Philip Anschutz v. Colo Dept of Rev

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.

SUMMARY
November 17, 2022

2022COA132

No. 21CA1242, Anschutz v. Department of Revenue — Taxation
— Colorado Income Tax Act of 1987 — Federal Taxable Income
— Coronavirus Aid, Relief, and Economic Security (CARES) Act

A division of the court of appeals holds as a matter of first

impression that the state income tax code incorporates

retrospective changes to federal tax law in the calculation of taxable

income.
COLORADO COURT OF APPEALS 2022COA132

Court of Appeals No. 21CA1242
City and County of Denver District Court No. 21CV31103
Honorable J. Eric Elliff, Judge

Philip Anschutz and Nancy Anschutz,

Plaintiffs-Appellants,

v.

Colorado Department of Revenue of the State of Colorado, and Mark
Ferrandino, in his official capacity as Executive Director of the Colorado
Department of Revenue,

Defendants-Appellees.

JUDGMENT REVERSED AND CASE
REMANDED WITH DIRECTIONS

Division III
Opinion by JUDGE TOW
Fox and Yun, JJ., concur

Announced November 17, 2022

Lewis Roca Rothgerber Christie LLP, James M. Lyons, Frederick J. Baumann,
Kenneth F. Rossman, IV, Denver, Colorado, for Plaintiffs-Appellants

Philip J. Weiser, Attorney General, Russell Johnson, Senior Assistant Attorney
General, Emma Garrison, Assistant Attorney General, Denver, Colorado, for
Defendants-Appellees
¶1 The Colorado Constitution permits the General Assembly to

define taxable income for state income tax purposes by reference to

federal taxable income pursuant to federal tax law. Colo. Const.

art. X, § 19. The General Assembly has explicitly done so in the

Colorado Income Tax Act of 1987 (state income tax code).

§§ 39-22-101 to -5304, C.R.S. 2022.

¶2 The question this appeal presents — one never before

addressed by a Colorado appellate court — is whether a

congressional amendment to federal income tax laws that lowers a

taxpayer’s federal taxable income for prior tax years entitles a

Colorado taxpayer to file an otherwise timely amendment to their

state income tax return for those prior years in order to claim a

refund.

¶3 Philip and Nancy Anschutz (the Anschutzes) say it does and

filed an amended 2018 state income tax return to take advantage of

just such a change to federal law. The Colorado Department of

Revenue and its Executive Director, Mark Ferrandino (collectively,

the Department) say it does not and denied the refund. When the

Anschutzes appealed the denial pursuant to section 39-21-105,

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C.R.S. 2022, the district court agreed with the Department and

granted the Department’s C.R.C.P. 12(b)(5) motion to dismiss.

¶4 Because we agree with the Anschutzes, we reverse the district

court’s judgment dismissing the Anschutzes’ claim and remand for

further proceedings.

I. Legal Background

¶5 A Colorado taxpayer’s state income tax liability begins with

their “federal taxable income, as determined pursuant to section 63

of the internal revenue code.” § 39-22-104(1.7), C.R.S. 2022. That

figure is then adjusted by certain additions and subtractions to

arrive at the final taxable income. § 39-22-104(2)-(4). That

adjusted amount is then multiplied by the statutory tax rate to

determine the amount of tax owed. § 39-22-104(1.7).

¶6 The state income tax code defines “internal revenue code” as

“the provisions of the federal ‘Internal Revenue Code of 1986,’ as

amended, and other provisions of the laws of the United States

relating to federal income taxes, as the same may become effective

at any time or from time to time, for the taxable year.”

