Enlarge image
Colorado Enterprise Zone Tax Guide
Enlarge image | Colorado Enterprise Zone Tax Guide |
 Enlarge image |
Enterprise Zone Tax Guide
Enterprise zones are economically depressed areas
designated by the Colorado Economic Development Table of Contents
Commission based upon unemployment rate,
population growth rate, and/or per capita income. Part 1: Certification & Filing Requirements . . . 2
Enterprise zones may include both urban and rural Part 2: Investment Tax Credit . . . . . . . . . . . . 4
areas. There are sixteen designated enterprise zones in
Colorado. Maps and additional information about Part 3: Business Facility New Employee Credits . . 9
designated enterprises zones can be found online at
Part 4: Job Training Investment Tax Credit . . . 19
OEDIT.Colorado.gov/enterprise-zone-program.
Part 5: Research and Experimental Activities Credit . 21
Colorado has established several tax incentives for
private enterprises to start new businesses and to Part 6: Vacant Building Rehabilitation Credit . . . 25
expand existing businesses in enterprise zones. These
Part 7: Machinery and Machine Tools Exemption . . 29
incentives come primarily in the form of credits that
can be applied toward a taxpayer’s Colorado income
tax liability. These credits are generally based on
investments made or employees hired by the taxpayer
in an enterprise zone. There are also sales and use tax
exemptions allowed for certain machinery and machine
tools used solely and exclusively in an enterprise zone.
This publication is designed to provide taxpayers with
general information about tax incentives for business
activity and investments in enterprise zones. Nothing in
this publication modifies or is intended to modify the
requirements of Colorado’s statutes and regulations.
Taxpayers are encouraged to consult their tax advisors
for guidance regarding specific situations. Additionally,
taxpayers can request a General Information Letter
(GIL) or Private Letter Ruling (PLR) from the
Department on issues related to enterprise zone tax
credits and exemptions.
In addition to the tax incentives discussed in this
publication, an enterprise zone contribution credit is
allowed to taxpayers who make monetary or in-kind
contributions for the purpose of implementing the
economic development plan for an enterprise zone.
Please see Department publication Income Tax Topics:
Enterprise Zone Contribution Credit for additional
information about the contribution credit.
1
Revised December 2021
|
 Enlarge image |
Part 1: Certification & Filing Requirements
Taxpayers must satisfy certain certification and filing Certification requirements
requirements to claim enterprise zone credits.
Additionally, taxpayers who claim enterprise zone Before filing an income tax return claiming any credit
credits are generally required to file electronically. The covered by pre-certification, the taxpayer must obtain
pre-certification, certification, and mandatory final certification from the enterprise zone
electronic filing requirements described in this Part 1 administrator. A taxpayer who has not satisfied the
apply to all enterprise zone credits discussed in this pre-certification requirements, discussed earlier in this
publication. publication, may not apply for any enterprise zone
credits. Applications for final certification must be
made online at OEDIT.Colorado.gov/enterprise-zone-
Pre-certification requirements program. OEDIT provides information to the
Department of Revenue confirming that taxpayers have
Before a taxpayer engages in any activity for which the complied with pre-certification and certification
taxpayer intends to claim any enterprise zone credit requirements.
discussed in this publication the taxpayer must apply
for pre-certification online at The final certification issued by the enterprise zone
OEDIT.Colorado.gov/enterprise-zone-program. As part administrator affirms only that the taxpayer’s business
of the application, the taxpayer must identify their address is within the boundaries of the enterprise zone,
business location within the enterprise zone and attest the taxpayer satisfied the applicable pre-certification
that: requirements, and, in the case of the vacant building
rehabilitation credit, that the expenditures are of a
➢ the taxpayer is aware of enterprise zone credits; qualified nature. The final certification does not
and establish the taxpayer’s eligibility for the credit or the
amount of the credit claimed. Any enterprise zone
➢ enterprise zone credits are a contributing factor to credits a taxpayer claims are subject to examination,
the start-up, expansion, or relocation of the audit, and adjustment by the Department of Revenue.
taxpayer's business in the enterprise zone.
Furthermore, the taxpayer must acknowledge in the Claiming credits
application that the pre-certification applies only to
activities that commence after the date that pre- Taxpayers must file a Colorado income tax return and
certification is issued by the enterprise zone Enterprise Zone Credit and Carryforward Schedule
administrator and before the end of the taxpayer’s (DR 1366) to claim any enterprise zone income tax
current income tax year. credits allowed to the taxpayer for the tax year.
Credits must be claimed on the return filed for the tax
The pre-certification applies only with respect to year in which the taxpayer earned the credit, even if
activities undertaken by the taxpayer at the business the taxpayer has no tax liability for that year to offset
location identified in the pre-certification. with the credit(s). Enterprise zone credits claimed, but
not applied to offset tax in the year claimed can
generally be carried forward to the following tax year.
Credits cannot be carried forward and applied toward
tax in subsequent tax years unless the taxpayer filed an
income tax return and form DR 1366 to properly claim
the credit for the tax year in which it was earned.
2
Revised December 2021
|
 Enlarge image |
Part 1: Certification and Filing Requirements
Mandatory electronic filing Additional resources
Any taxpayer who claims one or more enterprise zone The following is a list of statutes, regulations, forms,
credits must file their Colorado income tax return and guidance pertaining to pre-certification,
electronically, unless filing electronically would cause certification, and filing requirements for enterprise
undue hardship for the taxpayer. A taxpayer may claim zone credits. This list is not, and is not intended to be,
enterprise zone credits on a paper return only if the an exhaustive list of authorities that govern the tax
taxpayer cannot file electronically because the treatment of every situation. Individuals and businesses
taxpayer does not have: with specific questions should consult their tax
advisors.
➢ access to a computer;
➢ sufficient internet access; Statutes and regulations
➢
➢ sufficient internet capability; or § 39-30-103, C.R.S. Zones established –review –
termination –repeal.
➢ sufficient computer knowledge.
➢ § 39-30-110, C.R.S. Electronic submissions.
Any taxpayer who claims one or more enterprise zone
➢
credits must also include with their return a completed § 39-30-111, C.R.S. Department of revenue –
Enterprise Zone Credit and Carryforward Schedule enterprise zone data –electronic filing –
(DR 1366). Additionally, S corporations, partnerships, submission of carryforward schedule.
and any other entity treated as a partnership for tax ➢ § 39-30-112, C.R.S. Data provided to department
purposes must file with their returns a completed Pass-
of revenue.
Through Entity Enterprise Zone Credit Distribution
Report (DR 0078A).
Forms and guidance
➢ Tax.Colorado.gov
➢ Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
➢ Pass-Through Entity Enterprise Zone Credit
Distribution Report (DR 0078A)
➢ OEDIT.Colorado.gov/enterprise-zone-program
3
Revised December 2021
|
 Enlarge image |
Part 2: Investment Tax Credit
The enterprise zone investment tax credit is allowed Several other types of property may also qualify as
for 3% of the taxpayer’s qualified investment made section 38 property if they are (1) depreciable under
during the tax year in qualified property used solely I.R.C. section 168 (without regard to useful life) or (2)
and exclusively in an enterprise zone for at least one otherwise eligible for depreciation (or amortization in
year. This Part 2 provides information about lieu of depreciation) and have a useful life of 3 years or
qualifications, calculations, and limitations applicable more. Please see I.R.C. section 48 and the associated
to the investment tax credit. federal regulations for information regarding specific
rules for the following types of property:
➢ air conditioning and heating units;
I.R.C. References in This Part 2
The enterprise zone investment tax credit ➢ tangible property used as an integral part of
is based upon provisions of the Internal manufacturing or extraction;
Revenue Code (“I.R.C.”) as it existed
immediately prior to the enactment of the ➢ tangible property used as an integral part of
federal Revenue Reconciliation Act of 1990. furnishing transportation, communications,
All references in this Part 2 to sections of electrical energy, gas, water, or sewage disposal
the I.R.C. are to those sections as they
services;
existed immediately prior to the
enactment of the federal Revenue ➢ tangible property that constitutes a research
Reconciliation Act of 1990.
facility or bulk storage facility;
➢ elevators and escalators;
Qualified property ➢ single-purpose agricultural or horticultural
structures;
Qualified property is property defined as “section 38
➢
property” in section 48 of the I.R.C. Section 38 qualified rehabilitation expenditures;
property generally includes tangible personal property
➢
that is depreciable under section 168 of the I.R.C. qualified timber property;
Section 168 prescribes the method of depreciation for ➢ a storage facility used in connection with
property either used in a trade or business or otherwise
distribution of petroleum products;
held for the production of income. Property that is
neither used in a trade or business nor held for the ➢ property used in lodging;
production of income is not qualified property and does
not qualify for the enterprise zone investment tax ➢ livestock;
credit. Additionally, any property the taxpayer elects
to expense pursuant to section 179 of the I.R.C. is not ➢ boilers fueled by oil or gas;
qualified property and does not qualify for the credit.
➢ movie and television films;
➢ energy property; and
➢ sound recordings.
