Colorado Enterprise Zone Pre-Certification for Business

Enterprise Zone Pre-Certification for Business
Form DR 0074
Enterprise Zone
Income Tax
Credit Guide

Enterprise Zone Income Tax Credits
Enterprise zones are economically depressed areas
designated by the Colorado Economic Development
Commission
based
upon
unemployment
rate,
population growth rate, and/or per capita income.
Enterprise zones may include both urban and rural
areas. There are 16 designated enterprise zones in
Colorado. Maps and additional information about
designated enterprises zones can be found online at
choosecolorado.com/doing-business/incentivesfinancing/ez/.

Table of Contents
Part 1: Certification & Filing Requirements . . . 2
Part 2: Contribution Credit . . . . . . . . . . . . . . 4
Part 3: Investment Tax Credit . . . . . . . . . . . . 7
Part 4: Business Facility New Employee Credits . . 12
Part 5: Job Training Investment Tax Credit . . . 18
Part 6: Research and Experimental Activities Credit . 20

Colorado has established many tax incentives for
private enterprises to start new businesses and to
expand existing businesses in enterprise zones. These
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 upon
investments made or employees hired by the taxpayer
in an enterprise zone.

Part 7: Vacant Building Rehabilitation Credit . . . 24
Appendix A: Section 39-30-105(7), C.R.S. . . . . . . 26

This publication is designed to provide taxpayers with
general information about Colorado income tax credits
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 income tax credits.
In addition to the income tax credits discussed in this
guide, state law authorizes sales and use tax
exemptions for machinery and machine tools used
solely and exclusively in enterprise zones. See FYI Sales
10: Machinery and Machine Tools Used in
Manufacturing for information regarding the sales and
use tax exemptions.

1
Revised January 2020

Part 1: Certification & Filing Requirements
Taxpayers must satisfy certain certification and filing
requirements to claim enterprise zone credits. The
certification requirements described below apply to all
enterprise zone credits except the contribution credit,
which has its own certification requirements described
in Part 2 of this publication. The mandatory electronic
filing requirements described in this Part 1 apply to all
enterprise zone credits, including contribution credits.

Applications for pre-certification and final certification
are made through the website for the Office of
Economic Development and International Trade (OEDIT)
at
choosecolorado.com/doing-business/incentivesfinancing/ez/. OEDIT provides information to the
Department of Revenue confirming that taxpayers have
complied with pre-certification and certification
requirements.
The pre-certification and final certification issued by
the enterprise zone administrator affirm only that the
taxpayer’s business address is within the boundaries of
the enterprise zone and, in the case of the vacant
building rehabilitation credit, that the expenditures are
of a qualified nature. They do not establish the
taxpayer’s eligibility for the credit or the amount of
the credit claimed. Any enterprise zone credit a
taxpayer claims is subject to examination, audit, and
adjustment by the Department of Revenue.

Certification requirements
Before a taxpayer engages in any activity for which the
taxpayer intends to claim any enterprise zone credit,
other than the contribution credit, the taxpayer must
apply for pre-certification from the enterprise zone
administrator. As part of the application, the taxpayer
must identify their business location within the
enterprise zone and attest that:
 the taxpayer is aware of enterprise zone credits;
and

Claiming credits

 enterprise zone credits are a contributing factor to
the start-up, expansion, or relocation of the
taxpayer's business in the enterprise zone.

Taxpayers must file a Colorado income tax return and
Enterprise Zone Credit and Carryforward Schedule (DR
1366 to claim any enterprise zone income tax credits
allowed for to the taxpayer for the tax year. Credits
must be claimed on the return filed for the tax year in
which the taxpayer earned the credit, even if the
taxpayer has no tax liability for that year to offset 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 a return
and DR 1366 to properly claim the credit for the tax
year in which it was earned.

Furthermore, the taxpayer must acknowledge in the
application that the pre-certification applies only to
activities that commence after the date that precertification is issued by the enterprise zone
administrator and before the end of the taxpayer’s
current income tax year.
The pre-certification applies only with respect to
activities undertaken by the taxpayer at the business
location reflected in the pre-certification.
Before filing an income tax return claiming any credit
covered by pre-certification, the taxpayer must obtain
final certification from the enterprise zone
administrator.

2
Revised January 2020

Part 1: Certification and Filing Requirements

Mandatory electronic filing

Additional resources

Any taxpayer who claims one or more enterprise zone
credits must file their Colorado income tax return
electronically, unless filing electronically would cause
undue hardship for the taxpayer. A taxpayer may claim
enterprise zone credits on a paper return only if the
taxpayer cannot file electronically because the
taxpayer does not have:

The following is a list of statutes, regulations, forms,
and
guidance
pertaining
to
pre-certification,
certification, and filing requirements for enterprise
zone 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.

 access to a computer,

Statutes and regulations

 sufficient internet access,

 § 39-30-103, C.R.S. Zones established – review –
termination – repeal.

 sufficient internet capability, or
 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
Enterprise Zone Credit and Carryforward Schedule (DR
1366). Additionally, S corporations, partnerships, and
other entities treated as partnerships for tax purposes
are required to file with their returns a completed
Pass-Through
Entity
Enterprise
Zone
Credit
Distribution Report (DR 0078A).

 § 39-30-111, C.R.S. Department of revenue –
enterprise zone data – electronic filing –
submission of carryforward schedule.
 § 39-30-112, C.R.S. Data provided to department
of revenue.

Forms and guidance
 Colorado.gov/Tax
 Enterprise Zone Credit and Carryforward Schedule
(DR 1366)
 Pass-Through Entity Enterprise Zone Credit
Distribution Report (DR 0078A)
 choosecolorado.com/doing-business/incentivesfinancing/ez/

3
Revised January 2020

Part 2: Contribution Credit
Taxpayers may claim a credit for contributions they
make during the tax year for the purpose of
implementing the economic development plan for the
enterprise zone. The credit is generally equal to 25% of
the qualifying contribution, but is subject to multiple
limitations. This Part 2 includes information about
qualifications, calculations, and limitations applicable
to the contribution credit.

