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Corporate Income Tax 

Table of Contents

Background

Colorado’s corporate income tax was enacted in 1937.1  All C Corporations doing business in Colorado are required to file a corporate income tax return (Form 112) with the Colorado Department of Revenue.  For corporations that use the calendar year as the tax year, returns are due by April 15th.  For corporations that use a different fiscal year, the return is due on the 15th day of the third month after the close of the firm’s fiscal year.  C corporations are required to pay Colorado estimated income tax if they anticipate a Colorado tax liability in excess of $5,000 for a given tax year.  Estimated tax liability is paid in four equal installments throughout the year.  For more information and filing instructions, visit the Colorado Department of Revenue website.

Corporate income tax rates have changed over time, including a brief period with graduated rates in the 1980s, as shown in the figure below.  The corporate income tax rate was set to a flat rate of 5.0 percent beginning in tax year 1994.  The flat rate was lowered to 4.75 percent in 1999 and to 4.63 percent in tax year 2000.  Corporate income tax revenue is subject to the TABOR Amendment’s limitations on state revenue and spending.

Colorado Corporate Income Tax Rates since Enactment

Tax Rate

Both corporate and individual income taxes are currently assessed at a tax rate of 4.63 percent.  This rate is applied to the share of federal taxable income attributable to Colorado (though exceptions apply to interstate corporations).  Colorado’s share of federal taxable income is based on the amount of the corporation’s sales that occur in Colorado compared with the sales that occur in other states.  Colorado income tax credits are subtracted from this amount to arrive at the net Colorado corporate income tax liability (the amount paid by a Colorado taxpayer).  The Department of Revenue publishes information on income tax expenditures, including subtractions, deductions, and credits, in its biennial Tax Profile and Expenditure Report.

Corporate Income Tax Calculation.jpg

Additions:

  • the amount of any net operating loss deduction claimed for federal income tax purposes (more information);2
  • the amount of any Colorado income tax deduction and amount of income taxes paid to any other states;3
  • non-Colorado state and municipal bond interest(more information);4
  • any income, war profits, or excess profits, taxes paid or accrued to any foreign country or possession of the U.S. that were deducted on the federal income tax return;5
  • charitable contribution resulting from the donation of a gross conservation easement that qualified for the gross conservation easement credit (more information);6 and
  • expenses paid to a club that restricts membership on the basis of sex, race, religion, color, ancestry or national origin.7

Subtractions:

  • any interest or dividend income from U.S. government obligations exempt from Colorado income tax (more information);8
  • excludable foreign source income;9
  • certain capital gains from the sale of assets located in Colorado and the sale of stock in a Colorado company (more information);10
  • the Colorado net operating loss deduction (more information);11
  • any refund of Colorado income included in federal taxable income (more information);12
  • income from the disposition of assets acquired prior to January 1, 1987 that have a higher Colorado basis than federal basis;13
  • gain from a qualified sale under threat of condemnation, to the extent the sale is included in federal taxable income;14
  • to the extent included in federal taxable income, any income or gain previously taxed by Colorado prior to 1965 either to the corporation, or to a decedent, or an estate, or trust, from which the corporation acquired the income or gain;15
  • the difference between the depletion allowed on oil produced from oil shale and the depletion that would have been allowed were the allowable depletion rate 27 1/2%;16
  • Colorado marijuana business deduction for wages and other business expenses not deductible on the federal return as a result of IRC §280C tax credits;17
  • any amounts included in federal taxable income as dividend income from certain foreign corporations by domestic corporations choosing the foreign tax credit under the provisions of IRC §78;18 and
  • to the extent not claimed as a federal income tax deduction, the amount of a corporation’s contribution to free or partially subsidized ridesharing arrangements for employees, and free or partially free subsidized mass transit costs to or from places of employment.19
Tax Credits

The table below shows Colorado income tax credits claimed in recent years.  Notably, some credits are available for both individual and corporation income taxes.

Tax Exemptions

Nonprofit corporations filing federal Form 990 and exempt from filing a federal income tax return are also exempt from filing a Colorado income tax return.  However, if the organization has income from nonexempt functions that is subject to federal income tax, this unrelated business taxable income is subject to Colorado income tax and a return should be filed using Form 112.20  Insurance companies are exempt from Colorado income tax if they are subject to Colorado’s insurance premium tax.21

 

Distribution

One-third of one percent of state taxable income is credited to the State Education Fund pursuant to the requirements of Amendment 23.  This amounts to about 7.2 percent of revenue from both individual and corporate income taxes.  Money from the State Education Fund is required to be spent on “accountable education reform, for accountable programs to meet state academic standards, for class size reduction, for expanding technology education, for improving student safety, for expanding the availability of preschool through kindergarten programs, for performance incentives for teachers, for accountability reporting, or for public school building capital construction.”22  The remaining revenue from income taxes is credited to the General Fund for spending on general operations.

 

Federal Taxes

All U.S. corporations are required to file a federal corporate income tax return (Form 1120) annually regardless of income, unless the corporation is exempt under Section 501 of the Internal Revenue Code.  Certain special organizations, such as religious organizations, limited liability companies, corporations engaged in farming, and foreign corporations may be required to file a separate form.  Corporations are generally required to file an income tax return by the 15th day of the third month after the end of its tax year.  Federal corporate income tax rates are assessed on a marginal basis for most corporations, where different amounts of income are taxed at different rates, as shown in the table below.

Federal 2018 Corporate Income Tax Rate Schedule
The Federal Tax Cuts and Jobs Act, passed in 2017, created a flat corporate tax rate of 21.0 percent starting in tax year 2018.
 
For more information and instruction for filing federal corporate income taxes, visit the Internal Revenue Service website.

 

State Comparisons

As of tax year 2018, 44 states and the District of Columbia levy a corporate income tax.  For most states the tax is levied at a flat rate, though 13 states levy the tax at graduated rates.  Among the states with a flat tax, rates range from 4.0 percent in Kansas to 9.99 percent in Pennsylvania.  While Texas levies margin tax, and Washington and Ohio levy a gross receipts tax, these three states do not levy a corporate income tax.

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1Colo. Const. article X, § 17 and 19, and Section 39-22-320, C.R.S.
2Section 39-22-504, C.R.S., and Section 39-22-304 (2)(c), C.R.S.
3Section 39-22-304 (2)(d), C.R.S.
4Section 39-22-304 (2)(b), C.R.S
5Section 39-22-304 (2)(a), C.R.S.
6Section 39-22-304 (2)(f), C.R.S.
7Section 39-22-304 (2)(e), C.R.S.
8Section 39-22-304 (3)(a), C.R.S.
9Section 39-22-303 (10), C.R.S.
10Section 39-22-518, C.R.S.
11Section 39-22-304 (3)(g), C.R.S, and Section 39-22-504, C.R.S
12Section 39-22-304 (3)(f), C.R.S.
13Section 39-22-304 (3)(c), C.R.S.
14Section 39-22-304 (3)(d), C.R.S.
15Section 39-22-304 (3)(e), C.R.S.
16Section 39-22-304 (3)(h), C.R.S.
17Section 39-22-304 (3)(i), (m) and (n), C.R.S.
18Section 39-22-304 (3)(j), C.R.S.
19Section 39-22-509, C.R.S.
20Section 39-22-112 (2), C.R.S.
21Section 39-22-112 (1), C.R.S.
22Colo. Const. article IX, § 17.
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