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§ 39-22-103(5.3), C.R.S. 2022 (footnote omitted).1 The state income

tax code further provides that “[a]ny term used in this article,

except as otherwise expressly provided or clearly appearing from the

context, shall have the same meaning as when used in a

comparable context in the internal revenue code, as amended, in

effect for the taxable period.” § 39-22-103(11).2

¶7 On March 27, 2020, Congress enacted the Coronavirus Aid,

Relief, and Economic Security (CARES) Act. Pub. L. No. 116-136,

134 Stat. 281 (2020). The CARES Act modified several provisions of

the IRC, including amending 26 U.S.C. § 461(l) to suspend the

“excess business loss”3 deduction limits for the 2018 through 2020

1 Because the state income tax code’s use of the term “internal
revenue code” encompasses more than just the federal Internal
Revenue Code, we distinguish between the two by referring to the
federal Internal Revenue Code of 1986 as the IRC.
2 This approach to state income taxation is known as “rolling

conformity,” meaning a state “essentially incorporates all the new
federal provisions into its state tax code automatically.” Andrew
Appleby, Designing the Tax Supermajority Requirement, 71 Syracuse
L. Rev. 959, 1001 (2021).
3 “Excess business loss” means the excess (if any) of the aggregate

deductions of the taxpayer attributable to trades or businesses of
such taxpayer, over the sum of the aggregate gross income or gain
of the taxpayer attributable to those trades or businesses plus
$250,000 (or $500,000 in the case of a joint return). 26 U.S.C.
§ 461(l)(3).

3
tax years, allowing taxpayers with losses in excess of the threshold

to claim the entirety of the loss. CARES Act § 2304, 134 Stat. at

356. In other words, for taxpayers who had such losses, the

CARES Act provisions retroactively reduced their federal taxable

income for tax years 2018 and 2019.4

¶8 In June 2020, the Department adopted Emergency

Rule 39-22-103(5.3). See Dep’t of Revenue Rule 39-22-103(5.3), 1

Code Colo. Regs. 201-2 (effective June 2, 2020-Sept. 29, 2020)

(Emergency Rule). The Emergency Rule was replaced with a

permanent rule effective September 30, 2020. See Dep’t of Revenue

Rule 39-22-103(5.3), 1 Code Colo. Regs. 201-2 (effective Sept. 30,

2020). (Though the pertinent language of the rules is identical, we

reference the Emergency Rule because it was in effect when the

Department denied the Anschutzes’ refund claim.) The Emergency

Rule states:

“Internal revenue code” does not, for any
taxable year, incorporate federal statutory
changes that are enacted after the last day of
that taxable year. As a result, federal
statutory changes enacted after the end of a
taxable year do not impact a taxpayer’s

4 Such taxpayers’ federal taxable income would also be reduced for
the 2020 tax year, but that is not relevant to this case.

4
Colorado tax liability for that taxable year.
Changes to federal statutes are incorporated
into the term “internal revenue code” only to
the extent they are in effect in the taxable year
in which they were enacted and further taxable
years.

Id.5

¶9 At around the same time, the General Assembly enacted

section 39-22-104(3)(l)-(n), which prevents taxpayers from using

certain CARES Act provisions in calculating their Colorado taxable

income for tax years beginning after the enactment of the CARES

Act and before January 1, 2021. Ch. 277, sec. 2,

§ 39-22-104(3)(l)-(n), 2020 Colo. Sess. Laws 1358-59.6 This

amendment requires taxpayers, in calculating their Colorado

taxable income, to include the amount that their federal taxable

income had been reduced by the CARES Act provisions. Id.

Specifically, when calculating their taxable income for state tax

purposes, taxpayers must now add back to their taxable income the

5 In December 2020, the Office of Legislative Legal Services issued a
memorandum stating that the Department’s interpretation of
“internal revenue code” conflicted with the unambiguous language
in section 39-22-103(5.3), C.R.S. 2022, and thus recommended
against extending the rule.
6 The bill became effective when the Governor signed it on July 11,

2020. Ch. 277, sec. 8, 2020 Colo. Sess. Laws 1361.

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amount by which their federal taxable income was reduced by any

“excess business loss.” Id. § 39-22-104(3)(m), 2020 Colo. Sess.

Laws at 1359. However, this provision only applies to taxable

income for tax years ending after the enactment of the CARES Act

but before January 1, 2021. Id.7

II. The Anschutzes’ Amended Tax Return

¶ 10 In April 2020, in the wake of the passage of the CARES Act

and before the General Assembly amended the state income tax

code, the Anschutzes filed amended federal and Colorado income

tax returns for the 2018 tax year, claiming the entirety of their

“excess business loss” and seeking income tax refunds.