Monetary contributions
A monetary contribution is any contribution of U.S.
currency in any form, including cash and payments
made by check, electronic funds transfer (EFT), debit
card, or credit card. A qualified charitable distribution
made from an individual retirement account (IRA) to a
certified enterprise zone program, project, or
organization is considered a monetary contribution. See
IRS Publication 590-B for additional information
regarding qualified charitable distributions.

Qualifying contributions
Credits are allowed only for qualifying contributions
made to an enterprise zone administrator or directly to
a program, project, or organization certified by an
enterprise zone administrator. The Office of Economic
Development and International Trade (OEDIT) provides
information regarding project certification and a list of
certified projects online at choosecolorado.com/doingbusiness/incentives-financing/ez/.

In-kind contributions
In-kind contributions include all contributions that are
not monetary contributions, subject to approval by the
enterprise zone administrator and the Economic
Development Commission. Contributions of property,
services, stocks, bonds, and other intangible property
may all be in-kind contributions. In general, credits for
contributions of property are based on the fair market
value of the property on the date of the contribution,
determined in a manner consistent with IRS guidance.
See IRS Publication 561 for additional information.

A qualifying contribution is a monetary or in-kind
contribution, subject to approval by the enterprise
zone administrator and the Economic Development
Commission, that the taxpayer makes during the tax
year for the purpose of implementing the economic
development plan for the enterprise zone. The
enterprise zone administrator has the authority to
determine whether a particular monetary or in-kind
contribution is appropriate and necessary for the
purpose of implementing the economic development
plan. A taxpayer must obtain a Certification of
Qualified Enterprise Zone Contribution from the
enterprise zone administrator in order to claim the
credit.

Non-qualifying contributions
Taxpayers may not claim a credit for any contributions
made to a donor-advised fund, as defined in
section 4966(d)(2)(A) of the Internal Revenue Code.
Additionally, the credit is not allowed for any
contributions that directly benefit the contributor or
that are not directly related to job creation, job
preservation, or another purpose expressly authorized
by law.

The amount of the credit is determined, in part, based
upon whether the contribution is a monetary
contribution or an in-kind contribution.

Taxpayers cannot claim both an enterprise zone
contribution credit and a child care contribution credit
for the same contribution.

4
Revised January 2020

Part 2: Contribution Credit

Credit calculations and limitations

Example 2-1. Monetary contributions
During the tax year, the taxpayer makes a monetary
contribution of $8,000. The allowable credit is $2,000,
as illustrated below.

In general, the allowable credit is equal to 25% of the
qualifying contribution(s) made during the tax year.
However, multiple limitations apply in determining the
allowable credit a taxpayer may claim. First, the total
credit allowed to a taxpayer for any tax year may not
exceed $100,000. Additionally, the amount of credit a
taxpayer can claim for in-kind contributions may also
be limited. Worksheet 2-1 details the calculation of
the credit, including these limitations. The amount
calculated on line 9 of Worksheet 2-1 is allowable
credit.

1. Monetary contributions . . . . . . . . . . . 1. $ 8,000
2. In-kind contributions . . . . . . . . . . . . 2. $

0

3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3. $ 8,000
4. Enter the smaller of $100,000 and
25% of line 3 . . . . . . . . . . . . . . . . . . 4. $ 2,000
5. Multiply line 4 by 50% . . . . . . . . . . . . 5. $ 1,000

Worksheet 2-1. Credit Calculation

6. Enter the smaller of line 5 and
25% of line 2 . . . . . . . . . . . . . . . . . . 6. $

0

1. Monetary contributions . . . . . . . . . . 1. ______

7. Line 4 minus line 6 . . . . . . . . . . . . . . 7. $ 2,000

2. In-kind contributions . . . . . . . . . . . . 2. ______

8. Enter the smaller of line 7 and
25% of line 1 . . . . . . . . . . . . . . . . . . 8. $ 2,000

3. Add lines 1 and 2 . . . . . . . . . . . . .

3. ______

9. Enter the total of lines 6 and 8 . . . . . . 9. $ 2,000

4. Enter the smaller of $100,000 and
25% of line 3 . . . . . . . . . . . . . . . . . 4. ______

Example 2-2. In-kind contributions
During the tax year, the taxpayer makes an in-kind
contribution of $8,000. The allowable credit is $1,000,
as illustrated below.

5. Multiply line 4 by 50% . . . . . . . . . . . 5. ______
6. Enter the smaller of line 5 and
25% of line 2 . . . . . . . . . . . . . . . . . 6. ______
7. Line 4 minus line 6 . . . . . . . . . . .

1. Monetary contributions . . . . . . . . . . . 1. $

7. _____

0

2. In-kind contributions . . . . . . . . . . . . 2. $ 8,000

8. Enter the smaller of line 7 and
25% of line 1 . . . . . . . . . . . . . . . . . 8. _____

3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3. $ 8,000
4. Enter the smaller of $100,000 and
25% of line 3 . . . . . . . . . . . . . . . . . . 4. $ 2,000

9. Enter the total of lines 6 and 8 . . . . . 9. ______

5. Multiply line 4 by 50% . . . . . . . . . . . . 5. $ 1,000

The credit calculation only includes qualifying
contributions made during the tax year. The time at
which a contribution is considered to be made is
generally determined in a manner consistent with IRS
guidance. See the section titled “When to Deduct” in
IRS Publication 526 for additional information.

6. Enter the smaller of line 5 and
25% of line 2 . . . . . . . . . . . . . . . . . . 6. $ 1,000
7. Line 4 minus line 6 . . . . . . . . . . . . . . 7. $ 1,000
8. Enter the smaller of line 7 and
25% of line 1 . . . . . . . . . . . . . . . . . . 8. $

0

9. Enter the total of lines 6 and 8 . . . . . . 9. $ 1,000

5
Revised January 2020

Part 2: Contribution Credit

Credit carryforward

Example 2-3. Mixed contributions
During the tax year, the taxpayer makes monetary and
in-kind contributions of $4,000 each. The allowable
credit is $2,000, as illustrated below.

