Agilent Technologies, Inc., Plaintiff-Appellee and Cross-Appellant,
Department of Revenue of the State of Colorado and Barbara Brohl, in her official capacity as the Executive Director of the Department of Revenue of the State of Colorado, Defendants-Appellants and Cross-Appellees.
and County of Denver District Court No. 14CV393 Honorable
Catherine A. Lemon, Judge
Silverstein & Pomerantz, LLP, Neil I. Pomerantz, Denver,
Colorado; Morrison & Foerster LLP, Craig B. Fields, Irwin
M. Slomka, New York, New York, for Plaintiff-Appellee and
Cynthia H. Coffman, Attorney General, Terence C. Gill, First
Assistant Attorney General, Brendon C. Reese, Noah C.
Patterson, Assistant Attorneys General, Denver, Colorado, for
Defendants-Appellants and Cross-Appellees
1 In this taxpayer dispute, we resolve whether a corporation
with no property or payroll of its own must be included in a
Colorado combined income tax return. Plaintiff, Agilent
Technologies, Inc. (Agilent), and defendants, the Department
of Revenue of the State of Colorado (Department) and Barbara
Brohl, in her official capacity as the Executive Director of
the Department (Director), appeal the district court's
entry of summary judgment in Agilent's favor. The
district court concluded that Agilent was not required to
include its holding company, Agilent Technologies World
Trade, Inc. (WT), in its Colorado combined corporate income
tax returns for the tax years 2000 to 2007. We affirm.
Colorado Corporate Income Tax Law
2 Because it is helpful in understanding the issues in this
case, we begin by setting forth some of the legal framework.
3 A "C corporation" is "any organization taxed
as a corporation for federal income tax purposes."
§ 39-22-103(2.5), C.R.S. 2017. Colorado imposes a tax on
the income of a C corporation from tangible or intangible
property located or having a situs in this state as well as
on income from any activities carried on in this state,
regardless of whether they are carried on in intrastate,
interstate, or foreign commerce. § 39-22-301(1)(d)(II),
4 Large businesses often operate through multiple related C
corporations that are interconnected in complex ways,
operating to various degrees inside Colorado, in other
states, and in foreign countries. To calculate the taxable
income of affiliated corporations attributable to Colorado,
the Department applies the "unitary apportionment"
accounting method, which has been upheld by the United States
and Colorado Supreme Courts. Hewlett-Packard Co.
v. State, Dep't of Revenue, 749 P.2d 400, 402
[The] unitary apportionment [method] is based on a
recognition that an integrated business may operate through
several separately incorporated entities. In such case,
transactions between corporations under common control may
lack economic substance; therefore, it is necessary to
consider the corporate group as a whole. This method combines
the income of all related business entities which are engaged
in the same integrated or unitary business to arrive at a net
income base. A percentage of this net income base is then
apportioned to the relevant taxing jurisdiction according to
a formula which measures the contribution of the business
activities within the taxing jurisdiction (e.g., Colorado) to
the profit of the entire unitary business. This percentage of
the net income base, rather than the entire net income base,
is then taxed by the state.
Id. at 401.
5 Section 39-22-303, C.R.S. 2017, sets forth rules for
determining which related C corporations must be included in
a combined, unitary group for the purpose of state taxation.
The first step is to determine whether the corporation
conducts business primarily inside or outside of the United
• Section 39-22-303(8) provides that a corporation is
not required to include in a combined report the income
"of any C corporation which conducts business outside
the United States if eighty percent or more of the C
corporation's property and payroll, as determined by
factoring pursuant to section 24-60-1301, C.R.S., is assigned
to locations outside the United States."
• Section 39-22-303(12)(c) clarifies that an includible
C corporation is "any C corporation which has more than
twenty percent of the C corporation's property and
payroll as determined by factoring pursuant to section
24-60-1301, C.R.S., assigned to locations inside the United
6 To require a combined report as part of a unitary business,
an affiliated group of C corporations must also satisfy three
of the six factors set forth in section 39-22-303(11)(a) for
the tax year at issue as well as the two preceding tax years.
These factors address characteristics of a unitary business,
such as its functional integration, centralization of
management, and economies of scale. See Container Corp.
of Am. v. Franchise Tax Bd., 463 U.S. 159, 178-79
7 Finally, section 39-22-303(6) provides as follows:
In the case of two or more C corporations, whether domestic
or foreign, owned or controlled directly or indirectly by the
same interests, the executive director may, to avoid abuse,
on a fair and impartial basis, distribute or allocate the
gross income and deductions between or among such C
corporations in order to clearly reflect income.
8 The parties appeal the district court's application of
these statutes to the facts described below.
9 Agilent is a parent company of a worldwide group of
affiliates. It provides "core bio-analytical and
electronic measurement solutions to the communications,
electronics, life sciences, and chemical analysis
industries." Agilent is incorporated in Delaware, but
during the years at issue (tax years 2000 to 2007), it
maintained research and development and manufacturing sites
in Colorado. Agilent concedes it was subject to Colorado
corporate income tax during this time and timely filed
corporate income tax returns for these years.
10 WT is a subsidiary of Agilent and is incorporated in
Delaware. It was formed as a holding company to own foreign
entities operating solely outside the United States. During
the years at issue, WT owned four non-United States entities,
which operated in Venezuela, Russia, Poland, and Turkey. For
federal income tax purposes, WT and the foreign entities
elected to be taxed as a single corporation. As a holding
company, WT does not own or rent property, has no payroll,
and does not advertise or sell products or services of its
own. The foreign entities, however, own property and have
Agilent's Corporate Tax History
11 Agilent did not include WT in its corporate tax returns
for the years at issue. In 2010, the Department issued
notices of corporate income tax deficiency requiring that
Agilent include WT in its Colorado combined returns for those
years, assessing tax, interest, and penalties totaling $13,
345, 601. Agilent contested the adjustments made by the
Department. The Director upheld the notices of deficiency.
The Department issued a "Notice of Final Determination
and Assessment and Demand for Payment" in May 2014,
including updated interest, in the amount of $13, 720, 507.
District Court's Order
12 Agilent sought review of the Department's
determination in the district court. After considering the
parties' motion and cross-motion for summary judgment,
the district court ruled in ...