¶ 11 In September 2020, the Department rejected the Anschutzes’

state income tax refund claim, citing the Emergency Rule. The

Anschutzes appealed the denial of their refund claim to the district

7 The General Assembly further amended the state income tax code
the following year by providing that, for tax years beginning in
2021, taxpayers could subtract up to $300,000 of excess business
losses and could carry over up to $150,000 per year in excess
business loss from the 2021 tax year for up to the next four tax
years. Ch. 5, sec. 1, § 39-22-104(4)(z), 2021 Colo. Sess.
Laws 30-31. By its terms, this amendment applies only to taxable
income in tax years beginning in 2021, see id. § 39-22-104(4)(z)(I),
2021 Colo. Sess. Laws at 30, and thus, like the 2020 amendment,
has no bearing on the Anschutzes’ amended 2018 tax return.

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court, asserting a claim for allowance of their 2018 tax year refund

and, among others, a claim for a declaratory judgment that “[w]hen

Congress passed the CARES Act, the tax provisions included

therein were immediately incorporated into Colorado tax law

pursuant to Colorado statute.”8 The Department moved to dismiss

the complaint for failure to state a claim. The district court granted

the motion to dismiss, concluding that section 39-22-103(5.3) is

ambiguous, and that the Department’s interpretation was

reasonable, consistent with the General Assembly’s later

amendments to the statute, and entitled to deference.

III. Analysis

¶ 12 The parties disagree about how to interpret the definition of

internal revenue code in section 39-22-103(5.3): “the provisions of

the [IRC], as amended, and other provisions of the laws of the

United States relating to federal income taxes, as the same may

8 The Anschutzes also sought a declaratory judgment that the
Emergency Rule was invalid. The district court concluded that
their request was untimely and that it did not have jurisdiction to
set aside the rule. The Anschutzes did not appeal the district
court’s order in this regard.

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become effective at any time or from time to time, for the taxable

year.” (Footnote omitted.)

A. Standard of Review

¶ 13 We review de novo a district court’s grant of a C.R.C.P. 12(b)(5)

motion to dismiss. Wagner v. Grange Ins. Ass’n, 166 P.3d 304, 307

(Colo. App. 2007). “Questions of statutory interpretation are also

subject to de novo review.” Nieto v. Clark’s Mkt., Inc., 2021 CO 48,

¶ 12.

¶ 14 “When interpreting a statute, our primary aim is to effectuate

the legislature’s intent.” Id. We look to the entire statutory scheme

to give consistent, harmonious, and sensible effect to all parts and

apply words and phrases in accordance with their plain and

ordinary meaning. Id. “[W]here the plain language is

unambiguous, we apply the statute as written.” Id.

¶ 15 We may consider and even defer to an agency’s interpretation

of the statute. BP Am. Prod. Co. v. Colo. Dep’t of Revenue, 2016 CO

23, ¶ 15. Deference to the agency is only warranted, however, when

a statute “is subject to different reasonable interpretations and the

issue comes within the administrative agency’s special expertise.”

Huddleston v. Grand Cnty. Bd. of Equalization, 913 P.2d 15, 17

8
(Colo. 1996). Deference is not warranted where the agency’s

interpretation is contrary to the statute’s plain language. BP Am.

Prod., ¶ 15.

B. Interpretation of the State Income Tax Code

¶ 16 The Anschutzes contend that the statutory definition of

internal revenue code automatically incorporates congressional

amendments to the IRC, even if such changes relate to previous tax

years. The Department contends that the definition of internal

revenue code only incorporates amendments to the IRC to the

extent that they are in effect for the taxable year in which they were

enacted and for future taxable years.

¶ 17 Based on the plain language of the state income tax code, we

agree with the Anschutzes’ interpretation.

1. Plain Language

¶ 18 Given the grammatical structure of the statutory language,

there are two types of federal statutory provisions that make up the

definition of internal revenue code: (1) those found in the IRC “as

amended” and (2) those found elsewhere in the laws of the United

States to the extent they relate to federal income taxes.