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. Credits
may be carried forward up to five tax years. Any credit
that has not been used within the carryforward period
expires and is no longer available to the taxpayer.

1. Monetary contributions . . . . . . . . . . . 1. $ 4,000
2. In-kind contributions . . . . . . . . . . . . 2. $ 4,000
3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3. $ 8,000
4. Enter the smaller of $100,000 and
25% of line 3 . . . . . . . . . . . . . . . . . . 4. $ 2,000

Effect of credit on federal tax

5. Multiply line 4 by 50% . . . . . . . . . . . . 5. $ 1,000
6. Enter the smaller of line 5 and
25% of line 2 . . . . . . . . . . . . . . . . . . 6. $ 1,000

Certain contributions may qualify for both the
enterprise zone contribution credit and the federal
charitable contribution deduction. However, federal
regulation limits the federal deduction allowed for
contributions that result in state income tax credits.
See 26 CFR § 1.170A-1(h)(3) for additional information.

7. Line 4 minus line 6 . . . . . . . . . . . . . . 7. $ 1,000
8. Enter the smaller of line 7 and
25% of line 1 . . . . . . . . . . . . . . . . . . 8. $ 1,000
9. Enter the total of lines 6 and 8 . . . . . . 9. $ 2,000
Example 2-4. Mixed contributions

Additional resources

During the tax year, the taxpayer makes monetary and
in-kind contributions of $1,000 and $7,000,
respectively. The allowable credit is $1,250.

The following is a list of statutes, regulations, forms, and
guidance pertaining to the enterprise zone contribution
credit. 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.

1. Monetary contributions . . . . . . . . . . . 1. $ 1,000
2. In-kind contributions . . . . . . . . . . . . 2. $ 7,000
3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3. $ 8,000

Statutes and regulations

4. Enter the smaller of $100,000 and
25% of line 3 . . . . . . . . . . . . . . . . . . 4. $ 2,000
5. Multiply line 4 by 50% . . . . . . . . . . . . 5. $ 1,000

 § 39-30-103.5, C.R.S. Credit against tax –
contributions to enterprise zone administrators.

6. Enter the smaller of line 5 and
25% of line 2 . . . . . . . . . . . . . . . . . . 6. $ 1,000

 Reg. 39-30-103.5. Credit for Enterprise Zone
Contributions.

7. Line 4 minus line 6 . . . . . . . . . . . . . . 7. $ 1,000
8. Enter the smaller of line 7 and
25% of line 1 . . . . . . . . . . . . . . . . . . 8. $

Forms and guidance

250

 Colorado.gov/Tax

9. Enter the total of lines 6 and 8 . . . . . . 9. $ 1,250

 choosecolorado.com/doing-business/incentivesfinancing/ez/enterprise-zone-contribution-projects/
6
Revised January 2020

Part 3: Investment Tax Credit
The enterprise zone investment tax credit is allowed
for 3% of the taxpayer’s qualified investment made
during the tax year in qualified property used solely
and exclusively in an enterprise zone for at least one
year. This Part 3 includes information about
qualifications, calculations, and limitations applicable
to the investment tax credit.

Several other types of property may also qualify as
section 38 property if they are (1) depreciable under
I.R.C. section 168 (without regard to useful life) or (2)
otherwise eligible for depreciation (or amortization in
lieu of depreciation) and have a useful life of 3 years or
more. See I.R.C. section 48 and the associated 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 3

 tangible property used as an integral part of
manufacturing or extraction;

The enterprise zone investment tax credit
is based upon provisions of the Internal
Revenue Code (“I.R.C.”) as it existed
immediately prior to the enactment of the
federal Revenue Reconciliation Act of 1990.
All references in this Part 3 to sections of
the I.R.C. are to those sections as they
existed
immediately
prior
to
the
enactment of the federal Revenue
Reconciliation Act of 1990.

 tangible property used as an integral part of
furnishing transportation, communications,
electrical energy, gas, water, or sewage disposal
services;
 tangible property that constitutes a research
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
property generally includes tangible personal property
that is depreciable under section 168 of the I.R.C.
Section 168 prescribes the method of depreciation for
property either used in a trade or business or otherwise
held for the production of income. Property that is
neither used in a trade or business nor held for the
production of income is not qualified property and does
not qualify for the enterprise zone investment tax
credit. Additionally, any property the taxpayer elects
to expense pursuant to section 179 of the I.R.C. is not
qualified property and does not qualify for the credit.

 qualified rehabilitation expenditures;
 qualified timber property;
 a storage facility used in connection with
distribution of petroleum products;
 property used in lodging;
 livestock;
 boilers fueled by oil or gas;
 movie and television films;
 energy property; and
 sound recordings.

7
Revised January 2020

Part 3: Investment Tax Credit

Qualified investment

Special rules

The allowable credit is an amount equal to 3% of the
taxpayer’s qualified investment during the tax year in
qualified property that is used solely and exclusively in an
enterprise zone for at least one year. The qualified
investment is a percentage of the basis or cost of
qualified property placed into service by the taxpayer
during the tax year. The applicable percentage may be
based on various factors, including the type of property,
the useful life of the property, whether the property is
new or used when the taxpayer acquires it, and whether
section 168 of the I.R.C. applies to the property. Section
168 of the I.R.C. provides generally for the accelerated
cost recovery system for depreciable business assets.

Special rules apply to various types of property and
investments.
The
following
sections
provide
information about special rules for:
 used property;
 property ultimately used solely and exclusively in
an enterprise zone for less than one year;
 heavy trucks, tractors, and semitrailers;
 leased property;
 renewable energy investments; and
 relocations of business operations.

