Colorado Governor Jared Polis Signs Legislation Changing Rules for Combined Reporting in Colorado

Colorado Governor Jared Polis has signed legislation that will change the way the state determines the members of a unitary group for combined reporting purposes. The new law will replace the current “3 of 6” rule with the Multistate Tax Commission’s standard, as recommended by the Legislative Council Staff.

Under the current law, a combined report can only include members of an affiliated group of corporations that meet three out of six specific criteria. The new law, however, will require all members of a “unitary business” to file a combined report. A unitary business is defined as a group of entities that are interconnected and provide mutual benefit to each other.

While the new law maintains Colorado’s water’s-edge rule, it includes an exception for entities incorporated in foreign jurisdictions for tax avoidance purposes. The law identifies specific nations where corporations will be presumed to be incorporated for tax avoidance, such as the Cayman Islands and Luxembourg.

Unless Colorado voters file a referendum petition to overturn the legislation in November, the new standard will take effect for tax years beginning on or after January 1, 2026. This change aims to streamline the process of determining the members of a unitary group for combined reporting purposes in Colorado.