4
Revised December 2021
|
 Enlarge image |
Part 2: Investment Tax Credit
Pre-certification When property is placed in service
Any taxpayer who intends to claim a credit must first For the purpose of determining a taxpayer’s qualified
pre-certify with the applicable enterprise zone investment, qualified property is placed in service in
administrator. No enterprise zone investment tax credit the earlier of the following tax years:
is allowed with respect to any property acquired by the
➢
taxpayer, or with respect to which the taxpayer paid or the tax year in which, under the taxpayer's
incurred any expense, prior to the taxpayer’s pre- depreciation practice, the period for depreciation
certification with the enterprise zone administrator for with respect to such property begins; or
the tax year. Please see Part 1 of this publication for
➢
additional information about pre-certification. the tax year in which the property is placed in a
condition or state of readiness and availability for
a specifically assigned function.
Qualified investment
Please see 26 CFR § 1.46-3(d), the section titled
“Placed in Service” in Chapter 1 of IRS Publication 946,
The allowable credit is an amount equal to 3% of the
How to Depreciate Property, and the following
taxpayer’s qualified investment during the tax year in
examples for additional guidance in determining the
qualified property that is used solely and exclusively in
tax year during which qualified property is placed in
an enterprise zone for at least one year. The qualified
service.
investment is a percentage of the basis or cost of
qualified property placed into service by the taxpayer
Examples
during the tax year. The applicable percentage may be
based on various factors, including the type of The following are examples of cases where property
property, the useful life of the property, whether the shall be considered in a condition or state of readiness
property is new or used when the taxpayer acquires it, and availability for a specifically assigned function:
and whether section 168 of the I.R.C. applies to the
property. Section 168 of the I.R.C. provides generally ➢ Parts are acquired and set aside during the taxable
for the accelerated cost recovery system for year for use as replacements for a particular
depreciable business assets. machine (or machines) in order to avoid
operational time loss.
The applicable percentage for property to which I.R.C.
section 168 applies is: ➢ Operational farm equipment is acquired during the
taxable year and it is not practicable to use such
➢ 60% for property classified as 3-year property in equipment for its specifically assigned function in
I.R.C. section 168(e); and the taxpayer's business of farming until the
following year.
➢ 100% for property classified as anything other than
3-year property in I.R.C. section 168(e). ➢ Equipment is acquired for a specifically assigned
function and is operational but is undergoing
Please see I.R.C. section 46(c)(2) for the applicable
testing to eliminate any defects.
percentage for section 38 property to which I.R.C.
section 168 does not apply.
5
Revised December 2021
|
 Enlarge image |
Part 2: Investment Tax Credit
Special rules Renewable energy investments
Special rules apply to various types of property and In general, the credit can be used only to offset tax
investments. The following sections provide and cannot be used to claim a refund. However, any
information about special rules for: taxpayer who is allowed a credit for a new renewable
energy investment may elect to receive a refund for a
➢ used property; portion of the allowable credit if the new renewable
energy investment was both:
➢ property ultimately used solely and exclusively in
an enterprise zone for less than one year; ➢ placed in service on or after January 1, 2015, but
prior to January 1, 2021; and
➢ renewable energy investments;
➢ placed in service during a tax year commencing on or
➢ leased property; and after January 1, 2015, but prior to January 1, 2021.
➢ the commercial vehicle investment tax credit for
A new renewable energy investment is a qualified
heavy trucks, tractors, and semitrailers.
investment for a project that generates electricity
from eligible energy resources. Eligible energy
Used property resources generally include solar, wind, geothermal,
biomass, hydroelectricity, and recycled energy. Fossil
In the case of used property, the qualified investment fuels, nuclear fuels, and their derivatives are not
that may be considered in the calculation of the credit eligible energy resources. Please see section 40-2-
is limited to $150,000. 124(1)(a), C.R.S., for a complete definition of eligible
energy resources.
One-year requirement
A taxpayer who makes an election to receive a refund
The credit is allowed only for qualified property that is for a new renewable energy investment is allowed a
used solely and exclusively within an enterprise zone refund for 80% of the credit. By making the election,
for at least one year after the property is placed in the taxpayer agrees to forgo the remaining 20% of the
service. However, a taxpayer may file a tax return credit. The taxpayer may make the election no later
claiming the credit before the full year has elapsed. than the due date, including extensions, for filing the
For example, if a taxpayer places qualified property in tax return for the tax year during which the renewable
service in November of 2018, the taxpayer can file a energy investment was placed into service.
2018 income tax return claiming the credit in April
2019, before the full one-year period has elapsed. If the refund the taxpayer elects to receive is greater
than $750,000, the taxpayer will receive a refund of
If a taxpayer claims a credit for qualified property that $750,000 for the tax year the election is made and a
is not ultimately used solely and exclusively in an refund of $750,000 for each subsequent tax year until
enterprise zone, the taxpayer must file an amended the full amount of the allowable refunded has been
return to withdraw the credit claim for such property. refunded to the taxpayer. A taxpayer may make the
For example, if a taxpayer places qualified property in election to receive a refund with respect to multiple
service in November of 2018 and files a 2018 income
renewable energy investments, but in no event may the
tax return claiming the credit in April 2019, but uses
taxpayer receive a refund, for any tax year, totaling
the property outside of the enterprise zone in June
more than $750,000 for renewable energy investments.
2019, the taxpayer must file an amended 2018 return
to withdraw the claim for credit.
6
Revised December 2021
|
 Enlarge image |
Part 2: Investment Tax Credit
Leased property Limits on use of the credit
Under certain conditions, the lessor of qualified Multiple limitations restrict the amount of credit a
property can elect to treat the lessee as having taxpayer can use for a given tax year. If the credit
acquired the property for the purpose of the credit.
allowed to the taxpayer exceeds these limits, the
Please see I.R.C. section 48(d) and 26 CFR § 1.48-4 for
taxpayer can generally carry forward the excess credit
additional information regarding leased property.
for application toward the tax due for subsequent tax
years. The amount of credit a taxpayer can use in a
Commercial vehicle investment tax credit given tax year is the lesser of:
Special rules apply for determining whether heavy ➢ the taxpayer’s net tax liability;
trucks, tractors, and semitrailers qualify for a credit
➢
and for calculating the amount of that credit. These the sum of $5,000 plus 50% of the taxpayer’s tax
special rules apply to heavy trucks, tractors, and net liability in excess of $5,000; or
semitrailers that meet all of the following criteria:
➢ $750,000.
➢ They have a gross vehicle weight rating (GVWR) of
54,000 pounds or greater. The $750,000 limit applies to any credit applied toward
tax, any refund the taxpayer receives for a renewable
➢ They are model year 2010 or newer. energy investment, and to the combined total of credit
applied and refund claimed by the taxpayer for the tax
➢ They are designated as Class A personal property year. If a taxpayer claims a $750,000 refund for a
for vehicle registration purposes. renewable energy investment, the taxpayer cannot
apply any credit toward tax for the same tax year. The
➢ They are licensed and registered in Colorado. $750,000 limit does not apply to any credit the
taxpayer has carried forward from a tax year prior to
Heavy trucks, tractors, and semitrailers, and any parts
2014.
associated therewith, are deemed to satisfy the one-
year requirement described earlier in this publication if
The limits on credit use apply to the investment tax
they are predominantly housed and based at the
credit and the job training investment tax credit
taxpayer’s business trucking facility within an enterprise
discussed in Part 4 of this publication. The combined
zone for the 12-month period following purchase.
amount of investment tax credit and job training
investment tax credit a taxpayer applies to offset tax
Subject to approval and certification by the Economic
for a given tax year cannot exceed the limits on credit
Development Commission, a commercial vehicle
use.
investment tax credit is allowed for heavy trucks,
tractors, and semitrailers that satisfy all of the
Please see sections 39-30-104(2)(a) and (b) and
requirements for the enterprise zone investment tax
39-22-507.5(3), C.R.S., for limits applicable to tax
credit. The allowable credit is equal to 1.5%, rather
years commencing prior to January 1, 2014.
than 3%, of the qualifying investments.
For additional information regarding commercial
vehicle investment tax credits allowed for heavy
trucks, tractors, and semitrailers, please visit
OEDIT.Colorado.gov/enterprise-zone-commercial-
vehicle-investment-tax-credit.
7
Revised December 2021
|
 Enlarge image |
Part 2: Investment Tax Credit
Credit carryforwards
State statutes and regulations
If the credit a taxpayer may use is limited as described ➢ § 39-30-104, C.R.S. Credit against tax –investment
above, the taxpayer can generally carry forward the
in certain property –definitions.
excess credit to the next tax year. The number of years
a taxpayer can carry forward excess credits beyond the ➢ Rule 39-30-104. Enterprise zone investment tax credit.
tax year in which the investment was made depends on
the tax year for which the credit was initially allowed. Federal law
The credit carryforward periods reflected in Table 2-1
do not apply to renewable energy investments for The federal laws listed here, that apply to the
which the taxpayer has elected to receive a refund. enterprise zone investment tax credit, are those laws
as they existed immediately prior to the enactment of
Table 2-1. Credit Carryforward Periods the federal Revenue Reconciliation Act of 1990.
