Colorado Updates Corporate Provisions and Expands Specific Personal Income Tax Credits

Before adjourning its 2024 regular session, the Colorado legislature passed H.B. 24-1134, which updates corporate combined group tax rules and definitions and increases the childcare and earned income state tax credits. On May 14, Gov. Polis signed the bill into law.

Corporate Changes

The bill repeals outdated corporate tax provisions tied to prior years and incorporates the following amendments to Colorado revised statute 39-22-303 for tax years beginning before January 1, 2026:

• It specifically defines the terms “combined group” and “unitary business.”
• It eliminates the test requiring affiliates to meet unity requirements for the current and preceding two tax years (commonly referred to as the “three-of-six rule unity test”). C corporation members of an affiliated group will be included in the group tax return once a unitary relationship is established.
• It requires the group tax return to be filed under the parent corporation's name and federal employer identification number if the parent is a member of the group. In the absence of a parent, any corporation elected collectively by the group can be designated as the filing member. Before, Colorado had no specific language addressing this topic.
• Alluding also to the state’s recent change from the Joyce apportionment rule effective with tax years beginning on or after January 1, 2022, H.B. 24-1134 specifies that the numerator of the sales apportionment factor includes amounts sourced to Colorado regardless of the separate entity to which the amounts are attributed (the Finnigan apportionment rule).
• While the concept and practice of the flow up of apportionment factors from a partnership owned by a member of the combined group is not new, the bill includes specific language on the calculation and inclusion of the apportionment flow up and intercompany transactions.

Individual Changes

H.B. 24-1134 increases the percentage of the earned income state tax credit allowed for residents under Colorado revised statute 39-22-123.5 from 38% to 50% of the federal tax credit claimed for year 2024. For 2025, the credit percentage reverts to 35%, and for subsequent years, it is reduced to 25%. 

The bill also extends and increases the child and dependent care refundable tax credit under Colorado revised statute 39-22-119 from 50% to 70% of the amount of the equivalent tax credit amounts claimed on the taxpayer’s federal tax return for tax years beginning in 2026.

BDO will continue to monitor H.B. 24-1134 activity and provide updates as changes occur.