Second Regular Session
Seventy-third General Assembly
STATE OF COLORADO
REREVISED
This Version Includes All Amendments
Adopted in the Second House
LLS NO. 22-0769.01 Ed DeCecco x4216
SENATE BILL 22-124
Senate Committees House Committees
Finance Business Affairs & Labor
Appropriations Appropriations
A BILL FOR AN ACT
C
ONCERNING THE AUTHORITY OF A PASS -THROUGH BUSINESS ENTITY101
TO ELECT TO PAY STATE INCOME TAXES AT THE ENTITY
LEVEL.102
Bill Summary
(Note: This summary applies to this bill as introduced and does
not reflect any amendments that may be subsequently adopted. If this bill
passes third reading in the house of introduction, a bill summary that
applies to the reengrossed version of this bill will be available at
http://leg.colorado.gov
.)
The "SALT Parity Act" (act) was enacted in 2021 and, for income
tax years commencing on or after January 1, 2022, the act allows
pass-through entities to elect to pay state income tax at the entity level,
which allows the entity to claim an unlimited deduction at the federal
level for state and local taxes paid. While this election reduces federal
HOUSE
Amended 3rd Reading
May 10, 2022
HOUSE
Amended 2nd Reading
May 5, 2022
SENATE
3rd Reading Unamended
April 27, 2022
SENATE
Amended 2nd Reading
April 26, 2022
SENATE SPONSORSHIP
Woodward and Kolker, Hisey, Holbert, Kirkmeyer, Rankin, Ginal, Hinrichsen, Pettersen,
Zenzinger
HOUSE SPONSORSHIP
Ortiz and Van Winkle, Lynch, Van Beber, Bernett, Bird, Bockenfeld, Carver, Exum,
Garnett, Herod, Jodeh, Lindsay, McCluskie, McLachlan, Mullica, Neville, Pico, Ricks,
Roberts, Sandridge, Snyder, Soper, Titone, Valdez A., Valdez D., Young
Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.
Capital letters or bold & italic numbers indicate new material to be added to existing statute.
Dashes through the words indicate deletions from existing statute. taxable income for the pass-through entity, it does not reduce Colorado
taxable income under current law.
The bill makes provisions of the act retroactive to January 1, 2018.
Be it enacted by the General Assembly of the State of Colorado:1
SECTION 1. In Colorado Revised Statutes, 39-22-202, add (4)2
as follows:3
39-22-202. Resident partners - definition. (4) F
OR PURPOSES OF
4
SECTION 39-22-108, EACH RESIDENT PARTNER IS CONSIDERED TO HAVE5
PAID A TAX ON EACH RESIDENT PARTNER IN AN AMOUNT EQUAL TO EACH6
RESIDENT PARTNER'S PRO RATA SHARE OF ANY NET INCOME TAX PAID BY7
THE PARTNERSHIP TO A STATE THAT DOES NOT MEASURE THE INCOME OF8
PARTNERS OF A PARTNERSHIP BY REFERENCE TO THE INCOME OF THE9
PARTNERSHIP. AS USED IN THIS SUBSECTION (4), "NET INCOME TAX"10
MEANS ANY TAX IMPOSED ON , OR MEASURED BY, A PARTNERSHIP'S NET11
INCOME.12
SECTION 2. In Colorado Revised Statutes, 39-22-343, amend13
(1) as follows:14
39-22-343. Election. (1) (a) Notwithstanding sections 39-22-201,15
39-22-302, and 39-22-322, and except as provided in subsection (2) of16
this section for income tax years commencing on or after January 1, 202217
J
ANUARY 1, 2018, an S corporation or partnership may annually elect to
18
be subject to tax at the entity level for the taxable period.19
(b) E
XCEPT AS SET FORTH IN SUBSECTION (1)(c)(I) OF THIS
20
SECTION, the S corporation or partnership shall make the election on the21
return filed by such S corporation or partnership under section 39-22-601.22
The filing of such A return FILED UNDER SECTION 39-22-601 OR23
SUBSECTION (1)(c)(I) OF THIS SECTION is binding on all electing24
124-2- pass-through entity owners.1
(c) (I) F
OR INCOME TAX YEARS COMMENCING ON OR AFTER
2
J