The applicable percentage for property to which I.R.C.
section 168 applies is:

Used property

 60% for property classified as 3-year property in
I.R.C. section 168(e); and

In the case of used property, the qualified investment
that may be considered in the calculation of the credit
is limited to $150,000.

 100% for property classified as anything other than
3-year property in I.R.C. section 168(e).

One-year requirement

See I.R.C. section 46(c)(2) for the applicable
percentage for section 38 property to which I.R.C.
section 168 does not apply.

The credit is allowed only for qualified property that is
used solely and exclusively within an enterprise zone
for at least one year after the property is placed in
service. However, a taxpayer may file a tax return
claiming the credit before the full year has elapsed.
For example, if a taxpayer places qualified property in
service in November of 2018, the taxpayer can file a
2018 income tax return claiming the credit in April
2019, before the full one-year period has elapsed.

When property is placed in service
For the purpose of determining a taxpayer’s qualified
investment, qualified property is placed in service in
the earlier of the following tax years:
 the tax year in which, under the taxpayer's
depreciation practice, the period for depreciation
with respect to such property begins; or

If a taxpayer claims a credit for qualified property that
is not ultimately used solely and exclusively in an
enterprise zone, the taxpayer must file an amended
return to withdraw the credit claim for such property.
For example, if a taxpayer places qualified property in
service in November of 2018 and files a 2018 income
tax return claiming the credit in April 2019, but uses
the property outside of the enterprise zone in June
2019, the taxpayer must file an amended 2018 return
to withdraw the claim for credit.

 the tax year in which the property is placed in a
condition or state of readiness and availability for
a specifically assigned function.
See 26 CFR § 1.46-3(d) for additional rules in
determining the tax year during which qualified
property is placed in service.
8

Revised January 2020

Part 3: Investment Tax Credit
Heavy trucks, tractors, and semitrailers

Renewable energy investments

Special rules apply to heavy trucks, tractors, and
semitrailers that:

In general, the credit can be used only to offset tax
and cannot be used to claim a refund. However, any
taxpayer who is allowed a credit for a new renewable
energy investment may elect to receive a refund for a
portion of the allowable credit. A new renewable
energy investment is a qualified investment for a
project that generates electricity from eligible energy
resources. Eligible energy resources generally include
solar, wind, geothermal, biomass, hydroelectricity, and
recycled energy. Fossil fuels, nuclear fuels, and their
derivatives are not eligible energy resources. See
section 40-2-124(1)(a), C.R.S., for a complete
definition of eligible energy resources.

 have a gross vehicle weight rating (GVWR) of
54,000 pounds or greater;
 are model year 2010 or newer;
 are designated as Class A personal property for
vehicle registration purposes;
 are licensed and registered in Colorado; and
 are predominantly housed and based at the taxpayer’s
business trucking facility within an enterprise zone for
the 12-month period following purchaser.

A taxpayer who makes an election to receive a refund
for a new renewable energy investment is allowed a
refund for 80% of the credit. By making the election,
the taxpayer agrees to forgo the remaining 20% of the
credit. The taxpayer may make the election no later
than the due date, including extensions, for the filing
the tax return for the tax year during which the
renewable energy investment was placed into service.

Heavy trucks, tractors, and semitrailers and any parts
associated therewith are deemed to satisfy the oneyear requirement described above.
Credits allowed for heavy trucks, tractors, and
semitrailers that meet all of the preceding criteria are
equal to 1.5%, rather than 3%, of the qualifying
investment and subject to approval and certification by
the Economic Development Commission.

If the refund the taxpayer elects to receive is greater
than $750,000, the taxpayer will receive a refund of
$750,000 for the tax year the election is made and a
refund of $750,000 for each subsequent tax year until
the full amount of the allowable refunded has been
refunded to the taxpayer. A taxpayer may make the
election to receive a refund with respect to multiple
renewable energy investments, but in no event may the
taxpayer receive for any tax year refund totaling more
than $750,000 for renewable energy investments.

For additional information regarding heavy trucks,
tractors,
and
semitrailers,
please
visit
choosecolorado.com/doing-business/incentivesfinancing/ez/.

Leased property
Under certain conditions, the lessor of qualified
property can elect to treat the lessee as having
acquired the property for the purpose of the credit.
See I.R.C. section 48(d) and 26 CFR § 1.48-4 for
additional information regarding leased property.

See
choosecolorado.com/doing-business/incentivesfinancing/ez/ for information about investments that
qualify as renewable energy investments.

9
Revised January 2020

Part 3: Investment Tax Credit
The limits on credit use apply to the investment tax
credit and the job training investment tax credit
discussed in Part 5. The combined 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.

Relocations of business operations
In general, the credit is not allowed for any investment
resulting from the relocation of a business operation from
within the state to an enterprise zone, regardless of
whether the original location of the operation was within
an enterprise zone. However, a credit may be claimed for
the taxpayer’s qualifying investment in qualifying
property to the extent that the relocation meets the
criteria for an expansion pursuant to section 39-30105(7)(c)(II) and (7)(c)(III), C.R.S., as it existed prior to
repeal. See Appendix A for additional information.

See
sections 39-30-104(2)(a)
and
(b)
and
39-22-507.5(3), C.R.S., for limits applicable to tax
years commencing prior to January 1, 2014.

Credit carryforwards
If the credit a taxpayer may use is limited as described
above, the taxpayer can generally carry forward the
excess credit to the next tax year. The number of years
a taxpayer can carry forward excess credits beyond the
tax year in which the investment was made depends on
the tax year for which the credit was initially allowed.
The credit carryforward periods reflected in Table 3-1
do not apply to renewable energy investments for
which the taxpayer has elected to receive a refund.