§ 39-22-103(5.3). However, both provisions are modified by the

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phrase “for the taxable year.” Id.; see also People v. Lovato, 2014

COA 113, ¶ 24 (Under the series-qualifier canon of statutory

construction, “when several words are followed by a clause which is

applicable as much to the first and other words as to the last, the

natural construction of the language demands that the clause be

read as applicable to all.” (quoting In re Estate of Pawlik, 845

N.W.2d 249, 252 (Minn. Ct. App. 2014))).

¶ 19 Section 39-22-103(5.3) plainly and unambiguously states that

the phrase “internal revenue code” includes “the provisions of the

[IRC], as amended, . . . for the taxable year,” without any limitation

as to when any amendment is enacted or goes into effect. See

Nieto, ¶ 22 (“[J]ust as important as what the statute says is what

the statute does not say.” (quoting Mook v. Bd. of Cnty. Comm’rs,

2020 CO 12, ¶ 35)). Thus, a taxpayer can take advantage of any

amendment that is in effect for (not just in) a taxable year. Because

there is no other reasonable interpretation — notwithstanding the

parties’ disagreement — we perceive no ambiguity. See Goodyear

Tire & Rubber Co. v. Holmes, 193 P.3d 821, 825 (Colo. 2008)

(concluding that the plain meaning of the statute was clear despite

the parties’ disagreement).

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¶ 20 The Department contends that because the General Assembly

used different phrases — “as amended” and “at any time or from

time to time” — in describing the two types of federal statutory

provisions included in the definition of internal revenue code, the

use of “as amended” must signal a narrower scope than “at any

time or from time to time.” Thus, the Department argues, the

“[IRC], as amended,” means the federal statute as it exists to the

end of the relevant tax year, but not beyond.

¶ 21 But the Department misses a simpler explanation for the use

of different phrases. Because the IRC is already in existence it can

be “amended,” whereas “other provisions of the laws of the United

States relating to federal income taxes, as the same may become

effective” are not necessarily in existence yet. Such provisions are

not “amended” but, rather, “become effective” upon enactment,

which may occur “at any time or from time to time.” Thus, the

plain language of the statute contradicts the Department’s

interpretation.

¶ 22 Nor are we persuaded by the Department’s reliance on the

statutory presumption of prospective application. To the extent the

Department is suggesting the amendment to the federal statute

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should be presumptively prospective, that suggestion directly

conflicts with Congress’s language making the CARES Act

provisions applicable to prior tax years. To the extent the

Department’s argument is directed at an amendment to the state

statute, it is misplaced because the CARES Act did not (and could

not) amend Colorado law. Rather, the effect of the congressional

amendment flows from the existing state income tax code language

(and its incorporation by reference to the IRC “as amended”).9

2. Legislative Declaration

¶ 23 We also disagree with the Department’s contention that the

Anschutzes’ interpretation of section 39-22-103(5.3) is contrary to

the legislative declaration in the state income tax code.

¶ 24 The legislative declaration states that one purpose of the act

includes “[s]implifying the preparation of state income tax returns.”

§ 39-22-102(1)(a), C.R.S. 2022.

¶ 25 The Department contends that because the Anschutzes had to

file an amended state income tax return, the act did not simplify the

9 Notably, the Colorado Constitution expressly permits state income
taxes to be calculated “by reference to provisions of the laws of the
United States . . . , whether retrospective or prospective in their
operation.” Colo. Const. art. X, § 19 (emphasis added).

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preparation of the return. But an interpretation of the statute that

requires taxpayers to take their federal taxable income, as

calculated under federal law, and then determine which, if any,

amendments to the IRC must be incorporated for purposes of

determining their state taxable income, depending on the date of

their enactment, creates complexity contrary to the legislative

declaration. Cf. Ball Corp. v. Fisher, 51 P.3d 1053, 1058 (Colo. App.

2001) (“When Colorado’s tax provisions have counterparts at the

federal level, incorporating amendments to the federal tax code

simplifies compliance and enforcement under the Colorado tax

code.”).

