C.R.S. § 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. (c) The federal net operating loss deduction; (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). (C) Qualified business has the same meaning as set forth in section 39-22-542 (2)(i). (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. (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)(t) is to: (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.