SENATE BILL 22-124
BY SENATOR(S) Woodward and Kolker, Hisey, Holbert, Kirkmeyer,
Rankin, Ginal, Hinrichsen, Pettersen, Zenzinger;
also REPRESENTATIVE(S) Ortiz and Van Winkle, Lynch, Van Beber,
Bernett, Bird, Bockenfeld, Carver, Exum, Herod, Jodeh, Lindsay,
McCluskie, McLachlan, Mullica, Neville, Pico, Ricks, Roberts, Sandridge,
Snyder, Soper, Titone, Valdez A., Valdez D., Young, Garnett.
C
ONCERNING THE AUTHORITY OF A PASS -THROUGH BUSINESS ENTITY TO
ELECT TO PAY STATE INCOME TAXES AT THE ENTITY LEVEL
.
Be it enacted by the General Assembly of the State of Colorado:
SECTION 1. In Colorado Revised Statutes, 39-22-202, add (4) as
follows:
39-22-202. Resident partners - definition. (4) F
OR PURPOSES OF
SECTION
39-22-108, EACH RESIDENT PARTNER IS CONSIDERED TO HAVE PAID
A TAX ON EACH RESIDENT PARTNER IN AN AMOUNT EQUAL TO EACH
RESIDENT PARTNER
'S PRO RATA SHARE OF ANY NET INCOME TAX PAID BY THE
PARTNERSHIP TO A STATE THAT DOES NOT MEASURE THE INCOME OF
PARTNERS OF A PARTNERSHIP BY REFERENCE TO THE INCOME OF THE
PARTNERSHIP
. AS USED IN THIS SUBSECTION (4), "NET INCOME TAX" MEANS
NOTE: This bill has been prepared for the signatures of the appropriate legislative
officers and the Governor. To determine whether the Governor has signed the bill
or taken other action on it, please consult the legislative status sheet, the legislative
history, or the Session Laws.
________
Capital letters or bold & italic numbers indicate new material added to existing law; dashes
through words or numbers indicate deletions from existing law and such material is not part of
the act. ANY TAX IMPOSED ON, OR MEASURED BY, A PARTNERSHIP'S NET INCOME.
SECTION 2. In Colorado Revised Statutes, 39-22-343, amend (1)
as follows:
39-22-343. Election. (1) (a) Notwithstanding sections 39-22-201,
39-22-302, and 39-22-322, and except as provided in subsection (2) of this
section, for income tax years commencing on or after January 1, 2022
JANUARY 1, 2018, an S corporation or partnership may annually elect to be
subject to tax at the entity level for the taxable period.
(b) E
XCEPT AS SET FORTH IN SUBSECTION (1)(c)(I) OF THIS SECTION,
the S corporation or partnership shall make the election on the return filed
by such S corporation or partnership under section 39-22-601. The filing of
such
A return FILED UNDER SECTION 39-22-601 OR SUBSECTION (1)(c)(I) OF
THIS SECTION
is binding on all electing pass-through entity owners.
(c) (I) F
OR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY
1, 2018, BUT PRIOR TO JANUARY 1, 2022, THE S CORPORATION OR
PARTNERSHIP MUST MAKE THE ELECTION ON OR AFTER
SEPTEMBER 1, 2023,
BUT BEFORE JULY 1, 2024, IN A COMPOSITE AMENDED TAX RETURN FOR ALL
OF THE YEARS FOR WHICH THE ELECTION IS MADE THAT IS FILED ON BEHALF
OF THE
S CORPORATION OR PARTNERSHIP AND ALL OF THE ELECTING
PASS
-THROUGH ENTITY OWNERS . THE DEPARTMENT OF REVENUE SHALL
ESTABLISH THE RETURN
, WHICH SHALL NOT INCLUDE ANY CHANGES TO THE
PAST RETURNS OTHER THAN THOSE THAT ARE DIRECTLY RELATED TO THE
ELECTION
. THE PROVISIONS OF SECTIONS 39-21-107 (2) AND 39-21-108 (1)
SHALL NOT APPLY TO THE PAYMENT OR REFUND OF THE TAX MADE
PURSUANT TO THE RETURN
.
