Newly enacted Colorado legislation makes changes to the state’s income tax reporting requirements for passthrough entities and extends filing deadlines for C corporations.
H.B. 23-1277 was signed by Gov. Jared Polis (D) on June 1. It consolidates two of the income tax reporting options for S corporations and partnerships with nonresident owners, restores a 30-day gap between the federal and state corporate income tax return deadlines for C corporations, and conforms with the Multistate Tax Commission’s model statute on reporting adjustments to federal taxable income. The measure is set to take effect 90 days after the legislature’s adjournment from session, which occurred May 8.
H.B. 23-1277 — sponsored by House Finance Committee members Bob Marshall (D) and Rick Taggart (R), Senate Finance Committee Vice Chair Chris Kolker (D), and Senate Minority Caucus Chair Jim Smallwood (R) — was passed by the Senate on a 34–0 vote May 6 after the House passed it 63 to 0 on April 24.
Meghan Dollar of the Colorado Chamber of Commerce told Tax Notes June 2 that the chamber supported H.B. 23-1277. “The combining of tax forms makes things easier for a lot of our members,” she said, adding that the restoration of the month-long gap between the federal and state C corporation return filing deadline was “a big reason we supported that bill.”
H.B. 23-1277 was one of nine tax bills that the chamber’s tax council took positions on this legislative session, Dollar said.
Tony Gagliardi with the Colorado desk of the National Federation of Independent Business told Tax Notes June 2 that his group also supported the bill. He said the tax reporting efficiencies adopted at the state level serve as a net positive for businesses. “Anything that lessens the man-hour need for filing is always a welcome relief,” Gagliardi added.
H.B. 23-1277 combines two of the state’s three income tax reporting options for passthrough entities with nonresident owners, consolidating the options for passthrough entities to file a composite return on behalf of their owners and to withhold an estimated tax payment. Passthrough entities also have the option to collect and file an agreement that the owners will file separate returns. The bill clarifies that the required tax payment for nonresidents’ composite returns is equal to “the aggregate income attributable to the state multiplied by the highest marginal tax rate in effect under section 39-22-104.”
The bill extends the state corporate income tax return filing deadline from April 15 to May 15 and sets the extension deadline to November 15 rather than October 15 for C corporations, restoring the one-month gap between the federal and state corporate income tax return filing deadlines that existed before Congress in 2017 changed the federal deadline to April 15, according to the bill summary.
H.B. 23-1277 also conforms Colorado to the MTC’s model statute for reporting adjustments to federal taxable income, which allows passthrough entities and the state Department of Revenue more time and flexibility to address changes to federal centralized partnership audit procedures under the Bipartisan Budget Act of 2015.
The Council On State Taxation in an April 10 letter expressed support for H.B. 23-1277’s filing deadline extension for C corporations and adoption of the MTC model statute, saying that the bill “takes several steps to improve the fairness and efficiency of Colorado‘s tax administration.”
An April 7 fiscal note estimates that the new law will reduce general fund revenue by $85,950 and general fund reserves by $11,412 in fiscal 2025.
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