ANUARY 1, 2018, BUT PRIOR TO JANUARY 1, 2022, THE S CORPORATION
3
OR PARTNERSHIP MUST MAKE THE ELECTION ON OR AFTER SEPTEMBER 1,4
2023, BUT BEFORE JULY 1, 2024, IN A COMPOSITE AMENDED TAX RETURN5
FOR ALL OF THE YEARS FOR WHICH THE ELECTION IS MADE THAT IS FILED6
ON BEHALF OF THE S CORPORATION OR PARTNERSHIP AND ALL OF THE7
ELECTING PASS-THROUGH ENTITY OWNERS. THE DEPARTMENT OF REVENUE8
SHALL ESTABLISH THE RETURN, WHICH SHALL NOT INCLUDE ANY CHANGES9
TO THE PAST RETURNS OTHER THAN THOSE THAT ARE DIRECTLY RELATED10
TO THE ELECTION. THE PROVISIONS OF SECTIONS 39-21-107 (2) AND11
39-21-108
(1) SHALL NOT APPLY TO THE PAYMENT OR REFUND OF THE TAX
12
MADE PURSUANT TO THE RETURN .13
(II) N
OTWITHSTANDING ANY OTHER PROVISION OF LAW , IF AN S
14
CORPORATION OR PARTNERSHIP FILES A RETURN SPECIFIED IN SUBSECTION15
(1)(c)(I)
OF THIS SECTION, NEITHER THE S CORPORATION OR PARTNERSHIP
16
NOR THE ELECTING PASS-THROUGH ENTITY OWNERS SHALL INCUR ANY17
PENALTIES FOR FILING LATE NOR OWE INTEREST ON SUCH AMOUNTS , AND18
THE DEPARTMENT SHALL NOT BE REQUIRED TO PAY PENALTIES OR19
INTEREST ON ANY AMOUNTS OWED TO THE TAXPAYERS .20
(III) N
OTWITHSTANDING THE DATES PROVIDED IN SUBSECTION
21
(1)(c)(I)
OF THIS SECTION, THE DEPARTMENT SHALL HAVE ONE YEAR FROM
22
THE DATE THE COMPOSITE AMENDED TAX RETURN IS FILED TO REVIEW THE23
RETURN AND MAKE A WRITTEN PROPOSED ADJUSTMENT IN ACCORDANCE24
WITH SECTION 39-21-103. THE DEPARTMENT MUST MAKE ANY25
ASSESSMENT WITHIN ONE YEAR AFTER A FINAL DETERMINATION IS MADE26
UNDER SECTION 39-21-103 (8). ANY FINAL DETERMINATION MADE AS27
124
-3- SPECIFIED IN THIS SUBSECTION (1)(c)(III) MAY BE ENFORCED AT ANY TIME1
WITHIN SIX YEARS FROM THE DATE OF THE FINAL DETERMINATION .2
SECTION 3. In Colorado Revised Statutes, 39-22-344, amend3
(1) introductory portion, (2), and (3), as follows:4
39-22-344. Imposition of tax. (1) With respect to any taxable5
period for which it has made the election under section 39-22-343, an6
electing pass-through entity is subject to a tax in an amount equal to four7
and fifty-five one-hundredths percent of THE TAX RATE SET FORTH IN8
SECTION 39-22-301 FOR THE APPLICABLE INCOME TAX YEAR MULTIPLIED9
BY the sum of the following, all as determined pursuant to sections10
39-22-202, 39-22-203, 39-22-322, and 39-22-323:11
(2) An electing pass-through entity is treated as a corporation12
under section 39-22-606 with respect to the tax imposed under this13
subpart 3; except that section 39-22-606 (5)(c)(I) THE REQUIREMENT TO14
MAKE ESTIMATED PAYMENTS UNDER SECTION 39-22-606 does not apply15
during the first taxable period for which this subpart 3 is applicable FOR16
INCOME TAX YEARS COMMENCING PRIOR TO JANUARY 1, 2023.17
(3) Any credit allowed pursuant to this article 22 that is18
attributable to the activities of an electing pass-through entity in the19
taxable year shall be claimed by the entity and not IS passed through to or20
AND MUST BE claimed by the electing pass-through entity owner.21
Notwithstanding any section to the contrary in this article 22, any excess22
income tax credit, net operating loss, or other modification may be carried23
forward on the electing pass-through entity's return but may only be24
utilized in a year in which the electing pass-through entity has made the25
election allowed in section 39-22-343; except that any limitation specified26
in the specific section for an income tax credit, the net operating loss, or27
124
-4- any other modification shall apply to the electing pass-through entity.1
SECTION 4. In Colorado Revised Statutes, amend 39-22-345 as2
follows:3
39-22-345. Owner exclusion. (1) Notwithstanding sections4
