By Todd Betor and Eric Coffill

On January 20, a Denver trial court ruled that Agilent Technologies World Trade, Inc. (World Trade), a holding company with no property or payroll of its own, cannot be included in its parent’s combined corporate income tax return. The court found that World Trade did not meet the definition of “includible C corporation” for combined return purposes because the Department of Revenue’s own regulation provides that only a company with 20% or more of its property or payroll factors assigned to locations in the United States can be combined and, here, World Trade had zero property or payroll of its own. The court also rejected the Department’s claims that the “economic substance doctrine” and/or an IRC section 482-type “arm’s length pricing” statute provide a vehicle for including World Trade in its parent’s combined group. As a result of the trial court’s decision, the Department issued a notice cautioning taxpayers not to rely on the regulation at issue – 1 CCR 201-2, Reg. 39-22-303.12(c) – until further notice, except as it applies to Foreign Sales Corporations. Agilent Technologies, Inc. v. Department of Revenue, District Court, City and County of Denver, Case No. 2014CV393, Order filed Jan. 20, 2016.