United States

Colorado: Department Addresses Computation of Mixed Group Apportionment

Apr 13, 2015
From KPMG TaxWatch

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Under Colorado law, an affiliated group of corporations that meets the state’s test for unity must be included in a combined report for the current and two immediately prior years despite the fact that the affiliates are subject to different apportionment formulas. Recently, an affiliated group that was required to file a combined report requested guidance from the Department of Revenue on how to apportion its income when the combined group included corporations required to use the general apportionment provisions, as well as members that were required to use the special rules for financial institutions. The Department, acknowledging that there is little guidance on point, ruled that the group could apply the methodology set forth in an earlier private letter ruling (PLR 11-002). This methodology requires the financial and non-financial members to calculate modified federal taxable income as separate subgroups. All intercompany transactions are eliminated (regardless of whether such transactions were between entities included in a different subgroup). The separate subgroups then separately allocate allocable income and loss, and apportion business income or loss using the apportionment method and factors applicable to that subgroup.  Business income computed by each subgroup is added together to produce an aggregated tax base to which the income tax rate applies. The Department, although agreeing the group could utilize the method adopted in the earlier ruling, noted that it is currently revising its regulations to address how to apportion the income of a combined group that includes entities required to use different apportionment formulas.  The approach adopted in the revised regulations, which are expected to be final at some point in 2015, may be different from the guidance in PLR 11-002 and must be applied prospectively in the year when the regulation is finalized.  Please contact Steve Metz at (303) 382-7177 with questions on PLR 15-005.



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