2013 2014 2018 ➢ I.R.C. § 38. General business credit.
Tax Years and through and
prior 2017 later ➢ I.R.C. § 46. Amount of credit.
Credit carryforward 12 14 14 ➢ I.R.C. § 47. Certain dispositions…of section 38 property.
period years years years
➢ I.R.C. § 48. Definitions; special rules.
Carryforward period
20 22 14
for renewable energy ➢ I.R.C. § 167. Depreciation.
years years years
investments
➢ I.R.C. § 168. Accelerated cost recovery system.
Any credit that has not been used within the
Any federal regulations promulgated under these
carryforward period expires and is no longer available
sections may also apply to the enterprise zone
to the taxpayer.
investment tax credit.
Additional resources Forms and guidance
➢
The following is a list of statutes, regulations, forms, Tax.Colorado.gov
and guidance pertaining to the enterprise zone ➢ OEDIT.Colorado.gov/enterprise-zone-investment-
investment tax credit. This list is not, and is not
tax-credit
intended to be, an exhaustive list of authorities that
govern the tax treatment of every situation. Individuals ➢ OEDIT.Colorado.gov/enterprise-zone-commercial-
and businesses with specific questions should consult
vehicle-investment-tax-credit
their tax advisors.
➢ Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
➢ IRS Publication 946, How to Depreciate Property
8
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
A taxpayer who operates a business facility in an Revenue-producing enterprises
enterprise zone is allowed a credit for the net increase
during the tax year in employees working at the facility. The taxpayer must operate the business facility in a
The taxpayer may claim additional employee credits if revenue-producing enterprise that engages in one or
certain qualifying criteria are met. This Part 3 provides more of the following activities:
information about business facility new employee
➢
credits, including discussion of the following subjects: the production, assembly, fabrication,
manufacturing, or processing of any agricultural,
➢ Qualifying criteria for business facilities and mineral, or manufactured product;
business facility employees
➢ the storage, warehousing, distribution, or sale of
➢ Calculation of net new business facility employees any products of agriculture, mining, or
for the tax year manufacturing;
➢ Additional credits for certain facilities and employees ➢ the feeding of livestock at a feedlot;
➢ Examples for calculating the credit ➢ the operation of laboratories or other facilities for
scientific, agricultural, animal husbandry, or
industrial research, development, or testing;
Business facilities
➢ the performance of services of any type; or
Enterprise zone business facility employee credits are
➢
allowed only to taxpayers who operate a business the administrative management of any of the
facility in an enterprise zone. The business facility activities listed above.
must meet certain criteria, must be used by the
taxpayer in a revenue-producing enterprise, and is Leased business facilities
subject to certain rules in the event the facility is
leased. If a taxpayer operates a business without any If a taxpayer owns a business facility in an enterprise
business facility, the taxpayer may not claim the zone and leases the entire facility to another person or
business facility new employee credit. business, the taxpayer cannot claim any employee
credits with respect to the facility. If the taxpayer
The taxpayer’s business facility must be a factory, mill, leases part of that facility to another person or
plant, refinery, warehouse, feedlot, or any other company and operates a revenue-producing enterprise
building or complex of buildings within which individuals in the remaining part, the taxpayer may claim
are customarily employed or that are customarily used employee credits only with respect to employees
to house machinery, equipment, or other property. employed by the taxpayer in that revenue-producing
enterprise.
Temporary structures and mobile units do not qualify
as business facilities, unless they are used in
association with permanent structures that qualify as
business facilities. If a temporary structure or mobile
unit is not used in association with a permanent
structure that qualifies as a business facility, any
employees working in connection with that temporary
structure or mobile unit are not business facility
employees and do not qualify for the credit.
9
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Business facility employees Minimum time requirement
In general, a taxpayer may claim business facility The employee must perform duties in connection with
employee credits only with respect to employees who the operation of the business facility on:
satisfy the applicable business facility, work location,
➢
time, and withholding requirements. Special rules that a regular, full-time basis;
apply specifically to commercial drivers are discussed ➢ a part-time basis if the person is customarily
later in this publication.
performing his or her duties at least twenty hours
per week throughout the taxable year; or
Business facility and work requirements
➢ a seasonal basis if the person performs his or her
To qualify for the credit, an employee must work in or duties for substantially all of the season customary
at the business facility, within the enterprise zone, for the position in which the person is employed.
including the land on which the facility is located and
be employed by the taxpayer in connection with the In order to qualify as a business facility employee, the
operation of the taxpayer’s business facility during the employee must, throughout the taxable year,
taxable year for which the credit is claimed. An customarily perform duties for at least 20 hours per
employee’s duties are performed in connection with week in or at the business facility, in connection with
the operation of a business facility only if such duties the operation of the business facility. An employee who
contribute materially to the operation of a revenue- meets this requirement and all other applicable
producing enterprise conducted in or at the business requirements is considered a business facility employee
facility.
even if that employee also performs duties
unconnected with the business facility or outside the
An employee satisfies these requirements if they
enterprise zone.
customarily perform duties in or at the business
facility, in connection with the operation of the
facility, for at least 20 hours per week throughout the Withholding requirement
taxable year, regardless of whether they also perform
additional duties at another location either inside or The employee must receive compensation for duties
outside of the zone. For example, if an employee performed in the operation of the business facility from
customarily performs duties at the business facility in which Social Security, Medicare, and income taxes are
connection with the operation of the facility for at withheld by either:
least 20 hours per week, the employee qualifies for the
credit even if that employee also spends some ➢ the taxpayer; or
additional time working from their home outside of the
enterprise zone. ➢ an employee leasing company acting as the
employing unit for, or co-employer with, the
In general, an employee whose duties are not taxpayer, if the taxpayer is a work-site employer.
performed in connection with the operation of the See section 8-70-114(2)(a)(V) and (VII), C.R.S.
business facility or are performed outside of the
enterprise zone do not qualify as business facility The withholding requirement is not satisfied with
employees. Examples of non-qualifying employees may respect to any “statutory employee” for whom the
include employees who perform landscaping, taxpayer withholds Social Security and Medicare taxes,
housecleaning, or construction duties at the customer’s pursuant to I.R.C. section 3121(d)(3), but not income
location. taxes.
10
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Commercial drivers Averaging employees for the year
Special rules apply to any employee whose primary In determining the credit, the taxpayer must calculate
duties consist of operating a commercial motor vehicle the total number of business facility employees working
with a commercial driver's license. These employees in connection with the business facility for the current
generally are not required to work at or in the business tax year and for each preceding tax year. In general,
facility, provided they spend no more than 5% of their the number of business facility employees for any year
total time at any business of the employer other than is calculated by adding together the number of business
the business within the zone. These employees must facility employees on the last business day of each
nonetheless customarily perform duties for at least 20 month of the tax year and dividing the total by 12. The
hours per week throughout the taxable year that taxpayer must use this formula even if the taxpayer’s
contribute materially to the operation of a revenue- tax year is a short tax year consisting of fewer than 12
producing enterprise conducted in or at the business months, as may occur if the taxpayer is not in
facility. They are also subject to the withholding existence for the entire tax year or changes their
requirements discussed earlier in this publication. annual accounting period (please see IRS
Publication 538, Accounting Periods and Methods for
additional information regarding short tax years).
Employee credit calculation
However, the number of business facility employees is
The credit is based on the taxpayer’s total number of calculated differently if the taxpayer’s business facility is
business facility employees, averaged over the course in operation for less than the entire tax year, as might be
of the tax year, as described later in this section. For the case if the facility operates seasonally or otherwise
the business facility’s first year of operation, the ceases all operation for some period of time during the
taxpayer is allowed a credit of $1,100 for each business year. If the taxpayer’s business facility is in operation for
facility employee working within the enterprise zone. less than the entire tax year, the number of business
For each subsequent tax year, the taxpayer is allowed facility employees is calculated by adding together the
a credit of $1,100 for each additional business facility number of business facility employees on the last business
employee working within the enterprise zone in excess day of each full calendar month of the tax year during
of the highest total number of business facility which the facility was in operation and dividing the total
employees for any prior tax year. For any year by the number of such full calendar months of operation.
subsequent to the facility’s first year of operation, the If the business facility’s period of operation commences
credit is allowed only for the additional employees at or ceases during a calendar month, and the business
the facility, even if the taxpayer did not operate the facility is therefore not in operation for the full calendar
facility in the prior year(s) and/or acquired the facility month, that partial month of operation is not considered
from another taxpayer. An employer must satisfy all in the calculation of business facility employees. A
applicable per-certification requirements to qualify for business facility is considered to be in operation for less
any employee credits. than the entire taxable year only if all business activities
conducted at the facility cease temporarily for a period of
not less than one full calendar month during the taxable
year. Business activities are not deemed to have ceased
at a facility in any month during which any employee
performs work at or in the facility or during which the
generation of any gross revenue can be attributed to the
facility.