Limits on use of the credit
Multiple limitations restrict the amount of credit a
taxpayer can use for a given tax year. If the credit
allowed to the taxpayer exceeds these limits, the
taxpayer can generally carry forward the excess credit
for application toward the tax due for subsequent tax
years. The amount of credit a taxpayer can use in a
given tax year is the lesser of:

Table 3-1. Credit Carryforward Periods

 the taxpayer’s net tax liability;
 the sum of $5,000 plus 50% of the taxpayer’s tax
net liability in excess of $5,000; or
 $750,000.
The $750,000 limit applies to any credit applied toward
tax, any refund the taxpayer receives for a renewable
energy investment (discussed on the preceding page),
and to the combined total of credit applied and refund
claimed by the taxpayer for the tax year. If a taxpayer
claims a $750,000 refund for a renewable energy
investment, the taxpayer cannot apply any credit
toward tax for the same tax year. The $750,000 limit
does not apply to any credit the taxpayer has carried
forward from a tax year prior to 2014.

Tax Years

2013
and
prior

2014
through
2018

2018
and
later

Credit carryforward
period

12
years

14
years

14
years

Carryforward period
for renewable energy
investments

20
years

22
years

14
years

Any credit that has not been used within the
carryforward period expires and is no longer available
to the taxpayer.

10
Revised January 2020

Part 3: Investment Tax Credit

Additional resources
The following is a list of statutes, regulations, forms, and
guidance pertaining to the enterprise zone investment tax
credit. 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.

State statutes and regulations
 § 39-30-104, C.R.S. Credit against tax – investment
in certain property – definitions.
 Reg. 39-30-104. Enterprise zone investment tax credit.

Federal law
The federal laws listed here are those laws as they
existed immediately prior to the enactment of the
federal Revenue Reconciliation Act of 1990.
 I.R.C. § 38. General business credit.
 I.R.C. § 46. Amount of credit.
 I.R.C. § 47. Certain dispositions…of section 38 property.
 I.R.C. § 48. Definitions; special rules.
 I.R.C. § 167. Depreciation.
 I.R.C. § 168. Accelerated cost recovery system.
Any federal regulations promulgated under these
sections may also be relevant to the enterprise zone
contribution credit.

Forms and guidance
 Colorado.gov/Tax
 choosecolorado.com/doing-business/incentivesfinancing/ez/
 choosecolorado.com/doing-business/incentivesfinancing/ez/renewable-energy-equipment/
11
Revised January 2020

Part 4: Business Facility New Employee Credits
A taxpayer who operates a business facility in an
enterprise zone is allowed a credit for the net increase
during the tax year in employees working at the
facility. The taxpayer may claim additional employee
credits if certain qualifying criteria are met. This Part 4
includes information about qualifying criteria for
business facilities and business facility employees, as
well as for the calculation of the credit.

Revenue-producing enterprises
The taxpayer must operate the business facility in a
revenue-producing enterprise that engages in one or
more of the following activities:
 the production, assembly, fabrication,
manufacturing, or processing of any agricultural,
mineral, or manufactured product;

Business facilities

 the storage, warehousing, distribution, or sale of
any products of agriculture, mining, or
manufacturing;

Enterprise zone business facility employee credits are
allowed only to taxpayers who operate a business
facility in an enterprise zone. The business facility
must meet certain criteria, is subject to certain rules in
the event the facility is leased, and must be used by
the taxpayer in a revenue-producing enterprise.

 the feeding of livestock at a feedlot;
 the operation of laboratories or other facilities for
scientific, agricultural, animal husbandry, or
industrial research, development, or testing;

The taxpayer’s business facility must be a factory, mill,
plant, refinery, warehouse, feedlot, or any other
building or complex of buildings within which
individuals are customarily employed or that are
customarily used to house machinery, equipment, or
other property. Temporary structures and mobile units
do not qualify as business facilities, except to the
extent that they are associated with permanent
structures that qualify as business facilities.

 the performance of services of any type; or
 the administrative management of any of these
activities.

Business facility employees
A taxpayer may claim business facility employee credits
only with respect to employees who satisfy the business
facility, time, and withholding requirements described
in Table 4-1 on the following page.

Leased business facilities
If a taxpayer owns a business facility in an enterprise
zone and leases the entire facility to another person or
business, the taxpayer cannot claim any employee
credits with respect to the facility. If the taxpayer
leases part of that facility to another person or
company and operates a revenue-producing enterprise
in the remaining part, the taxpayer may claim
employee credits only with respect to employees
employed by the taxpayer in that revenue-producing
enterprise.

12
Revised January 2020

Part 4: Business Facility New Employee Credits
Table 4-1. Business Facility New Employee Requirements
Business facility requirement

Time requirement

Withholding requirement

The employee must be employed by
the taxpayer in the operation of the
taxpayer’s business facility during
the taxable year for which the credit
is claimed. The employee’s duties
may be performed:

The employee must perform duties in
connection with the operation of the
business facility on:

The
employee
must
receive
compensation for duties performed
in the operation of the business
facility from which Social Security,
Medicare, and income taxes are
withheld by either:

 at the business facility;
 on the land on which the
business facility is located;
 with respect to any machinery,
equipment, or property located
at and used in connection with
the operation of the facility; or

 a regular, full-time basis;
 a part-time basis if the person is
customarily performing his or her
duties at least twenty hours per
week throughout the taxable
year; or
 a seasonal basis if the person
performs his or her duties for
substantially all of the season
customary for the position in
which the person is employed.

 the taxpayer; or
 an employee leasing company
acting as the employing unit
for, or co-employer with, the
taxpayer, if the taxpayer is a
work-site
employer.
See
section 8-70-114(2)(a)(V) and (VII),
C.R.S.
The withholding requirement is not
satisfied with respect to any
“statutory employee” for whom the
taxpayer withholds Social Security
and Medicare taxes, pursuant to
I.R.C. section 3121(d)(3), but not
income taxes.

 at another location within the
enterprise zone, provided that
the employee performs duties
in
connection
with
the
operation of the business
facility.

