Businesses making investments in tangible personal property, used exclusively in an enterprise zone for at least one year, may claim an ITC credit against their Colorado income taxes equal to 3% of the investment amount. Only equipment purchases qualify for the investment tax credit. Investments in land or structures, or expanding inventory do not qualify.

The ITC credit, can be taken in any year not to exceed 100% of the taxpayer’s state income tax liability up to $5,000 and 50% of the state tax liability above $5,000.

The value of investments must be reduced before the 3% ITC rate is applied if the depreciable life of the asset falls into certain categories.

Unused tax credits can be carried backward up to 3 years or forward up to 12 years.

If I lease the property can I take the credits?
The owner of the property may claim the credit or elect to pass on the investment credit to the lessee of the property if the leased property qualifies as a new Section 38 property. A lessor cannot pass on the credit for used property to the lessee. Non-corporate lessors and S-Corporation lessors are eligible for the Enterprise Zone investment credit only if:

• Leased property has been manufactured or produced by lessor, or
• Term of the lease is less than 50% of the January 1, 1986 Asset Depreciation Range (ADR) class life for recovery property (useful life for other property) of the leased property, or
• The lessor’s business expense deductions (other than rental payments and reimbursed expenses) related to the property are more than 15% of the rental income from the property for the first year of the lease.

The investment tax credit will not be allowed when a tax-exempt organization sells depreciable property to pass the tax benefits to the new owners and then leases back the property.

For more detailed information, refer to Department of Revenue publication FYI Income 11: www.revenue.state.co.us/fyi/html/income11.html

Taxpayers located in an Enterprise Zone carrying out qualified job training programs for their employees may claim a tax credit of 10% of eligible training costs. The employees must be working predominantly within an Enterprise Zone. On-the-job training does not qualify as a job training program. Excess credits may be carried forward for up to 12 years.

Qualified job training programs are structured training or basic educational programs conducted on-site or off-site by the taxpayer or another entity to improve the job skills of employees who are employed by the taxpayer. Qualified investments in job training are:

1. Land, building, real property improvement, leasehold improvement, or space lease costs, and the cost of any capital equipment purchased or leased by the taxpayer used entirely within an Enterprise Zone primarily for qualified job training program purposes, or to make a training site accessible to the extent such investments or costs do not qualify for the Enterprise Zone investment tax credit; and
2. Expenses for a qualified job training program, whether incurred within or outside of an Enterprise Zone, including expensed equipment, supplies, training staff wages or fees, training contract costs, temporary space rental, travel expenses, and other expense costs of qualified job training programs for employees working predominantly within an Enterprise Zone. Wages of employees being trained are not eligible expenses.

For more detailed information, refer to Department of Revenue publication FYI Income 31: www.revenue.state.co.us/fyi/html/income31.html

Businesses may qualify as an NBF any of the following four ways:

1. New Colorado Business - Be a newly acquired, constructed or leased facility used by the taxpayer to operate a revenue producing enterprise. This includes any factory, mill, plant, refinery, warehouse, feedlot, building or complex of buildings including land, machinery and equipment located at the facility and used in connection with the facility’s operation.
2. Qualified Expansion Facility - Taxpayer invests at least $1 million in a non-qualified facility located in the Enterprise Zone; or if less, at least double the taxpayer’s investment in the original facility; or if the expansion adds at least 10 employees or a 10% increase (at least one full time employee) over the previous average annual number of employees.
3. Qualified Replacement Facility - A replacement business facility which has relocated from another Colorado location to an Enterprise Zone may qualify if the taxpayer has invested at least $3 million or 300% of the investment in the “old” facility. This only applies if the taxpayer operated the facility for three or more full tax years of the five tax years immediately preceding the opening of the new facility. If a previously qualified new business facility moves from one location in an enterprise zone to another location in the same or a different zone, it does not have to qualify as a replacement facility. It also cannot requalify as a new business facility in order to claim additional employee credits, but can claim NBF credits to the extent it adds additional employees over its previous base.
4. In-State Relocations - For credits claimed for tax years beginning on or after January 1, 1997, no Investment Tax Credit is allowed if the investment resulted from the relocation of a business operation from anywhere within Colorado to an Enterprise Zone. This is regardless of whether the original location of the operation was within an Enterprise Zone. However, the credits will be allowed if the relocation meets the criteria for a qualified expansion facility (#2 above) or qualified replacement facility (#3 above).