¶ 26 By automatically incorporating amendments to the IRC into

the state income tax code, a taxpayer’s preparation of state income

tax returns is simplified. And if a taxpayer needs to file an

amended federal income tax return, it does not complicate the

preparation of any amended state income tax return, but rather

simplifies it by allowing both amended returns to be filed at the

same time and based on the same amendments to the

determination of taxable income.

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3. The Emergency Rule

¶ 27 Nor does the Emergency Rule provide the Department safe

harbor. The Emergency Rule specified that changes to federal tax

law only apply prospectively. Dep’t of Revenue Rule 39-22-103(5.3),

1 Code Colo. Regs. 201-2. But the language that the Department

used in its Emergency Rule did not appear in the plain language of

the state income tax code as it existed before the amendment that

became effective in July 2020. See Ch. 277, sec. 2,

§ 39-22-104(3)(l)-(n), 2020 Colo. Sess. Laws 1358-59. Indeed, had

the statute provided for prospective application only, the

Department would not have had to issue the Emergency Rule. The

Department stated in the Rule that “[t]he purpose of [the

Emergency Rule] is to clarify that the term ‘internal revenue code’

incorporates changes to federal statute only on a prospective basis.”

Dep’t of Revenue Rule 39-22-103(5.3), 1 Code Colo. Regs. 201-2.

But this was more than a clarification — it read words into the

statute that were not there.

¶ 28 Because the Emergency Rule’s interpretation of “internal

revenue code” is contrary to the statute’s plain language, and we

decline to defer to it. See Ansel v. Dep’t of Hum. Servs., 2020 COA

14
172M, ¶ 39 (concluding that agency interpretation of the statute

was inconsistent with the plain language and was contrary to law).

4. Legislative Amendment to Section 39-22-104

¶ 29 The Department argues (and the district court agreed) that the

fact that the General Assembly later amended section 39-22-104

supports its interpretation. We disagree.

¶ 30 First, as noted, the 2020 and 2021 amendments expressly

apply only to later tax years. Thus, they do not impact the

Anschutzes’ amended 2018 tax return.

¶ 31 Nevertheless, the Department asserts that the fiscal note to

the 2020 bill indicated that the statutory language was simply a

recognition of existing law as set forth in the Emergency Rule.

Fiscal notes can, in some circumstances, be helpful in gleaning

legislative intent “to the extent they provide a glimpse into what was

known at the time the amendment was being considered.” Bd. of

Cnty. Comm’rs v. Colo. Dep’t of Pub. Health & Env’t, 2020 COA 50,

¶ 28 n.7, aff’d in part and vacated in part on other grounds, 2021

CO 43. First, having concluded that the statutory language is

unambiguous, we do not resort to external aids to determine the

meaning of the statute. People v. J.J.H., 17 P.3d 159, 162 (Colo.

15
2001). In any event, the probative value of this particular fiscal

note statement is suspect, particularly in light of the fact that the

General Assembly’s own Office of Legislative Legal Services has

opined in a memorandum that the Emergency Rule conflicted with

the operative statutory language.

¶ 32 Even assuming that the fiscal note and the legislative

amendment to section 39-22-104 endorsed the Department’s

Emergency Rule, as we have noted, the Emergency Rule was

contrary to the plain language of the statute then in effect. The

General Assembly can, of course, amend the state income tax code

to not conform with changes to the IRC, as it did by amending

section 39-22-104 both in 2020 and 2021. But until such

amendments become effective, Colorado law automatically

incorporates amendments to the IRC.

5. Application

¶ 33 The Anschutzes filed an amended state income tax return for

the 2018 tax year, relying on the CARES Act provisions that

16
amended the IRC.10 Those provisions allowed taxpayers to reduce

their taxable income by the amount of excess business loss they

experienced. By its terms, the CARES Act provisions applied to the

2018 tax year and nothing in the state income tax code limited that

modification.

¶ 34 Accordingly, the district court erred by granting the

Department’s motion to dismiss.

IV. Disposition

¶ 35 We reverse the district court’s judgment and remand the case

for further proceedings.

JUDGE FOX and JUDGE YUN concur.

10 The Department has never contended that the Anschutzes’
amended return was untimely. Thus, we assume that it was timely
filed.

17