Special minimum time requirement rules apply to
certain commercial drivers. An employee whose
primary duties consist of operating a commercial motor
vehicle with a commercial driver's license shall be
deemed to be working 100% within the zone if the
employee spends no more than 5% of his or her total
time at any business of the employer other than the
business within the zone.

Minimum time requirement
An employee will generally not qualify as a business
facility employee if either:
 the employee’s duties are not performed in
connection with the operation of the business
facility; or
 the employee’s duties are performed outside of
the enterprise zone.
In order to qualify as a business facility employee, the
employee must, throughout the taxable year,
customarily perform duties for at least twenty hours
per week both within the enterprise zone and in
connection with the operation of the business facility.

13
Revised January 2020

Part 4: Business Facility New Employee Credits

Employee credit calculation

Replacement business facilities

The credit is based on the taxpayer’s total number of
business facility employees, averaged over the course of
the tax year, as described later in this section. For the
business facility’s first year of operation, the taxpayer is
allowed a credit of $1,100 for each business facility
employee working within the enterprise zone. For each
subsequent tax year, the taxpayer is allowed a credit of
$1,100 for each additional business facility employee
working within the enterprise zone in excess of the
highest total number of business facility employees for
any prior tax year. For any year subsequent to the
facility’s first year of operation, the credit is allowed only
for the additional employees at the facility, even if the
taxpayer did not operate the facility in the prior year(s)
and/or acquired the facility from another taxpayer.

If the taxpayer’s business facility is a “replacement
business facility,” special rules apply for calculating
the number of business facility employees. See
section 39-30-105(7)(h), C.R.S., as it existed prior to
2019, in Appendix A for full definitions of “replacement
business facility” and other related terms.
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.

Other employee credits

Averaging employees for the year

Taxpayers may be able to claim up to four additional
credits for business facility employees. Qualifying
criteria for these credits are detailed in Table 4-2 on
the following page.

In determining the credit, the taxpayer must calculate the
total number of business facility employees working for the
taxpayer in the enterprise zone for the current tax year
and for each preceding tax year. In general, the number of
business facility employees for any 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 by 12. The taxpayer must use this
formula even if the taxpayer’s tax year is a short tax year
consisting of fewer than 12 months.

Enhanced rural enterprise zones
An enhanced rural enterprise zone is any portion of any
county that is within the boundaries of an enterprise
zone and that meets certain criteria established by
law. Every two years, the Office of Economic
Development and International Trade (“OEDIT”)
determines which counties meet the qualifying criteria
to be designated as enhanced rural enterprise zones.
See
choosecolorado.com/doing-business/incentivesfinancing/ez/ and section 39-30-103.2, C.R.S., for
additional information regarding the designation of
enhanced rural enterprise zones.

However, if the taxpayer’s business facility is in operation
for less than the entire tax year, the number of business
facility employees is calculated by adding together the
number of business facility employees on the last business
day of each full calendar month of the tax year during
which the facility was in operation and dividing the total by
the number of such full calendar months of operation. If
the business facility’s period of operation commences or
ceases during a calendar month, and the business facility is
therefore not in operation for the full calendar month, that
partial month of operation is not considered in the
calculation of business facility employees.

14
Revised January 2020

Part 4: Business Facility New Employee Credits
Calculation for other employee credits

then determine which of those employees meet the
additional qualifying criteria detailed in Table 4-2.

Except for the health insurance credit, the other
employee credits shown in Table 4-2 are allowed only
with respect to employees for whom the taxpayer
claims the standard enterprise zone employee credit.
The taxpayer must first calculate the number of
business facility employees (for the first year of
operation) or the number of additional business facility
employees (for any subsequent year of operation) and

A taxpayer may claim the health insurance credit only
for the first two full tax years the taxpayer is located in
the enterprise zone. Any tax year of less than 12
months is not considered a full tax year. The taxpayer
may claim the health insurance credit each of the first
two full tax years for each employee that meets the
qualifying criteria.

Table 4-2. Business Facility New Employee Credits
Credit

Qualifying criteria

Credit per
employee

Carryforward

Enterprise zone
employee credit

 The employee must be a business facility employee who satisfies the
requirements described in Table 4-1.

$1,100

5 years

Enhanced rural
enterprise zone
employee credit

 The employee must be a business facility employee who satisfies the
requirements described in Table 4-1.
 The employee must work during the tax year in an enhanced rural
enterprise zone (see page 17).

$2,000

7 years

Enterprise zone
agricultural
manufacturing or
processing
employee credit

 The employee must be a business facility employee who satisfies the
requirements described in Table 4-1.
 The taxpayer must operate a business facility that adds value to
agricultural commodities through manufacturing or processing.
 The employee does not need to work directly in agricultural
manufacturing or processing, but must be employed in the operation of
the facility that adds value to agricultural commodities through
manufacturing or processing.

$500

5 years

Enhanced rural
enterprise zone
agricultural
manufacturing or
processing
employee credit

 The employee must be a business facility employee who satisfies the
requirements described in Table 4-1.
 The employee must work during the tax year in an enhanced rural
enterprise zone (see page 17).
 The taxpayer must operate a business facility that adds value to
agricultural commodities through manufacturing or processing.
 The employee does not need to work directly in agricultural
manufacturing or processing, but must be employed in the operation of
the facility that adds value to agricultural commodities through
manufacturing or processing.

$500

7 years

Enterprise zone
employee health
insurance credit

 The employee must be a business facility employee who satisfies the
requirements described in Table 4-1.
 The employee must be insured under a health insurance plan or program
provided by the taxpayer.
 The taxpayer must contribute 50% or more of the total cost of the
health insurance plan or program.
 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.

$1,000

5 years

15
Revised January 2020

Part 4: Business Facility New Employee Credits

Examples

Example 4-2. Subsequent tax years
The taxpayer described in Example 4-1 continues
operation of its business facility in the next three tax
years. Using the formula described in Example 4-1 and
on page 14, the taxpayer has 15 business facility
employees in the 1st year, 22 in the 2nd year, 18 in the
3rd year, and 25 in the 4th year. The following table
illustrates the increase in employees over the highest
preceding year and the allowable credit for each year.

