Coronavirus Disease 2019 (COVID-19) in Colorado: State & National Resources

Revenue Regulation 39-22-303(12)(c) -- Notice

Notice regarding Revenue Regulation 39-22-303(12)(c).

Taxpayers should not rely on Revenue Regulation 39-22-303(12)(c) until further notice.

Section 303-22-303(12)(c), C.R.S, provides that only C corporations that have more than 20% of their property and payroll located inside the United States may be included in a corporate taxpayer’s combined return. In 1994 the Department adopted Regulation 39-22-303.12(c) to address the treatment of Foreign Sales Corporations (“FSCs”) under section 303-22-303(12)(c), C.R.S. FSCs may receive a reduction in U.S. federal income tax related to certain foreign exports, but do not necessarily have property or payroll for Colorado combined reporting purposes. Regulation 303.12(c) provides that corporations that have no property or payroll cannot have 20% or more of property or payroll located in the United States and therefore cannot be included in a combined report.

This rule was intended to address FSCs in particular. Nevertheless, some taxpayers have interpreted Regulation 303.12(c) to apply to domestic holding companies with no foreign operations and have argued that they can exclude any domestic C corporation from their combined returns if it has no property or payroll, even if it does not do business in a foreign country. The Department disagrees with this interpretation. This issue is currently being addressed in the Colorado courts.

The Department will wait for a final ruling from the courts on the application of section 39-22-303(12)(c), C.R.S., and Regulation 303.12(c) before considering any further action on Regulation 303.12(c). Pending that determination, taxpayers should not rely on this regulation except as it applies to an FSC.