11
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Pre-certification
Changes to enterprise zone boundaries
Before a taxpayer engages in any activity for which the
In general, the continuing operations at an existing
taxpayer intends to claim any enterprise zone business
business facility initially located outside of an
facility new employee credit, the taxpayer must apply
enterprise zone that is absorbed into an enterprise
for pre-certification from the enterprise zone
zone when the boundaries for the zone are redrawn
administrator. Please see Part 1 of this publication for
will not qualify for any enterprise zone employee
additional information regarding pre-certification
credits. Employee credits are allowed only to a
requirements.
taxpayer who, before engaging in any activity for which
they intend to claim a credit, has certified that the
If a taxpayer does not pre-certify as required by law
credits are a contributing factor to the start-up,
prior to the commencement of the tax year, the
expansion, or relocation of a taxpayer’s business in the
number of employees for any month that commences
enterprise zone. If this condition has not been met, the
prior to pre-certification during such tax year is
taxpayer may not claim any enterprise zone employee
deemed not to exceed the highest number of business
credits with respect to employees at the facility, even
facility employees calculated for any prior tax year. In
after the boundaries of the enterprise zone have been
calculating the number of business facility employees
redrawn to include the facility. If an existing business
for any prior year, in order to determine the increase
facility is absorbed into an enterprise zone when the
in employees in the current tax year, the number of
boundaries for the zone are redrawn, a subsequent
business facility employees employed by the taxpayer
expansion of the facility may qualify the enterprise
at the business facility on the last business day of each
zone credits.
month of the prior year(s) shall be included in the
calculation, regardless of whether the taxpayer pre-
certified prior to or during such prior year(s). Replacement business facilities
Please see Example 3-6, later in this publication, for If the taxpayer’s business facility is a replacement
illustrations of credit calculations for taxpayers who business facility, special rules apply for calculating the
have commenced operations prior to satisfying pre- number of business facility employees. A replacement
certification requirements. business facility is a business facility at which the
taxpayer (or a related taxpayer) operates a revenue-
producing enterprise substantially similar to a revenue-
producing enterprise that was operated by the taxpayer
(or a related taxpayer) at another business facility in
this state that discontinued operating on or before the
close of the first taxable year in which commercial
operations commenced at the new business facility.
In calculating the credit for a replacement business
facility, the average number of business facility
employees for any given year must be reduced by the
average number of employees at the old facility during
the three taxable years preceding the first taxable year
that the replacement business facility is first available
for use by the taxpayer or capable of being used by the
taxpayer in a revenue-producing enterprise.
12
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Other employee credits Calculation for other employee credits
Taxpayers may be able to claim up to four additional Except for the health insurance credit, the other
credits for business facility employees. Qualifying employee credits shown in Table 3-1, later in this
criteria for these credits are detailed in Table 3-1, publication, are allowed only with respect to
later in this publication. Some of these additional employees for whom the taxpayer claims the standard
credits are allowed for employees who work in enterprise zone employee credit. The taxpayer must
enhanced rural enterprise zones or in connection with first calculate the number of business facility
business facilities that add value to agricultural employees (for the first year of operation) or the
commodities through manufacturing or processing, number of additional business facility employees (for
which are explained in greater detail in the following any subsequent year of operation) and then determine
sections. which of those employees meet the additional
qualifying criteria detailed in Table 3-1. The credits
Enhanced rural enterprise zones allowed for enhanced rural enterprise zones and for
processing agricultural commodities are in addition to
An enhanced rural enterprise zone is any portion of any the standard enterprise zone employee credit.
county that is within the boundaries of an enterprise
zone and that meets certain criteria established by Employee health insurance credit
law. Every two years, the Office of Economic
Development and International Trade (“OEDIT”) A taxpayer may claim the health insurance credit only
determines which counties meet the qualifying criteria for the first two full tax years the taxpayer is located in
to be designated as enhanced rural enterprise zones. the enterprise zone. Any tax year of less than 12
Please see OEDIT.Colorado.gov/enterprise-zone- months is not considered a full tax year. The health
program and section 39-30-103.2, C.R.S., for additional insurance credit is not allowed for any tax year
information regarding the designation of enhanced subsequent to the first two full tax years that a
rural enterprise zones. taxpayer operates a business facility in an enterprise
zone, regardless of whether the taxpayer qualified for
Agricultural processing or claimed any credit for the first two full tax years.
A business adds value to agricultural commodities The taxpayer may claim the health insurance credit each
through manufacturing or processing if it engages of the first two full tax years for each employee that
directly in an activity that substantially transforms an meets the qualifying criteria (please see Table 3-1, later
agricultural commodity into a form other than that in this publication). The credit is calculated by
which enters the normal agricultural commodity averaging the qualifying employees for the tax year, as
marketing channels. Harvesting, cleaning, packaging, described earlier in this publication, but, unlike other
storing, transporting, wholesaling, retailing, or employee credits, the credit is allowed for all
otherwise distributing commodities without qualifying employees rather than just the increase in
substantially changing the form of the commodity do qualifying employees over the highest total number of
not qualify. qualifying employees in any prior tax year.
13
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Table 3-1 outlines the qualifying criteria for each of employee credits are allowed in addition to, and not
the five different enterprise zone business facility instead of, the standard enterprise zone employee
employee credits, including both the standard credit. Please see Employee credit calculation, earlier
enterprise zone employee credit and the four in this publication, for information about calculating
additional employee credits. If the applicable the number of qualifying employees for each credit.
qualifying criteria are met, the four additional
Table 3-1. Business Facility New Employee Credits
Credit per Carry-
Credit Qualifying criteria
employee forward
Enterprise zone ➢ The employee must be a business facility employee who satisfies all
$1,100 5 years
employee credit applicable requirements.
➢ The employee must be a business facility employee who satisfies all
Enhanced rural applicable requirements.
$2,000 7 years
enterprise zone ➢ The employee must work during the tax year in an enhanced rural
employee credit
enterprise zone.
➢ The employee must be a business facility employee who satisfies all
applicable requirements.
Enterprise zone ➢ The taxpayer must operate a business facility that adds value to
agricultural
agricultural commodities through manufacturing or processing.
$500 5 years
manufacturing ➢ The employee does not need to work directly in agricultural
or processing
employee credit manufacturing or processing, but must be employed in the operation of
the facility that adds value to agricultural commodities through
manufacturing or processing.
➢ The employee must be a business facility employee who satisfies all
applicable requirements.
➢
Enhanced rural The employee must work during the tax year in an enhanced rural
enterprise zone enterprise zone.
agricultural ➢ The taxpayer must operate a business facility that adds value to $500 7 years
manufacturing agricultural commodities through manufacturing or processing.
or processing ➢ The employee does not need to work directly in agricultural
employee credit manufacturing or processing, but must be employed in the operation of
the facility that adds value to agricultural commodities through
manufacturing or processing.
➢ The employee must be a business facility employee who satisfies all
applicable requirements.
➢ The employee must be insured under a health insurance plan or
program provided by the taxpayer.
Enterprise zone ➢ The taxpayer must contribute 50% or more of the total cost of the
employee health $1,000 5 years
health insurance plan or program.
insurance credit ➢ The plan or program must be a self-insurance program or comply with
the provisions of Parts 1, 2, 3, or 4 of Article 16 of Title 10, C.R.S.
➢ The health insurance plan or program must include partial or complete
coverage for hospital and physician services.
14
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Examples Example 3-2. Subsequent tax years
The taxpayer described in Example 3-1 continues
The following examples illustrate the calculation of
operation of its business facility in the next three tax
business facility employee credits.
years. Using the Employee credit calculation, described
earlier in this publication and in Example 3-1 , the
Example 3-1. First tax year of operation
taxpayer has 15 business facility employees in the 1st
year, 22 in the 2nd year, 18 in the 3rd year, and 25 in
A taxpayer begins operation of its business facility on
the 4th year. The following table illustrates the
March 18th. The taxpayer’s tax year runs from March
18 ththrough December 31 .stThe number of employees increase in employees over the highest preceding year
and the allowable credit for each year.
working at the facility on the last business day of each
month is:
2nd 3rd 4th
Tax Years
March: 6 August: 18 year year year
April: 8 September: 24 Employees for tax year 22 18 25
May: 9 October: 26
June: 12 November: 25 Highest total number of
15 22 22
employees in any prior year
July: 15 December: 37
Increase over highest prior year 7 0 3
Under the general rules for calculating the credit,
discussed in Employee credit calculation, earlier in this Allowable credit $7,700 $0 $3,300
publication, the number of business facility employees
for the year is calculated by adding together the Example 3-3. Health insurance credit
number of business facility employees on the last
business day of each month of the tax year and dividing The taxpayer described in Examples 3-1 and 3-2
the total (180) by 12. The result is a total of 15 provides health insurance each year to all employees.
The insurance meets the requirements to qualify for
business facility employees for the tax year. The
the health insurance credit.
taxpayer is allowed a credit of $1,100 for each
employee or $16,500 total ($1,100 x 15).