The following examples illustrate the calculation of
business facility employee credits.
Example 4-1. First tax year of operation
A taxpayer begins operation of its business facility on
March 18th. The taxpayer’s tax year runs from March
18th through December 31st. The number of employees
working at the facility on the last business day of each
month is:

2nd
year

3rd
year

4th
year

Employees for tax year

22

18

25

Highest total number of
employees in any prior year

15

22

22

Increase over highest prior
year

7

0

3

$7,700

$0

$3,300

Tax Years
March:
April:
May:
June:
July:

6
8
9
12
15

August:
September:
October:
November:
December:

18
24
26
25
37

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 (180) by
12. The result is a total of 15 business facility
employees for the tax year. The taxpayer is allowed a
credit of $1,100 for each employee or $16,500 total
($1,100 x 15).

Allowable credit

Example 4-3. Health insurance credit
The taxpayer described in Examples 4-1 and 4-2
provides health insurance each year to all employees.
The insurance meets the requirements to qualify for
the health insurance credit.
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.

16
Revised January 2020

Part 4: Business Facility New Employee Credits

Credit carryforwards

Example 4-4. Other employee credits
The business facility of the taxpayer described in
Examples 4-1 and 4-2 was not in an enhanced rural
enterprise zone in the year it began operations.
However, beginning with the 3rd year of operation, the
location of the facility was designated as an enhanced
rural enterprise zone.

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. See Table 4-2 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.

The taxpayer did not increase employees at the facility
in the 3rd year (18 employees for the year compared
with 22 in a prior year), so the taxpayer could not
claim the standard employee credit or the enhanced
rural employee credit for the 3rd year.
In the 4th year, the taxpayer’s 25 employees
represented an increase of three employees over the
highest total number of employees in any prior year.
The taxpayer can claim both a standard employee
credit of $3,300 ($1,100 x 3) and the enhanced rural
enterprise zone credit of $6,000 ($2,000 x 3) for these
three additional employees.

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.

Example 4-5. Partial year operations
A taxpayer operates a business facility in an enterprise
zone from May 27th through October 18th. At all other
times throughout the year, there is no activity and
there are no employees working at the facility. The
taxpayer’s tax year runs from January 1st through
December 31st. The calculation of the number of
business facility employees for the year includes only
the full calendar months of operation. The number of
employees working at the facility on the last business
day of each full calendar month of operation is:

Statutes and regulations
 § 39-30-105.1, C.R.S. Credit for new enterprise
zone business employees – definitions.

Forms and guidance
 Colorado.gov/Tax

June:

9

July:

12

August:
September:

14
 choosecolorado.com/doing-business/incentivesfinancing/ez/

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 of during which the
facility was in operation (4). The result is a total of 10
business facility employees for the tax year. The
taxpayer is allowed a credit of $1,100 for each
employee or $11,000 total ($1,100 x 10).

17
Revised January 2020

Part 5: Job Training Investment Tax Credit
A taxpayer who invests in a qualified job training
program for employees who work predominantly within
an enterprise zone may claim a credit equal to 12% of
the qualified investment. This Part 5 includes
information about qualified job training programs,
qualified investments, the credit calculation, and the
allowable carryforward period for any excess credits.

Other expenses
Other expenses incurred by the taxpayer either inside
or outside of an enterprise zone may be qualified
investments. Such expenses must be incurred for a
qualified job training program for employees working
predominantly within an enterprise zone. Examples of
qualifying expenses include:

Qualified job training programs

 expensed equipment,

A qualified job training program is a structured training
or basic education program to improve the job skills of
the taxpayer’s employees who work predominantly
within an enterprise zone. The program may be
conducted at the taxpayer’s location or off-site. The
training program may be conducted by the taxpayer or
by another entity.

 supplies,
 training staff wages or fees,
 training contract costs,
 temporary space rental, and
 travel expenses.

Qualified investment

Credit calculation and carryforward

For the purpose of calculating the credit, the qualified
investment may include both investments in real
property, capital equipment, and other expenses that
meet the following requirements.

The allowable credit is equal to 12% of the taxpayer’s
qualified investment during the tax year in a qualified
job training program.
The limits on credit use discussed in Part 3 apply to the
investment tax credit and the job training investment
tax credit. The combined 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 in Part 3.

Real property and capital equipment
The taxpayer’s costs in purchasing, leasing, or
improving real property or capital equipment may
qualify for the credit. The property or equipment:
 must be used entirely within an enterprise zone;
 must be used primarily for qualified job training
program purposes or to make a training site
accessible;
 must not be eligible for enterprise zone
investment tax credit discussed in Part 3 of this
publication; and
 may include land, buildings, real property
improvements, leasehold improvements, leased
space, or capital equipment.
18

Revised January 2020

Part 5: Job Training Investment Tax Credit

Additional resources
The following is a list of statutes, regulations, forms,
and guidance pertaining to the enterprise zone job
training investment tax credit. 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
 § 39-30-104, C.R.S. Credits against tax –
investment in certain property – definitions.

Forms and guidance
 Colorado.gov/Tax
 choosecolorado.com/doing-business/incentivesfinancing/ez/

19
Revised January 2020

Part 6: Research and Experimental Activities Credit
An income tax credit is allowed to any taxpayer who
makes expenditures in research and experimental
activities conducted in an enterprise zone for the
purpose of carrying out a trade or business. This Part 6
provides information about qualifying expenditures and
calculation of the credit.