Excess credits may be carried forward for up to five years.

For more detailed information, refer to Department of Revenue publication FYI Income 10: www.revenue.state.co.us/fyi/html/income10.html

New Jobs Tax Credit (NBF)
Any taxpayer who establishes a new business facility in an Enterprise Zone can claim an income tax credit of $500 for each NBF employee who is working within the zone prorated at $41.67 per month of employment during the tax year. For subsequent tax years, a credit of $500 shall be allowed for each new job above the prior tax year. For tax years beginning on or after January 1, 1993, the excess credit is not refundable but may be carried forward for up to 5 years.

Employer-Sponsored Health Insurance Tax Credit (NBF)
For the first two full income tax years while located in an Enterprise Zone, taxpayers are allowed a credit of $200 (total $400) for each NBF employee insured under a health insurance plan or program at least 50% of the cost of which is paid by the taxpayer. Such plan or program may be any health insurance, health maintenance organization or pre-paid health plan that is approved by the State Insurance Commissioner.

The excess credit is not refundable but may be carried forward for a period of up to five years. If the same taxpayer opens a separate new business facility in the zone, the separate facility would have its own two-year health insurance qualifying period.

In the case of an existing facility that qualifies as an NBF due to expansion, the health insurance credit can be claimed for the first two full income tax years they operate in the Enterprise Zone as an NBF. However, the credit is only available for the NBF employees as computed for an expansion facility. The employees employed at the facility prior to expansion do not qualify for the insurance credit.

Agricultural Processing NEW JOBS Tax Credit (NBF)
A taxpayer located in the Enterprise Zone and qualifying as an NBF engaged in a business that adds value through manufacturing or processing to agricultural commodities receives an additional credit of $500 per new business facility employee. The agricultural processing employee credit is available only to businesses that are directly engaged in manufacturing or processing agricultural commodities into some form other than that which enters normal agricultural commodity marketing channels. Harvesting, cleaning, packaging, storing, transporting, wholesaling, retailing, or otherwise distributing products without changing their form do not qualify.

The excess credit is not refundable but may be carried forward for a period of up to five years.

For more detailed information, refer to Department of Revenue publication FYI Income 10: www.revenue.state.co.us/fyi/html/income10.html

Taxpayers located in an Enterprise Zone that make expenditures on research and development (R&D) and experimental activities within the zone qualify for income tax credits. The credit is 3% of the increase of a company’s research, development and experimental expenditures within an Enterprise Zone over the average of expenditures conducted in the same Enterprise Zone during the previous two income tax years. The total amount of the calculated credit must be divided equally over four years. The taxpayer may claim 25% of the tax credit in the year the expenditure is made and 25% in each of the following three years.

Qualifying Criteria: Qualified research must satisfy the following three criteria:

1. It must be technological in nature;

2. It must be useful in the development of a new or improved product or component of the business; and

3. It must utilize the process of experimentation.

In-house research expenses may include: wages, excluding fringe benefits; supplies; and payments for the right-to-use computers. Contract research expenses may include the amount paid for research done by a third party for the benefit of the contracting firm.

The following types of expenses do not qualify: Land or improvements to land, depreciable equipment, management surveys, costs incurred to adapt a product to a particular customer’s needs, and research funded by any government entity.

There is no limit on the number of years this credit can be carried forward.

For more detailed information, refer to Department of Revenue publication FYI Income 22: www.revenue.state.co.us/fyi/html/income22.html

The statewide manufacturing exemption is expanded to exempt additional purchases from 2.9% sales and use tax when machinery is used solely and exclusively in an Enterprise Zone. Equipment that is used both within and outside an Enterprise Zone only qualifies for the regular statewide exemption, as does equipment used at a location prior to that location’s designation as an Enterprise Zone. The following exemptions apply:

• Machinery used solely and exclusively in a designated Enterprise Zone does not have to be capitalized to qualify for the exemption.
• Materials for construction or repair of machinery or machine tools are exempt from the 2.9% state sales and use tax if the machinery is used exclusively in an Enterprise Zone.
• Mining operations are included in the definition of manufacturing when performed in the Enterprise Zone.

For more information see the Colorado Department of Revenue References FYI Sales 10 and FYI Sales 69:
www.revenue.state.co.us/fyi/html/sales10.html or
www.revenue.state.co.us/fyi/html/sales69.html