(II) N
OTWITHSTANDING ANY OTHER PROVISION OF LAW , IF AN S
CORPORATION OR PARTNERSHIP FILES A RETURN SPECIFIED IN SUBSECTION
(1)(c)(I) OF THIS SECTION, NEITHER THE S CORPORATION OR PARTNERSHIP
NOR THE ELECTING PASS
-THROUGH ENTITY OWNERS SHALL INCUR ANY
PENALTIES FOR FILING LATE NOR OWE INTEREST ON SUCH AMOUNTS
, AND
THE DEPARTMENT SHALL NOT BE REQUIRED TO PAY PENALTIES OR INTEREST
ON ANY AMOUNTS OWED TO THE TAXPAYERS
.
(III) N
OTWITHSTANDING THE DATES PROVIDED IN SUBSECTION
(1)(c)(I) OF THIS SECTION, THE DEPARTMENT SHALL HAVE ONE YEAR FROM
PAGE 2-SENATE BILL 22-124 THE DATE THE COMPOSITE AMENDED TAX RETURN IS FILED TO REVIEW THE
RETURN AND MAKE A WRI TTEN PROPOSED ADJUSTMENT IN ACCOR DANCE
WITH SECTION
39-21-103. THE DEPARTMENT MUST MAKE ANY ASSESSMENT
WITHIN ONE YEAR AFTER A FINAL DETERMINATION IS MADE UNDER SECTION
39-21-103 (8). ANY FINAL DETERMINATION MADE AS SPECIFIED IN THIS
SUBSECTION
(1)(c)(III) MAY BE ENFORCED AT ANY TIME WITHIN SIX YEARS
FROM THE DATE OF THE FINAL DETERMINATION
.
SECTION 3. In Colorado Revised Statutes, 39-22-344, amend (1)
introductory portion, (2), and (3), as follows:
39-22-344. Imposition of tax. (1) With respect to any taxable
period for which it has made the election under section 39-22-343, an
electing pass-through entity is subject to a tax in an amount equal to four
and fifty-five one-hundredths percent of THE TAX RATE SET FORTH IN
SECTION
39-22-301 FOR THE APPLICABLE INCOME TAX YEAR MULTIPLIED BY
the sum of the following, all as determined pursuant to sections 39-22-202,
39-22-203, 39-22-322, and 39-22-323:
(2) An electing pass-through entity is treated as a corporation under
section 39-22-606 with respect to the tax imposed under this subpart 3;
except that section 39-22-606 (5)(c)(I)
THE REQUIREMENT TO MAKE
ESTIMATED PAYMENTS UNDER SECTION
39-22-606 does not apply during thefirst taxable period for which this subpart 3 is applicable FOR INCOME TAX
YEARS COMMENCING PRIOR TO
JANUARY 1, 2023.
(3) Any credit allowed pursuant to this article 22 that is attributable
to the activities of an electing pass-through entity in the taxable year shallbe claimed by the entity and not IS passed through to or AND MUST BE
claimed by the electing pass-through entity owner. Notwithstanding any
section to the contrary in this article 22, any excess income tax credit, net
operating loss, or other modification may be carried forward on the electing
pass-through entity's return but may only be utilized in a year in which the
electing pass-through entity has made the election allowed in section
39-22-343; except that any limitation specified in the specific section for an
income tax credit, the net operating loss, or any other modification shall
apply to the electing pass-through entity.
SECTION 4. In Colorado Revised Statutes, amend 39-22-345 as
follows:
PAGE 3-SENATE BILL 22-124 39-22-345. Owner exclusion. (1) Notwithstanding sections
39-22-201 and 39-22-322, and as provided in 39-22-104 (4)(aa) and
39-22-304 (3)(r), electing pass-through entity owners shall not be liable for
the tax and the alternative minimum tax under this article 22 in their
separate or individual capacities, and the electing pass-through entity's
income attributable to the state and the income not attributable to the state
is not taken into account by the electing pass-through entity owners.
(2) Notwithstanding the provisions of this subpart 3 and sections
39-22-104 (4)(aa) and 39-22-304 (3)(r), The basis in the hands of an
electing pass-through entity owner in the interest in the partnership or the
stock or indebtedness in the S corporation is determined as if the election
under section 39-22-343 had not been made.