39-22-201 and 39-22-322, and as provided in 39-22-104 (4)(aa) and5
39-22-304 (3)(r), electing pass-through entity owners shall not be liable6
for the tax and the alternative minimum tax under this article 22 in their7
separate or individual capacities, and the electing pass-through entity's8
income attributable to the state and the income not attributable to the state9
is not taken into account by the electing pass-through entity owners.10
(2) Notwithstanding the provisions of this subpart 3 and sections11
39-22-104 (4)(aa) and 39-22-304 (3)(r), The basis in the hands of an12
electing pass-through entity owner in the interest in the partnership or the13
stock or indebtedness in the S corporation is determined as if the election14
under section 39-22-343 had not been made.15
SECTION 5. In Colorado Revised Statutes, amend 39-22-346 as16
follows:17
39-22-346. Credit for tax paid in other states. An electing18
pass-through entity is entitled to the credit under section 39-22-108, and19
subject to the limitations of section 39-22-108, for taxes paid to other20
states with respect to the electing pass-through entity's income not21
attributable to this state that is subject to taxation pursuant to section22
39-22-344 whether the tax was paid by the electing pass-through entity23
itself or by the electing pass-through entity owners. The resident electing24
pass-through entity owners are not entitled to any credit under section25
39-22-108 with respect to income of the electing pass-through entity FOR26
PURPOSES OF THE RESIDENT PASS-THROUGH ENTITY OWNERS , THE CREDIT27
124
-5- ALLOWED UNDER SECTION 39-22-108 IS CALCULATED WITHOUT REGARD1
TO THE CREDIT ALLOWED UNDER SECTION 39-22-347.2
SECTION 6. In Colorado Revised Statutes, add 39-22-347 as3
follows:4
39-22-347. Credit for electing pass-through entity owner - tax5
preference performance statement - legislative declaration.6
(1) (a) T
HE GENERAL ASSEMBLY HEREBY FINDS AND DECLARES THAT THE
7
PURPOSE OF THIS TAX CREDIT IS TO:8
(I) E
NSURE THE STATE DOES NOT HAVE A NET TAX REVENUE
9
CHANGE WHILE ACCOMPLISHING THE PURPOSE SET FORTH IN SECTION10
39-22-341;
AND
11
(II) R
EPLACE A RELATED STATE INCOME TAX DEDUCTION .
12
(b) (I) N
OTWITHSTANDING SECTION 39-21-304 (2), THE PURPOSE
13
OF THE TAX EXPENDITURE CREATED IN THIS SECTION IS TO AVOID DOUBLE14
TAXATION OF INCOME ON ELECTING PASS -THROUGH ENTITY OWNERS .15
(II) T
HE GENERAL ASSEMBLY AND THE STATE AUDITOR SHALL
16
MEASURE THE EFFECTIVENESS OF THE CREDIT CREATED IN THIS SECTION17
IN ACHIEVING THE PURPOSE SPECIFIED IN SUBSECTION (1)(b)(I) OF THIS18
SECTION BASED ON WHETHER THE AMOUNT OF THE CREDIT IS EQUAL TO19
THE AMOUNT OF THE TAX REVENUE COLLECTED UNDER SECTION20
39-22-344.21
(2) S
UBJECT TO THE LIMITATIONS SET FORTH IN SUBSECTION (3) OF
22
THIS SECTION, FOR INCOME TAX YEARS COMMENCING ON OR AFTER23
J
ANUARY 1, 2018, AN ELECTING PASS-THROUGH ENTITY OWNER IS
24
ALLOWED A CREDIT AGAINST THE TAX IMPOSED BY THIS ARTICLE 22 THAT25
IS AN AMOUNT EQUAL TO THE SHARE OF THE TAX IMPOSED PURSUANT TO26
SECTION 39-22-344 (1) ON THE ELECTING PASS-THROUGH ENTITY WITH27
124
-6- RESPECT TO THE ELECTING PASS-THROUGH ENTITY OWNER 'S INCOME.1
(3) N
O CREDIT IS ALLOWED TO AN ELECTING PASS -THROUGH
2
ENTITY OWNER UNDER SUBSECTION (2) OF THIS SECTION UNLESS THE3
ELECTING PASS-THROUGH ENTITY PAID THE TAX IMPOSED UNDER THIS4
ARTICLE 22 AND PROVIDED SUFFICIENT INFORMATION ON THE ELECTING5
PASS-THROUGH ENTITY TAX RETURN, AS PRESCRIBED BY THE DEPARTMENT6
OF REVENUE, TO IDENTIFY THAT ELECTING PASS-THROUGH ENTITY OWNER.7
(4) A
