
• a taxpayer’s initiation of an administrative or judicial proceeding which has the effect of extending the period allowed for assessment.

If the federal period for assessment is extended, the period within which the Department may issue a notice of deficiency for the same tax year is four years after the applicable Colorado return was filed or one year after the expiration of the extended period for the assessment of federal income tax, whichever is later.

Bankruptcy and other court proceedings

The period for assessment is extended during and for six months after any period during which either:

• the taxpayer's assets are in the control or custody of a court in any proceeding before any court of the United States or any state; or
• the Department is prohibited from collecting by reason of a bankruptcy case under title 11 of the United States Code.

A C corporation that receives a notice of deficiency or notice of refund rejection may submit a written protest and request a hearing to dispute the notice. Any protest or request for hearing must be submitted within 30 days of the date of the notice. The protest or request for hearing must contain at least the following information:

• the taxpayer’s name, address, and account number;
• the tax period(s) involved;
• the type and amount of tax in dispute; and
• a summary statement of the findings with which the taxpayer does not agree and the grounds upon which the taxpayer relies for the purpose of showing the tax is not due.

The protest or request for hearing must be signed by the taxpayer. A protest or request for hearing may be submitted online at Colorado.gov/RevenueOnline or by mail, fax, or email in accordance with instructions included in the notice.

The following is a list of statutes, regulations, forms, and guidance pertaining to refunds and assessments. This list is not, and is not intended to be, an exhaustive list of authorities that govern the tax treatment of every situation. Taxpayers with specific questions should consult their tax advisors.

Statutes and regulations

• § 39-21-103, C.R.S. Hearings.
• § 39-21-104, C.R.S. Rejection of claims.
• § 39-21-107, C.R.S. Limitations.
• § 39-21-108, C.R.S. Refunds.
• § 39-22-103, C.R.S. Definitions – construction of terms.
• § 39-22-601, C.R.S. Returns.
• § 39-22-602, C.R.S. Failure to make return – director may make.
• Rule 39-21-103. Hearings.
• Rule 39-21-108. Refunds.
• Rule 39-22-103(1). Assessment.
• 26 U.S.C. § 6402. Authority to make credits or refunds.
• 26 U.S.C. § 6501. Limitations on assessment and collection.
• 26 U.S.C. § 6511. Limitations on credit or refund.
• 26 U.S.C. § 6513. Time return deemed filed and tax considered paid.

Forms and guidance

• Tax.Colorado.gov
• Tax.Colorado.gov/business-income-tax-forms
• Colorado.gov/RevenueOnline
• Colorado C Corporation Income Tax Return (DR 0112)
• Amended Colorado C Corporation Income Tax Return (DR 0112X)