SECTION 5. In Colorado Revised Statutes, amend 39-22-346 as
follows:
39-22-346. Credit for tax paid in other states. An electing
pass-through entity is entitled to the credit under section 39-22-108, and
subject to the limitations of section 39-22-108, for taxes paid to other states
with respect to the electing pass-through entity's income not attributable to
this state that is subject to taxation pursuant to section 39-22-344 whether
the tax was paid by the electing pass-through entity itself or by the electing
pass-through entity owners. The resident electing pass-through entity
owners are not entitled to any credit under section 39-22-108 with respect
to income of the electing pass-through entity FOR PURPOSES OF THE
RESIDENT PASS
-THROUGH ENTITY OWNERS , THE CREDIT ALLOWED UNDER
SECTION
39-22-108 IS CALCULATED WITHOUT REGARD TO THE CREDIT
ALLOWED UNDER SECTION
39-22-347.
SECTION 6. In Colorado Revised Statutes, add 39-22-347 as
follows:
39-22-347. Credit for electing pass-through entity owner - tax
preference performance statement - legislative declaration. (1) (a) T
HE
GENERAL ASSEMBLY HEREBY FINDS AND DECLARES THAT THE PURPOSE OF
THIS TAX CREDIT IS TO
:
(I) E
NSURE THE STATE DOES NOT HAVE A NET TAX REVENUE CHANGE
WHILE ACCOMPLISHING THE PURPOSE SET FORTH IN SECTION
39-22-341; AND
PAGE 4-SENATE BILL 22-124 (II) REPLACE A RELATED STATE INCOME TAX DEDUCTION .
(b) (I) N
OTWITHSTANDING SECTION 39-21-304 (2), THE PURPOSE OF
THE TAX EXPENDITURE CREATED IN THIS SECTION IS TO AVOID DOUBLE
TAXATION OF INCOME ON ELECTING PASS
-THROUGH ENTITY OWNERS .
(II) T
HE GENERAL ASSEMBLY AND THE STATE AUDITOR SHALL
MEASURE THE EFFECTIVENESS OF THE CREDIT CREATED IN THIS SECTION IN
ACHIEVING THE PURPOSE SPECIFIED IN SUBSECTION
(1)(b)(I) OF THIS SECTION
BASED ON WHETHER THE AMOUNT OF THE CREDIT IS EQUAL TO THE AMOUNT
OF THE TAX REVENUE COLLECTED UNDER SECTION
39-22-344.
(2) S
UBJECT TO THE LIMITATIONS SET FORTH IN SUBSECTION (3) OF
THIS SECTION
, FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY
1, 2018, AN ELECTING PASS-THROUGH ENTITY OWNER IS ALLOWED A CREDIT
AGAINST THE TAX IMPOSED BY THIS ARTICLE
22 THAT IS AN AMOUNT EQUAL
TO THE SHARE OF THE TAX IMPOSED PURSUANT TO SECTION
39-22-344 (1) ON
THE ELECTING PASS
-THROUGH ENTITY WITH RESPECT TO THE ELECTING
PASS
-THROUGH ENTITY OWNER 'S INCOME.
(3) N
O CREDIT IS ALLOWED TO AN ELECTING PASS-THROUGH ENTITY
OWNER UNDER SUBSECTION
(2) OF THIS SECTION UNLESS THE ELECTING
PASS
-THROUGH ENTITY PAID THE TAX IMPOSED UNDER THIS ARTICLE 22 AND
PROVIDED SUFFICIENT INFORMATION ON THE ELECTING PASS
-THROUGH
ENTITY TAX RETURN
, AS PRESCRIBED BY THE DEPARTMENT OF REVENUE , TO
IDENTIFY THAT ELECTING PASS
-THROUGH ENTITY OWNER .
(4) A
NY AMOUNT OF THE CREDIT ALLOWED BY THIS SECTION THAT
EXCEEDS THE ELECTING PASS
-THROUGH ENTITY OWNER'S INCOME TAXES DUE
IS REFUNDED TO THE ELECTING PASS
-THROUGH ENTITY OWNER .