Unlike the other enterprise zone employee credits, the
health insurance credit is allowed for all employees that
meet the qualifying criteria, not just the increase in those
employees over the highest number in any prior year, but
it is allowed only for the first two full tax years that the
business facility is located in the enterprise zone.
The taxpayer’s first tax year of operation was not a full
tax year, so the taxpayer cannot claim the health
insurance credit for that year. Instead, the taxpayer
can claim the credit for the 2nd and 3rd years of
operation, since those are the taxpayer’s first two full
tax years located in the enterprise zone.
The taxpayer had 22 qualifying employees in the 2nd
year and 18 qualifying employees in the 3rd year. The
taxpayer can claim a credit of $22,000 ($1,000 x 22) for
the 2nd year and $18,000 ($1,000 x 18) for the 3rd year.
15
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Example 3-4. Other employee credits Example 3-5. A facility operating for less than the
entire tax year
The business facility of the taxpayer described in
Examples 3-1 and 3-2 was not in an enhanced rural Each tax year, a taxpayer operates the same business
enterprise zone in the year it began operations. facility in an enterprise zone seasonally from mid-May
However, beginning with the 3rd year of operation, the through mid-October. At all other times, there is no
location of the facility was designated as an enhanced activity and there are no employees working at the
rural enterprise zone. facility. The taxpayer’s tax year runs from January 1 st
through December 31st.
The taxpayer did not increase employees at the facility
in the 3rd year (18 employees for the year compared Since all business activities conducted at the facility
with 22 in a prior year), so the taxpayer could not cease temporarily during the tax year and the business
claim the standard employee credit or the enhanced facility is therefore in operation for less than the entire
rural employee credit for the 3rd year. tax year, as described earlier in this publication, the
calculation of the number of business facility
In the 4th year, the taxpayer’s 25 employees employees for the year includes only the full calendar
represented an increase of three employees over the months of operation. The number of employees
highest total number of employees in any prior year. working at the facility on the last business day of each
The taxpayer can claim both a standard employee full calendar month of operation is:
credit of $3,300 ($1,100 x 3) and the enhanced rural
enterprise zone credit of $6,000 ($2,000 x 3) for these June: 9 August: 14
three additional employees. July: 12 September: 5
The number of business facility employees for the year
is calculated by adding together the number of business
facility employees on the last business day of each
month of the tax year and dividing the total (40) by the
number of full calendar months during which the
facility was in operation (4). The result is a total of 10
business facility employees for the tax year, resulting
in an increase of two business facility employees over
the eight business facility employees, which was the
highest number of business employees for any prior tax
year. The taxpayer is allowed a credit of $1,100 for
each of the two additional employees or $2,200 total
($1,100 x 2).
16
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Example 3-6. Pre-certification after commencing The credit for tax year 2019 is computed by subtracting
operations the average number of business facility employees in
2019 by the highest average number of business facility
A taxpayer commences operations at a business facility employees for any prior year and multiplying the result
in an enterprise zone on January 1, 2018, and is a by $1,100. The average number of business facility
calendar year filer whose 2018 tax year runs from employees for 2019 is calculated by adding together
January 1, 2018, to December 31, 2018. The taxpayer the number of employees at the end of each month
employs eight business facility employees at the facility during the tax year (eight for each month January
at the end of each month of the 2018 tax year. through August and 11 for each month September
However, the taxpayer does not pre-certify, as through December) and dividing the sum (108) by 12,
described in Part 1 of this publication, either prior to resulting in nine business facility employees for tax
or at any time during the 2018 tax year. Consequently, year 2019. The nine business facility employees for tax
for the purpose of calculating the credit allowed for year 2019 is one more than the eight business facility
the 2018 tax year, the taxpayer is deemed to have zero employees that were the highest average from any
employees (the highest average number of employees prior year. Therefore, the taxpayer is allowed a credit
in any prior tax year) at the end of each month during of $1,100 ($1,100 x 1).
the 2018 tax year and is therefore not allowed any
credit. The taxpayer continues operation of the business
facility throughout tax year 2020, employing eleven
Beginning in January 2019, and throughout the entirety business facility employees at all times during the tax
of tax year 2019, the taxpayer employs 11 business year. The credit for tax year 2020 is calculated by
facility employees. On August 15, 2019, the taxpayer subtracting the average number of business facility
pre-certifies with the enterprise zone administrator. employees for tax year 2020 (11 employees) by the
For the purpose of calculating the credit for tax year highest average number of business facility employees
2019, the number of business facility employees for any for any prior year (11 employees, for tax year 2019).
month in 2019 commencing prior to pre-certification is Because the average number of business facility
deemed not to exceed the highest average number of employees for tax year 2020 is no greater than the
business facility employees for any prior year. highest average number of business facility employees
Consequently, the number of business facility for any prior year, the allowable credit for tax year
employees from January 2019 through August 2019 is 2020 is $0.
deemed to be eight, rather than 11.
17
Revised December 2021
|
 Enlarge image |
Part 3: Business Facility New Employee Credits
Credit carryforwards
The credit a taxpayer can use for any tax year is limited
to the taxpayer’s net tax liability. If the allowable credit
exceeds the taxpayer’s net tax liability, the taxpayer
can carry forward the excess credit for application
toward the tax due for subsequent tax years. Please see
Table 3-1, earlier in this publication, for the allowable
carryforward period applicable to the different
enterprise zone employee credits. Any credit that has
not been used within the carryforward period expires
and is no longer available to the taxpayer.
Additional resources
The following is a list of statutes, regulations, forms,
and guidance relevant to enterprise zone business
facility employee credits. This list is not, and is not
intended to be, an exhaustive list of authorities that
govern the tax treatment of every situation. Individuals
and businesses with specific questions should consult
their tax advisors.
Statutes and regulations
➢ § 39-30-105.1, C.R.S. Credit for new enterprise
zone business employees –definitions.
➢ Rule 39-30-105.1. Enterprise zone business facility
employee credits.
Forms and guidance
➢ Tax.Colorado.gov
➢ OEDIT.Colorado.gov/enterprise-zone-new-
employee-tax-credit
➢ OEDIT.Colorado.gov/enterprise-zone-employer-
sponsored-health-insurance-tax-credit
➢ Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
18
Revised December 2021
|
 Enlarge image |
Part 4: Job Training Investment Tax Credit
A taxpayer who invests in a qualified job training Other expenses
program for employees who work predominantly within
an enterprise zone may claim a credit equal to 12% of Other expenses incurred by the taxpayer either inside
the qualified investment. This Part 4 provides or outside of an enterprise zone may be qualified
information about qualified job training programs, investments. Such expenses must be incurred for a
qualified investments, the credit calculation, and the qualified job training program for employees working
allowable carryforward period for any excess credits. predominantly within an enterprise zone. Examples of
qualifying expenses may include:
➢
Qualified job training programs expensed equipment,
➢
A qualified job training program is a structured training supplies,
or basic education program to improve the job skills of ➢ training staff wages or fees,
the taxpayer’s employees who work predominantly
within an enterprise zone. The program may be ➢ training contract costs,
conducted at the taxpayer’s location or off-site. The
training program may be conducted by the taxpayer or ➢ virtual and in-person training classes and courses,
by another entity.
➢ temporary space rental, and
➢
Qualified investment travel expenses.
For the purpose of calculating the credit, the qualified Non-qualifying expenses
investment may include investments in real property
and capital equipment, as well as other expenses that Non-qualifying expenses that do not qualify for the
meet the following requirements. credit include, but are not limited to, expenses
incurred for any of the following purposes:
Real property and capital equipment ➢ the regular operation of a business;
The taxpayer’s costs in purchasing, leasing, or improving ➢ on-the-job training that is not part of a qualified
real property or capital equipment may qualify for the
job training program;
credit. Eligible real property may include land, buildings,
real property improvements, leasehold improvements, ➢ wages paid to employees being trained; or
and leased space. The property or equipment must satisfy
all of the following requirements: ➢ training employees who are or will be working
primarily outside of the enterprise zone.
➢ it must be used entirely within an enterprise zone;
➢ it must be used primarily for qualified job training
program purposes or to make a training site
accessible; and
➢ it must not be eligible for enterprise zone
investment tax credit discussed in Part 2 of this
publication.
19
Revised December 2021
|
 Enlarge image |
Part 4: Job Training Investment Tax Credit
Pre-certification Additional resources
Any taxpayer who intends to claim a credit must first The following is a list of statutes, regulations, forms,
pre-certify with the applicable enterprise zone and guidance pertaining to the enterprise zone job
administrator. No job training investment tax credit is training investment tax credit. This list is not, and is
allowed with respect to any property acquired or any not intended to be, an exhaustive list of authorities
expense paid or incurred prior to the taxpayer’s pre- that govern the tax treatment of every situation.
certification with the enterprise zone administrator for Individuals and businesses with specific questions
the tax year. If investments are made in multiple tax, should consult their tax advisors.
the taxpayer must submit a separate pre-certification
form for each year, prior to making any investments in
Statutes and regulations
that year. Please see Part 1 of this publication for
additional information about pre-certification. ➢ § 39-30-104, C.R.S. Credits against tax –
investment in certain property –definitions.
