HB 23-1277

HB 23-1277, which has been signed into law in Colorado, changes how certain businesses handle income taxes for their nonresident owners. Starting January 1, 2024, partnerships and S corporations will have a simpler way to manage tax payments by combining two existing options and clarifying the required payment amounts. The bill also updates rules for reporting any changes to federal taxable income, giving taxpayers more time to report these adjustments and allowing businesses to handle them centrally on behalf of their owners. Additionally, it moves the deadline for C corporations to file state income tax returns from April 15 to May 15, aligning better with recent federal changes. This law will affect business owners and corporations in Colorado starting this year or next, depending on the specific provisions.

Official Summary

The act changes how pass-through entities may elect to pay taxes, specifies how to report and account for adjustments to federal taxable income, and changes the due date for filing a C-corporation income tax return. Partnerships and S corporations (pass-through entities) have had 3 options for ensuring that the income taxes owed by nonresident owners will be paid. Pass-through entities have been able to file a composite return on behalf of these owners, withhold an estimated tax payment, or collect and file an agreement that the owner will file a separate return. For income tax years beginning on and after January 1, 2024, section 1 of the act consolidates the composite return and withholding options and clarifies the calculation of the required payment. Section 2 adopts the multistate tax commission's model statute for reporting adjustments to federal taxable income. When federal taxable income is adjusted by the internal revenue service, or by the taxpayer through an amended federal return, the taxpayer must also report that change to the state. Those changes have had to be reported within 30 days and new federal centralized partnership audit procedures have not been addressed. The act provides additional time for reporting adjustments and allows pass-through entities to handle adjustments at the entity level on behalf of their owners. Section 3 changes the due date for income tax returns by C corporations. State income tax returns have had to be filed by C corporations by April 15, and prior to 2017, the federal income tax return deadline for C corporations was March 15. This meant that the state's April 15 due date and October 15 extension deadline was one month after the federal due date. In 2017, congress moved the federal due date for C corporations to April 15. Section 3 restores the one-month lag by changing the state due date to May 15, with a November 15 extension deadline. APPROVED by Governor June 1, 2023 PORTIONS EFFECTIVE January 1, 2024 PORTIONS EFFECTIVE August 7, 2023 NOTE: This act was passed without a safety clause and portions of it take effect 90 days after sine die. (Note: This summary applies to this bill as enacted.)

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