SECTION 7. In Colorado Revised Statutes, 39-22-104, amend
(3)(r); and repeal (4)(aa) as follows:
39-22-104. Income tax imposed on individuals, estates, and
trusts - single rate - report - legislative declaration - definitions - repeal.
(3) There shall be added to the federal taxable income:
(r) Notwithstanding subsection (3)(o) of this section, for income tax
years commencing on or after January 1, 2022
JANUARY 1, 2018, an amount
PAGE 5-SENATE BILL 22-124 equal to the deduction taken under section 199A of the internal revenue
code, except to the extent the deduction is otherwise disallowed under
section 265 of the internal revenue code, for an electing pass-through entity
owner of an electing pass-through entity, as such terms are defined in
section 39-21-342, that makes the election allowed in subpart 3 of part 3 of
this article 22.
(4) There shall be subtracted from federal taxable income:
(aa) For income tax years commencing on or after January 1, 2022,
an amount equal to the electing pass-through entity owner's distributive
share of the electing pass-through entity's income attributable to the state
that is taxed pursuant to the provisions of subpart 3 of part 3 of this article
22 and income not attributable to the state that is taxed pursuant to the
provisions of subpart 3 of part 3 of this article 22.
SECTION 8. In Colorado Revised Statutes, 39-22-304, repeal
(3)(r) as follows:
39-22-304. Net income of corporation - legislative declaration -
definitions - repeal. (3) There shall be subtracted from federal taxable
income:
(r) For income tax years commencing on or after January 1, 2022,
an amount equal to the electing pass-through entity owner's distributive
share of the electing pass-through entity's income attributable to the state
that is taxed pursuant to the provisions of subpart 3 of part 3 of this article
22 and income not attributable to the state that is taxed pursuant to the
provisions of subpart 3 of part 3 of this article 22.
SECTION 9. In Colorado Revised Statutes, 39-22-601, amend
(2.5)(e) and (5)(e) as follows:
39-22-601. Returns. (2.5) (e) With respect to each of its
nonresident shareholders, an S corporation shall, for each taxable period,
either timely file with the department of revenue an agreement, as provided
in paragraph (f) of this subsection (2.5)
SUBSECTION (2.5)(f) OF THIS
SECTION
, or make a payment to this state as provided in paragraph (h) ofthis subsection (2.5) SUBSECTION (2.5)(h) OF THIS SECTION; EXCEPT THAT
THIS SUBSECTION
(2.5)(e) SHALL NOT APPLY TO AN S CORPORATION THAT
PAGE 6-SENATE BILL 22-124 MAKES THE ELECTION ALLOWED UNDER SUBPART 3 OF PART 3 OF THIS
ARTICLE
22.
(5) (e) With respect to each of its nonresident partners, a partnership
shall, for each taxable period, either timely file with the department of
revenue an agreement, as provided in paragraph (f) of this subsection (5)
SUBSECTION (5)(f) OF THIS SECTION, or make payment to this state, as
provided in paragraph (h) of this subsection (5) SUBSECTION (5)(h) OF THIS
SECTION
; EXCEPT THAT THIS SUBSECTION (5)(e) SHALL NOT APPLY TO A
PARTNERSHIP THAT MAKES THE ELECTION ALLOWED UNDER SUBPART
3 OF
PART
3 OF THIS ARTICLE 22.
SECTION 10. Safety clause. The general assembly hereby finds,
PAGE 7-SENATE BILL 22-124 determines, and declares that this act is necessary for the immediate
preservation of the public peace, health, or safety.
____________________________ ____________________________
Steve Fenberg Alec Garnett
PRESIDENT OF SPEAKER OF THE HOUSE
THE SENATE OF REPRESENTATIVES
____________________________ ____________________________
Cindi L. Markwell Robin Jones
SECRETARY OF CHIEF CLERK OF THE HOUSE
THE SENATE OF REPRESENTATIVES
APPROVED________________________________________
(Date and Time)
_________________________________________
Jared S. Polis
GOVERNOR OF THE STATE OF COLORADO
PAGE 8-SENATE BILL 22-124