Credit calculation and carryforward
Forms and guidance
The allowable credit is equal to 12% of the taxpayer’s ➢ Tax.Colorado.gov
qualified investment during the tax year in a qualified
job training program. ➢ OEDIT.Colorado.gov/enterprise-zone-job-training-
tax-credit
The limits on credit use discussed in Part 2 of this
publication apply to the investment tax credit and the ➢ Enterprise Zone Credit and Carryforward Schedule
job training investment tax credit. The combined
(DR 1366)
amount of investment tax credit and job training
investment tax credit a taxpayer applies to offset tax
for a given tax year cannot exceed the limits on credit
use. Any excess credit that cannot be used to offset tax
can be carried forward to the following tax year as
discussed in Part 2 of this publication.
20
Revised December 2021
|
 Enlarge image |
Part 5: Research and Experimental Activities Credit
An income tax credit is allowed to any taxpayer who Qualifying expenditures
makes expenditures in research and experimental
activities conducted in an enterprise zone for the Qualifying expenditures generally include all costs
purpose of carrying out a trade or business. This Part 5 incident to the development or improvement of a
provides information about qualifying expenditures and product. Examples of qualifying expenditures include:
calculation of the credit.
➢ salaries for those engaged in research or
experimentation efforts;
Research and experimental expenditures
➢ amounts incurred to operate and maintain
Research or experimental expenditures that qualify for research facilities (e.g., utilities, depreciation,
the credit are any expenditures subject to the federal rent, etc.);
income tax treatment prescribed by section 174 of the
➢
Internal Revenue Code. Eligible expenditures must be expenditures for materials and supplies used and
incurred in connection with the taxpayer's trade or consumed in the course of research or
business and represent research and development costs experimentation (including amounts incurred in
in the experimental or laboratory sense. These conducting trials);
expenditures generally include all costs incident to the
➢
development or improvement of a product. the costs of obtaining a patent, such as attorneys'
fees expended in making and perfecting a patent
A “product” for which research and experimental application; and
expenditures are made can be a pilot model, process,
➢
formula, invention, technique, patent, or similar property. expenditures paid or incurred for research or
The product can be used by the taxpayer in its trade or experimentation conducted on the taxpayer’s
business or developed for sale, lease, or license. behalf by another person or organization (such as
a research institute, foundation, engineering
Whether expenditures qualify as research or experimental company, or similar contractor).
expenditures depends on the nature of the activity to
which the expenditures relate, not the nature of the The credit is allowed only for the amount of research
product or improvement being developed or the level of and experimental expenditures that is reasonable
technological advancement the product or improvement under the circumstances. In general, the amount of an
represents. The ultimate success, failure, sale, or use of expenditure for research or experimental activities is
the product is not relevant to a determination of reasonable if the amount would ordinarily be paid for
eligibility of expenditures for the credit. like activities by like enterprises under like
circumstances. Amounts supposedly paid for research
Research or experimental expenditures are those made that are not reasonable under the circumstances may
for activities intended to discover information that be characterized as disguised dividends, gifts, loans, or
would eliminate uncertainty concerning the similar payments.
development or improvement of a product. Uncertainty
exists if the information available to the taxpayer does Please see section 174 of the Internal Revenue Code
not establish the capability or method for developing or and 26 CFR § 1.174-2 for additional information about
improving the product or the appropriate design of the research and experimental expenditures.
product. Costs may qualify for the credit if paid or
incurred after production begins, but before
uncertainty concerning the development or
improvement of the product is eliminated.
21
Revised December 2021
|
 Enlarge image |
Part 5: Research and Experimental Activities Credit
Non-qualifying expenditures Credit calculation
The credit is not allowed for any expenditures for: The allowable credit is based upon an increase in the
taxpayer’s research and experimental expenditures in
➢ the acquisition or improvement of land or
an enterprise zone over the two prior years. The credit
depreciable property;
is equal to 3% of the amount by which the taxpayer’s
research and experimental expenditures in an
➢ the purpose of ascertaining the existence,
enterprise zone exceed the average of the taxpayer’s
location, extent, or quality of any deposit of ore
research and experimental expenditures in the same
or other mineral (including oil and gas);
enterprise zone over the two preceding tax years.
➢ the ordinary testing or inspection of materials or
The credit calculated as described above is not allowed
products for quality control (quality control
entirely for the tax year in which the expenditures
testing);
were made. Instead, the credit is divided evenly over
➢ efficiency surveys; four tax years. Twenty-five percent of the credit is
allowed for the tax year in which the expenditures
➢ management studies; were made and 25% of the credit is allowed for each of
the subsequent three tax years.
➢ consumer surveys;
➢ advertising or promotions; Credit carryforward
➢ the acquisition of another's patent, model, If the credit allowed exceeds the income tax the
production, or process; or taxpayer otherwise owes for the tax year, the excess
credit may be carried forward and applied toward the
➢ research in connection with literary, historical, or taxpayer’s tax liability for the following tax year. Any
similar projects. excess credit after application toward tax for the
subsequent year may be further carried forward until
the full amount of the credit has been used.
Pre-certification
Any taxpayer who intends to claim a credit must first
pre-certify with the applicable enterprise zone
administrator. No credit is allowed with respect to any
activity undertaken by the taxpayer prior to the
taxpayer’s pre-certification with the enterprise zone
administrator for the tax year. If expenditures are
made in multiple tax years, the taxpayer must submit a
separate pre-certification form for each year, prior to
making any expenditures for that year. Please see
Part 1 of this publication for additional information
about pre-certification.
22
Revised December 2021
|
 Enlarge image |
Part 5: Research and Experimental Activities Credit
Examples Example 5-2
The taxpayer from Example 5-1 incurs $200,000 in
The following examples illustrate the calculation of the
expenditures for research and experimental activities
credit and carryforwards.
conducted in the same enterprise zone in tax year
Example 5-1 2018. The taxpayer’s average expenditures in the same
enterprise zone in the two prior tax years were
A taxpayer incurs $140,000 in expenditures for research $120,000 ($100,000 for tax year 2016 and $140,000 for
and experimental activities conducted in an enterprise tax year 2017). The $200,000 of expenditures in 2018 is
zone in tax year 2017. The taxpayer’s research and $80,000 more than the taxpayer’s average expenditures
experimental expenditures in the same enterprise zone in the same enterprise zone over the two preceding tax
for tax years 2015 and 2016 were $0 and $100,000, years.
respectively, for an average of $50,000. The $140,000
of expenditures in 2017 is $90,000 more than the The total allowable credit is $2,400 (3% x $80,000). The
taxpayer’s average expenditures in the same enterprise total allowable credit is divided evenly over the current
zone over the two preceding tax years. tax year and the three following tax years. The
taxpayer can claim a credit of $600 (25% of the total
The total allowable credit is $2,700 (3% x $90,000). The credit) for tax year 2018 and for each of the three
credit is divided evenly over the current tax year and subsequent tax years.
the three following tax years. The taxpayer can claim a
credit of $675 (25% of the total credit) for tax year Illustration of Example 5-2
2017 and for each of the three subsequent tax years. 2016 expenditures $ 100,000
2017 expenditures $ 140,000
Illustration of Example 5-1
2018 expenditures $ 200,000
2015 expenditures $ 0
Average of 2016 and 2017 $ 120,000
2016 expenditures $ 100,000
2018 expenditures minus the average
$ 80,000
2017 expenditures $ 140,000 from the two prior years
Average of 2015 and 2016 $ 50,000 Total credit (3% of increase) $ 2,400
2017 expenditures minus the average Credit allowed for 2018 (25% of total) $ 600
$ 90,000
from the two prior years
Credit allowed for 2019 (25% of total) $ 600
Total credit (3% of increase) $ 2,700
Credit allowed for 2020 (25% of total) $ 600
Credit allowed for 2017 (25% of total) $ 675
Credit allowed for 2021 (25% of total) $ 600
Credit allowed for 2018 (25% of total) $ 675
Credit allowed for 2019 (25% of total) $ 675
Credit allowed for 2020 (25% of total) $ 675
23
Revised December 2021
|
 Enlarge image |
Part 5: Research and Experimental Activities Credit
Example 5-3 Additional resources
The taxpayer from Examples 5-1 and 5-2 had a tax
The following is a list of statutes, regulations, forms,
liability of $400 for tax year 2017. The taxpayer applied
and guidance pertaining to the enterprise zone
$400 of the $675 credit allowed for tax year 2017 to
research and experimental activities credit. This list is
offset the entire tax amount due. The remaining $275
not, and is not intended to be, an exhaustive list of
of credit is carried forward to tax year 2018.
authorities that govern the tax treatment of every
For tax year 2018, the taxpayer will have available situation. Individuals and businesses with specific
credits totaling $1,550, consisting of the following: questions should consult their tax advisors.
➢ $675, equal to 25% of the total credit allowed for Statutes and regulations
expenditures made during 2017;
➢ § 39-30-105.5, C.R.S. Credit…for research and
➢ $600, equal to 25% of the total credit allowed for experimental activities.
expenditures made during 2018; and ➢ I.R.C. § 174. Research and experimental
expenditures.
