Filing a State of Colorado Consolidated Return

In Colorado, affiliated C corporations file a single state income tax return as a group. The primary method is mandatory combined reporting for corporations that form a “unitary business.” As an alternative, an affiliated group of C corporations may elect to file a consolidated return. This election allows the group to be treated as a single taxpayer by the Colorado Department of Revenue and can sometimes include corporations that are not part of the unitary business group.

Eligibility for Group Filing

The primary filing method in Colorado is the mandatory combined report, required for groups that constitute a “unitary business.” For tax years beginning before January 1, 2026, a unitary business is identified if the corporations meet a “three of six” test of intercompany relationships, such as shared management or operational integration, for the current and two preceding tax years. For tax years beginning on or after January 1, 2026, this definition will change to a group of C corporations that are sufficiently interdependent, integrated, and interrelated.

Alternatively, a group may elect to file a consolidated return. To be eligible, the corporations must qualify as an “affiliated group” under federal law, which requires a common parent corporation to own at least 80% of the stock of the other corporations in the group. For a group to file a consolidated return, every member included must have nexus, or a taxable presence, in Colorado. S corporations and most insurance companies are excluded from either type of group filing.

Making the Consolidated Return Election

A group makes the election to file a consolidated return by filing its first one. The election is binding for the tax year it is made and for the three subsequent tax years. Permission to discontinue filing on a consolidated basis before this four-year period is over must be requested in writing and granted by the Colorado Department of Revenue. After the initial four-year term, the election remains in effect automatically.

Calculating Colorado Group Taxable Income

The calculation of a Colorado group’s taxable income begins with the federal taxable income of the members. From this figure, the group must apply Colorado-specific modifications, which include both additions and subtractions mandated by state tax law. A benefit of group filing is offsetting the profits of one member company with the losses of another.

Intercompany transactions, such as when one member sells goods or pays dividends to another, are disregarded. This prevents income from being artificially inflated by internal transfers, and gains or losses are deferred until a transaction occurs with an entity outside the group. Net operating losses (NOLs) and tax credits are also handled at the group level, with any overall loss for the year carried forward to offset future group income.

The final step involves apportioning the total taxable income to Colorado using a single-sales factor. For a combined return, this factor is based on the sales of all group members sourced to Colorado, even those from members that do not have nexus in the state.

Required Forms and Filing Procedures

To submit a group return, the primary document is the Colorado C Corporation Income Tax Return, Form DR 0112. Accompanying the main return must be Schedule C of Form DR 0112. On this schedule, the group must identify the common parent corporation and provide the Federal Employer Identification Numbers (FEINs) for all members.

A complete copy of the federal consolidated return, if one was filed, must also be attached. The entire package can be submitted either through traditional mail or electronically through approved tax software vendors.

Managing the Consolidated Group

If a new corporation is formed or acquired and becomes part of the affiliated group, it must be included in the Colorado consolidated return for the tax year in which it joins, provided it has Colorado nexus. If a corporation ceases to be a member of the group during a tax year, it must be included in the consolidated return for the portion of the year it was a member. A separate, short-period return must then be filed for that corporation covering the period after it left the group.

After the mandatory four-year election period, the group can terminate its consolidated filing status. This is done by having each member corporation file its own separate Colorado income tax return for the year the revocation is intended to take effect.