Corporate Income Tax
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
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.
The table below shows Colorado income tax credits claimed in recent years. Notably, some credits are available for both individual and corporation income taxes.
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
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.
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 for tax year 2015 in the table below.
|...more than||...but not over||...then the tax is calculated as||...of the amount over|
|50,000||75,000||$ 7,500 + 25%||50,000|
|75,000||100,000||13,750 + 34%||75,000|
|100,000||335,000||22,250 + 39%||100,000|
|335,000||10,000,000||113,900 + 34%||335,000|
|10,000,000||15,000,000||3,400,000 + 35%||10,000,000|
|15,000,000||18,333,333||5,150,000 + 38%||15,000,000|
As of tax year 2016, 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 4.63 percent in Colorado to 9.99 percent in Pennsylvania. While Texas levies 4 margin tax, and Washington and Ohio levy a gross receipts tax, these three states do not levy a corporate income tax.