➢ $275 allowed in the prior year and carried forward
to the 2018 tax year. ➢ 26 CFR § 1.174-2. Definition of research and
experimental expenditures.
The taxpayer’s 2018 tax liability is $500. After applying
$500 of the available credit to offset the tax due, the
taxpayer has $1,050 credit remaining to carry forward Forms and guidance
to tax year 2019.
➢ Tax.Colorado.gov
➢ OEDIT.Colorado.gov/enterprise-zone-research-
and-development-tax-credit
➢ Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
24
Revised December 2021
|
 Enlarge image |
Part 6: Vacant Building Rehabilitation Credit
Any taxpayer who is the owner or tenant of a qualified Qualified expenditures
building in an enterprise zone may claim an income tax
credit for qualified expenditures for the purpose of Qualified expenditures are expenditures necessary to
rehabilitating the building. This Part 6 provides rehabilitate a qualified building for commercial use
information about qualifying expenditures and the that are associated with any of the following:
credit calculation.
➢ exterior improvements,
Qualified buildings ➢ structural improvements,
➢
A qualified building is a building located in an mechanical improvements, or
enterprise zone that is at least 20 years old and has
➢
been unoccupied for at least two years. For the electrical improvements.
purpose of the credit, a “building” is defined to include
A building is rehabilitated for commercial use only if
the entire physically contiguous structure, regardless of
both:
whether it has been legally divided into separate units.
To qualify for the credit, the entire physically ➢ the taxpayer’s primary use of the building is for
contiguous structure must be unoccupied for at least commercial purposes; and
two years.
➢ the taxpayer does not use any part of the building
A building is not considered to be unoccupied at any as their residence, either full-time or part-time.
time during which the building is actively utilized by
the owner, a lessor, or any other party in the operation
of a trade or business including, but not limited to, any Examples of Qualified Expenditures
storage within the building of inventory, equipment, or
Qualified expenditures necessary to rehabilitate a
other property for an operating business. However, the
qualified building may include expenditures
mere presence of tangible personal property in an
associated with any of the following:
otherwise unoccupied building does not disqualify the
building for the credit. Additionally, transitory use of a
➢
building that is not related to the conduct of any trade demolition ➢ painting ➢ exterior repair
or business does not disqualify the building for the ➢ carpentry ➢ ceilings ➢ tuckpointing
credit.
➢ sheetrock ➢ fixtures ➢ cleanup
The pre-certification described in Part 1 of this
publication must identify the location of the building. ➢ plaster ➢ doors ➢ roofing and
➢ windows ➢ cleaning flashing
➢ sprinkler systems for fire protection purposes
25
Revised December 2021
|
 Enlarge image |
Part 6: Vacant Building Rehabilitation Credit
Non-qualified expenditures Federal rehabilitation credit
A variety of costs that may be associated with Additionally, a taxpayer who is allowed a federal
rehabilitation do not qualify for the credit. Qualified rehabilitation credit pursuant to sections 38, 46, and 47
expenditures do not include costs associated with: of the Internal Revenue Code cannot claim the vacant
building rehabilitation credit for the same
➢ acquisition ➢ interior furnishings rehabilitation expenditures.
➢ excavation ➢ landscaping
However, a taxpayer who claims a commercial historic
➢ grading ➢ repairs to outbuildings preservation tax credit on their Colorado income tax
return is not precluded from claiming the enterprise
➢ paving zone vacant building rehabilitation credit for the same
building.
➢ new additions, except as may be required to
comply with building and safety codes
Additionally, s“ oft costs” do not qualify for the credit. Credit calculation
“Soft costs” include costs associated with:
The allowable credit is generally equal to 25% of the
➢ loan fees ➢ bid bonds taxpayer’s aggregate qualified expenditures during the
tax year. However, the total credit allowed to each
➢ closing ➢ appraisals
taxpayer with respect to any given building is limited
➢ bids ➢ sales and marketing to $50,000. The limit applies to the aggregate amount
of the credit, whether allowed in one or more tax
➢ insurance ➢ project signs and phones years, and to the building as a whole, whether the
➢ copying ➢ temporary power taxpayer is the owner or tenant of the entire building
or one or more separate units therein.
➢ rent loss during construction
The limit applies to each individual, estate, trust, or C
➢ building permit, use, and inspection fees corporation who is the owner or tenant of a building,
➢ legal, accounting, and realtor fees either directly or indirectly as the partner or
shareholder in a partnership or S corporation, as well as
➢ architectural, engineering, and interior design to each partnership or S corporation that is the owner
fees or tenant of a building or any separate unit or units
therein.
26
Revised December 2021
|
 Enlarge image |
Part 6: Vacant Building Rehabilitation Credit
Examples Example 6-3. Different owners of separate units
Three unrelated taxpayers own three separate units in
The following examples illustrate the calculation of the
the same vacant building. The building is at least
credit and the limitations applicable thereto.
twenty years old, has been unoccupied for at least two
Example 6-1. Expenditures made over multiple years years, and is therefore eligible for the credit. Each of
the three taxpayers make qualified expenditures for
A taxpayer who is the owner of a vacant building makes the purpose of rehabilitating the unit they own. The
qualified expenditures for the purpose of rehabilitating three taxpayers make qualified expenditures of
the building in each of three consecutive years. In the $80,000, $160,000, and $240,000, respectively. The
first year, the taxpayer makes qualified expenditures first taxpayer is allowed a credit of $20,000 (25% of
totaling $100,000 and is allowed a credit of $25,000 their $80,000 in qualified expenditures). The second
(25% of the qualified expenditures). In the second year, taxpayer is allowed a credit of $40,000 (25% of their
the taxpayer makes qualified expenditures totaling $160,000 in qualified expenditures). The third taxpayer
$80,000 and is allowed a credit of $20,000 (25% of the is allowed a credit of $50,000, rather than $60,000
qualified expenditures). Because the aggregate amount (25% of their $240,000 in qualified expenditures).
of the credit allowed is limited to $50,000 and the
taxpayer was allowed credits totaling $45,000 in the Example 6-4. Ownership by a partnership
two prior years, the amount of credit the taxpayer is
A partnership consisting of five partners owns several
allowed in the third year cannot exceed $5,000. In the
units within a single building and makes $400,000 in
third year, the taxpayer makes qualified expenditures
qualified expenditures. A credit of $50,000 is allowed
totaling $60,000 and is allowed a credit of $5,000,
for the qualifying expenditures made by the
rather than $15,000 (25% of the qualified
partnership, rather than $100,000 (25% of the $400,000
expenditures).
in qualified expenditures). Each of the five partners is
Example 6-2. Single owner of multiple units allowed their distributive share of the $50,000 credit
allowed for the qualifying expenditures made by the
A taxpayer owns three units in the same vacant partnership.
building and makes qualified expenditures for the
purpose of rehabilitating each of the three units. The Example 6-5. Partner in multiple partnerships
taxpayer makes qualified expenditures of $100,000,
An individual is a partner in two different partnerships
$200,000, and $300,000 for the three units,
that separately own units in the same vacant building.
respectively, for a total of $600,000. The total credit
Each partnership makes qualified expenditures for the
the taxpayer is allowed for qualified expenditures for
purpose of rehabilitating the units. The two
the three units is $50,000, rather than $150,000 (25% of
partnerships pass through credits of $25,000 and
the qualified expenditures).
$40,000, respectively, to the individual partner.
However, the total credit the partner is allowed for the
rehabilitation of the building is limited to $50,000.
27
Revised December 2021
|
 Enlarge image |
Part 6: Vacant Building Rehabilitation Credit
Credit carryforwards Additional resources
The credit a taxpayer can use for any tax year is limited The following is a list of statutes, regulations, forms,
to the taxpayer’s net tax liability. If the allowable credit and guidance pertaining to the vacant building
exceeds the taxpayer’s net tax liability, the taxpayer rehabilitation credit. This list is not, and is not
can carry forward the excess credit for application intended to be, an exhaustive list of authorities that
toward the tax due for subsequent tax years. Credits govern the tax treatment of every situation. Individuals
may be carried forward up to five tax years. Any credit and businesses with specific questions should consult
that has not been used within the carryforward period their tax advisors.
expires and is no longer available to the taxpayer.
Statutes and regulations
Certification ➢ § 39-30-105.6, C.R.S. Credit against tax –
rehabilitation of vacant buildings.
Any taxpayer who intends to claim a credit must first
pre-certify with the applicable enterprise zone ➢ Rule 39-30-105.6. Credit for rehabilitation of
administrator. No credit is allowed with respect to any vacant buildings.
expenditure either paid or incurred prior to the
taxpayer’s submission of a pre-certification form to the
Forms and guidance
enterprise zone administrator. If expenditures are
made in multiple tax years for the rehabilitation of the ➢ Tax.Colorado.gov
same building, the taxpayer must submit a separate
pre-certification form for each year, prior to making ➢ OEDIT.Colorado.gov/enterprise-zone-vacant-
any expenditures for that year. Please see Part 1 of commercial-building-rehabilitation-tax-credit
this publication for additional information about pre-
certification. ➢ Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
Any taxpayer claiming the credit must obtain
certification of the qualified nature of expenditures
from the enterprise zone administrator. Please visit
OEDIT.Colorado.gov/enterprise-zone-vacant-
commercial-building-rehabilitation-tax-credit for
additional information regarding certification.
