By Samantha Trencs and Eric Coffill

The Colorado Court of Appeals held that a corporate parent doing business in Colorado was not required to include its subsidiary holding company that held no property or payroll in Colorado or elsewhere in its Colorado unitary combined corporate income tax report. The holding company was not an “includable” corporation under Colorado’s 80/20 test because it did not have more than 20% of its property and payroll assigned to locations in the US. The court also held that even though the holding company and its foreign subsidiaries (which held property and payroll outside of the US only) elected to be treated as a single C corporation on its federal return under the federal check-the-box regulations, Colorado was not bound by this election for state tax purposes. The court also rejected the Department of Revenue’s economic substance argument to include the holding company in the Colorado combined report. Agilent Technologies, Inc. v. Dep’t of Revenue of Colorado, No. 16CA849 (Colo. App. Nov. 2, 2017).