NY AMOUNT OF THE CREDIT ALLOWED BY THIS SECTION THAT
8
EXCEEDS THE ELECTING PASS-THROUGH ENTITY OWNER 'S INCOME TAXES9
DUE IS REFUNDED TO THE ELECTING PASS-THROUGH ENTITY OWNER .10
SECTION 7. In Colorado Revised Statutes, 39-22-104, amend11
(3)(r); and repeal (4)(aa) as follows:12
39-22-104. Income tax imposed on individuals, estates, and13
trusts - single rate - report - legislative declaration - definitions -14
repeal. (3) There shall be added to the federal taxable income:15
(r) Notwithstanding subsection (3)(o) of this section, for income16
tax years commencing on or after January 1, 2022 JANUARY 1, 2018, an17
amount equal to the deduction taken under section 199A of the internal18
revenue code, except to the extent the deduction is otherwise disallowed19
under section 265 of the internal revenue code, for an electing20
pass-through entity owner of an electing pass-through entity, as such21
terms are defined in section 39-21-342, that makes the election allowed22
in subpart 3 of part 3 of this article 22.23
(4) There shall be subtracted from federal taxable income:24
(aa) For income tax years commencing on or after January 1,25
2022, an amount equal to the electing pass-through entity owner's26
distributive share of the electing pass-through entity's income attributable27
124
-7- to the state that is taxed pursuant to the provisions of subpart 3 of part 31
of this article 22 and income not attributable to the state that is taxed2
pursuant to the provisions of subpart 3 of part 3 of this article 22.3
SECTION 8. In Colorado Revised Statutes, 39-22-304, repeal4
(3)(r) as follows:5
39-22-304. Net income of corporation - legislative declaration6
- definitions - repeal. (3) There shall be subtracted from federal taxable7
income:8
(r) For income tax years commencing on or after January 1, 2022,9
an amount equal to the electing pass-through entity owner's distributive10
share of the electing pass-through entity's income attributable to the state11
that is taxed pursuant to the provisions of subpart 3 of part 3 of this article12
22 and income not attributable to the state that is taxed pursuant to the13
provisions of subpart 3 of part 3 of this article 22.14
SECTION 9. In Colorado Revised Statutes, 39-22-601, amend15
(2.5)(e) and (5)(e) as follows:16
39-22-601. Returns. (2.5) (e) With respect to each of its17
nonresident shareholders, an S corporation shall, for each taxable period,18
either timely file with the department of revenue an agreement, as19
provided in paragraph (f) of this subsection (2.5) SUBSECTION (2.5)(f) OF20
THIS SECTION, or make a payment to this state as provided in paragraph21
(h) of this subsection (2.5) SUBSECTION (2.5)(h) OF THIS SECTION; EXCEPT22
THAT THIS SUBSECTION (2.5)(e) SHALL NOT APPLY TO AN S CORPORATION23
THAT MAKES THE ELECTION ALLOWED UNDER SUBPART 3 OF PART 3 OF24
THIS ARTICLE 22.25
(5) (e) With respect to each of its nonresident partners, a26
partnership shall, for each taxable period, either timely file with the27
124
-8- department of revenue an agreement, as provided in paragraph (f) of this1
subsection (5) SUBSECTION (5)(f) OF THIS SECTION, or make payment to2
this state, as provided in paragraph (h) of this subsection (5) SUBSECTION3
(5)(h)
OF THIS SECTION; EXCEPT THAT THIS SUBSECTION (5)(e) SHALL NOT
4
APPLY TO A PARTNERSHIP THAT MAKES THE ELECTION ALLOWED UNDER5
SUBPART 3 OF PART 3 OF THIS ARTICLE 22.6
7
SECTION 10. Safety clause. The general assembly hereby finds,8
determines, and declares that this act is necessary for the immediate9
preservation of the public peace, health, or safety.10
124
-9-