28
Revised December 2021
|
 Enlarge image |
Part 7: Machinery and Machine Tools Exemption
Machinery, machine tools, and parts thereof used solely Requirements prescribed by federal law
and exclusively in an enterprise zone are exempt from
state and state-administered local sales and use taxes With one notable exception, machinery, machine tools,
if all four of the following conditions are met. This Part and parts thereof qualify for the enterprise zone
7 discusses the qualifying criteria and requirements for exemption only if they are of such nature that they
the exemption. would have qualified for the federal investment tax
credit under section 38 of the Internal Revenue Code of
To qualify for exemption, machinery, machine tools, or 1954, as amended. The Internal Revenue Code of 1954,
parts thereof must: as amended, was replaced by the Internal Revenue
Code of 1986. Consequently, eligibility for the
1) be purchased for more than $500;
exemption cannot be determined based upon the
Internal Revenue Code as it exists today, but rather is
2) be used solely and exclusively in an enterprise
governed by the version of the Code in effect
zone in Colorado;
immediately prior to the 1986 change.
3) satisfy certain requirements prescribed by federal
In defining “section 38 property” that was eligible for
law; and
the credit, section 48 of the Internal Revenue Code of
4) be used directly and predominantly in the 1954, as amended, established many requirements and
manufacturing of tangible personal property for exceptions that also apply in determining eligibility for
sale or profit, as “manufacturing” is defined by the exemption from Colorado sales and use taxes. For
law for the enterprise zone exemption. example, section 48 establishes special conditions for
leased property and limits on used property, which are
The exemption also applies to materials for the discussed below.
construction or repair of machinery, machine tools, and
parts thereof. While section 48 establishes depreciability and useful
life requirements, these requirements do not apply to
The enterprise zone exemption for machinery and the enterprise zone exemption for machinery and
machine tools applies to state sales and use taxes, as machine tools. Provided that all other requirements are
well as all state-administered local sales and use taxes. met, machinery and machine tools qualify for the
enterprise zone exemption regardless of whether they
are capitalized or expensed.
Machinery, machine tools, and parts
Colorado law defines machinery, eligible for
exemption, as any apparatus consisting of interrelated
parts used to produce an article of tangible personal
property. The exemption applies to both the basic unit
and any adjunct or attachment necessary for the basic
unit to accomplish its intended function.
29
Revised December 2021
|
 Enlarge image |
Part 7: Machinery and Machine Tools Exemption
Limitations for used property Manufacturing
The federal investment tax credit allowed for used Manufacturing is the operation of producing a new
property was allowed only for the first $150,000 of all product, article, substance, or commodity different
used property purchased during a tax period. As the from and having a distinctive name, character, or use
excess over $150,000 could not qualify for credit, the from raw or prepared materials. The manufacturing
excess also does not qualify for the sales tax exemption. process for items normally manufactured from
Therefore, annually, only the first $150,000 of all inventoried raw materials begins at the point that raw
purchases of used machinery to be used directly and material is moved from plant inventory on a contiguous
predominantly in manufacturing in Colorado can qualify plant site and ends at the point at which manufacturing
for the exemption. All purchases of used property in has altered the raw material to its completed form.
excess of that amount are subject to sales or use tax. Manufacturing includes the process of packaging the
finished product, if applicable.
Qualifying uses of machinery For the purpose of the enterprise zone exemption,
“manufacturing” also includes refining, blasting,
For machinery or machine tools to qualify for exploring, mining and mined land reclamation, quarrying
exemption, they must be used directly and for, processing and beneficiation, or otherwise
predominantly in manufacturing tangible personal extracting from the earth or from waste or stockpiles or
property. Importantly, the term “manufacturing” is from pits or banks any natural resource.
defined, for the purpose of the enterprise zone
exemption, to include a number of activities. Manufacturing tangible personal property
The following four sections discuss the exemption To qualify for exemption, machinery, machine tools, or
requirements related to: parts thereof must be used in the manufacturing of
tangible personal property. Machinery, machine tools,
1) the definition of “manufacturing”;
and parts thereof do not qualify for exemption if they
are used to produce something other than tangible
2) the manufacture of “tangible personal property”;
personal property. For example, machinery used in the
3) the use of machinery “directly” in manufacturing; and generation of electricity does not qualify for exemption
because electricity does not constitute tangible
4) the use of machinery “predominantly” in personal property for the purpose of the exemption.
manufacturing. However, please see Department publication Sales &
Use Tax Topics: Renewable Energy Components for
information about the exemption for components used
to produce energy from renewable sources.
30
Revised December 2021
|
 Enlarge image |
Part 7: Machinery and Machine Tools Exemption
Direct use in manufacturing Predominant use in manufacturing
To qualify for exemption, machinery, machine tools, or To qualify for exemption, machinery, machine tools, or
parts thereof must be used directly in manufacturing. parts thereof must be used predominantly in
Any individual component of a larger system is used manufacturing. If a machine has other uses in addition
directly in manufacturing if it is a constituent part of to its manufacturing use, the manufacturing use must be
machinery that is used directly in manufacturing. greater than 50% of all use for the machine to qualify for
Machinery used directly in manufacturing includes: the exemption. In determining predominant use,
machinery is not considered to be in use if it is shut off,
➢ machinery that cleans or prepares raw or prepared even if it is being repaired or maintained.
materials for production on the manufacturing
line, after manufacturing has begun and before it
has stopped; Claiming the exemption
➢ machinery that performs testing of a particular pro- Anyone seeking to claim the exemption for machinery
duct during the manufacturing process or as a step or machine tools must complete the applicable form
in a continuous manufacturing line process; DR 1191 or DR 1192. A taxpayer who makes 100 or
fewer exempt purchases during the year must complete
➢ machinery that moves material from one direct a separate Sales Tax Exemption on Purchases of
production step to another in a continuous flow, Machinery and Machine Tools (DR 1191) for each
such as loaders, forklifts, conveyor belts, and exempt transaction. If a taxpayer makes more than 100
valves that are adjuncts or attachments to exempt purchases each year, the taxpayer may
qualifying machinery; and complete a Colorado Machinery and Machine Tools
State Sales Tax Exemption Declaration (DR 1192)
➢ pipelines and fittings used to gather and deliver instead of preparing a DR 1191 for each purchase. In
natural gas from wells to a processing facility. either case, the purchaser must provide copies of the
completed DR 1191 or DR 1192 to the seller and to the
The following types of machinery are not used directly Department of Revenue. The exemption can only be
in manufacturing and do not qualify for exemption: claimed for purchases in excess of $500.
➢ machinery used to clean facilities or machinery; If tax was paid on a purchase that qualifies for
exemption, the purchaser may request a refund for the
➢ machinery used to repair or maintain facilities, tax paid. See form DR 0137B, Claim for Refund of Tax
machines, or other items; and Paid to Vendors, and the associated instructions for
information regarding sales and use tax refund claims.
➢ machinery used in managerial, sales research and
development, or other non-operational activities.
31
Revised December 2021
|
 Enlarge image |
Part 7: Machinery and Machine Tools Exemption
Additional resources Forms and guidance
➢
The following is a list of statutes, regulations, forms, Tax.Colorado.gov
and guidance pertaining to sales and use tax exemptions ➢ Sales Tax Exemption on Purchases of Machinery
allowed for machinery and machine tools used in
enterprise zones. This list is not, and is not intended to and Machine Tools (DR 1191)
be, an exhaustive list of authorities that govern the tax ➢ Colorado Machinery and Machine Tools State Sales
treatment of every situation. Individuals and businesses
Tax Exemption Declaration (DR 1192)
with specific questions should consult their tax advisors.
➢ Claim for Refund of Tax Paid to Vendors (DR 0137B)
Statutes and regulations
➢ OEDIT.Colorado.gov/enterprise-zone-sales-and-
➢ § 39-26-709, C.R.S. Machinery and machine tools –
use-tax-exemption-for-manufacturing-and-mining
definitions.
➢ § 39-30-106, C.R.S. Sales and use tax –machinery
and equipment exempted.
➢ 1 CCR 201-4, Rule 39-26-709.
Internal Revenue Code of 1954, as amended
➢ 26 U.S.C. § 38. General business credit
➢ 26 U.S.C. § 46. Amount of [investment] credit
➢ 26 U.S.C. § 48. Definitions; special rules [for the
investment tax credit]
➢ 26 CFR § 1.48-1. Definition of section 38 property
➢ 26 CFR § 1.48-2. New section 38 property
➢ 26 CFR § 1.48-3. Used section 38 property
➢ 26 CFR § 1.48-4. Election of lessor of new section
38 property to treat lessee as purchaser
32
Revised December 2021
|