Qualifying expenditures
Qualifying expenditures generally include all costs
incident to the development or improvement of a
product. Examples of qualifying expenditures include:
 salaries for those engaged in research or
experimentation efforts;

Research and experimental expenditures

 amounts incurred to operate and maintain
research facilities (e.g., utilities, depreciation,
rent, etc.);

Research or experimental expenditures that qualify for
the credit include expenditures incurred in connection
with the taxpayer's trade or business which represent
research and development costs in the experimental or
laboratory sense. These expenditures generally include
all costs incident to the development or improvement
of a product.

 expenditures for materials and supplies used and
consumed in the course of research or
experimentation (including amounts incurred in
conducting trials);
 the costs of obtaining a patent, such as attorneys'
fees expended in making and perfecting a patent
application; and

A “product” for which research and experimental
expenditures are made can be a pilot model, process,
formula, invention, technique, patent, or similar property.
The product can be used by the taxpayer in its trade or
business or developed for sale, lease, or license.

 expenditures paid or incurred for research or
experimentation conducted on the taxpayer’s
behalf by another person or organization (such as
a research institute, foundation, engineering
company, or similar contractor).

Whether expenditures qualify as research or
experimental expenditures depends on the nature of
the activity to which the expenditures relate, not the
nature of the product or improvement being developed
or the level of technological advancement the product
or improvement represents. The ultimate success,
failure, sale, or use of the product is not relevant to a
determination of eligibility of expenditures for the
credit.

The credit is allowed only for the amount of research
and experimental expenditures that is reasonable
under the circumstances. In general, the amount of an
expenditure for research or experimental activities is
reasonable if the amount would ordinarily be paid for
like activities by like enterprises under like
circumstances. Amounts supposedly paid for research
that are not reasonable under the circumstances may
be characterized as disguised dividends, gifts, loans, or
similar payments.

Research or experimental expenditures are those made
for activities intended to discover information that
would
eliminate
uncertainty
concerning
the
development or improvement of a product. Uncertainty
exists if the information available to the taxpayer does
not establish the capability or method for developing or
improving the product or the appropriate design of the
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.

See I.R.C. section 174 and 26 CFR § 1.174-2 for
additional
information
about
research
and
experimental expenditures.

20
Revised January 2020

Part 6: 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
an enterprise zone over the two prior years. The credit
is equal to 3% of the amount by which the taxpayer’s
research and experimental expenditures in an
enterprise zone exceed the average of the taxpayer’s
research and experimental expenditures in the same
enterprise zone over the two preceding tax years.

 the acquisition or improvement of land or
depreciable property;
 the purpose of ascertaining the existence,
location, extent, or quality of any deposit of ore
or other mineral (including oil and gas);
 the ordinary testing or inspection of materials or
products for quality control (quality control
testing);

The credit calculated as described above is not allowed
entirely for the tax year in which the expenditures
were made. Instead, the credit is divided evenly over
four tax years. Twenty-five percent of the credit is
allowed for the tax year in which the expenditures
were made and 25% of the credit is allowed for each of
the subsequent three tax years.

 efficiency surveys;
 management studies;
 consumer surveys;
 advertising or promotions;

Credit carryforward

 the acquisition of another's patent, model,
production or process; or

If the credit allowed exceeds the income tax the
taxpayer otherwise owes for the tax year, the excess
credit may be carried forward and applied toward the
taxpayer’s tax liability for following tax year. Any
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.

 research in connection with literary, historical, or
similar projects.

21
Revised January 2020

Part 6: Research and Experimental Activities Credit
Examples

Example 6-2

The following examples illustrate the calculation of the
credit and carryforwards.

The taxpayer from Example 6-1 incurs $200,000 in
expenditures for research and experimental activities
conducted in the same enterprise zone in tax year
2018. The taxpayer’s average expenditures in the same
enterprise zone in the two prior tax years were
$120,000 ($100,000 for tax year 2016 and $140,000 for
tax year 2017). The $200,000 of expenditures in 2018 is
$80,000 more than the taxpayer’s average expenditures
in the same enterprise zone over the two preceding tax
years.

Example 6-1
A taxpayer incurs $140,000 in expenditures for research
and experimental activities conducted in an enterprise
zone in tax year 2017. The taxpayer’s research and
experimental expenditures in the same enterprise zone
for tax years 2015 and 2016 were $0 and $100,000,
respectively, for an average of $50,000. The $140,000
of expenditures in 2017 is $90,000 more than the
taxpayer’s average expenditures in the same enterprise
zone over the two preceding tax years.

The total allowable credit is $2,400 (3% x $80,000). The
total allowable credit is divided evenly over the current
tax year and the three following tax years. The
taxpayer can claim a credit of $600 (25% of the total
credit) for tax year 2018 and for each of the three
subsequent tax years.

The total allowable credit is $2,700 (3% x $90,000). The
credit is divided evenly over the current tax year and
the three following tax years. The taxpayer can claim a
credit of $675 (25% of the total credit) for tax year
2017 and for each of the three subsequent tax years.

Illustration of Example 6-2

Illustration of Example 6-1
0

2016 expenditures

$ 100,000

2017 expenditures

$ 140,000

2018 expenditures

$ 200,000

2015 expenditures

$

2016 expenditures

$ 100,000

Average of 2016 and 2017

$ 120,000

2017 expenditures

$ 140,000

2018 expenditures minus the average
from the two prior years

$

80,000

Average of 2015 and 2016

$

50,000

Total credit (3% of increase)

$

2,400

2017 expenditures minus the average
from the two prior years

$

90,000

Credit allowed for 2018 (25% of total)

$

600

Total credit (3% of increase)

$

2,700

Credit allowed for 2019 (25% of total)

$

600

Credit allowed for 2017 (25% of total)

$

675

Credit allowed for 2020 (25% of total)

$

600

Credit allowed for 2018 (25% of total)

$

675

Credit allowed for 2021 (25% of total)

$

600

Credit allowed for 2019 (25% of total)

$

675

Credit allowed for 2020 (25% of total)

$

675

22
Revised January 2020

Part 6: Research and Experimental Activities Credit

Additional resources

Example 6-3
The taxpayer from Examples 6-1 and 6-2 had a tax
liability of $400 for tax year 2017. The taxpayer applied
$400 of the $675 credit allowed for tax year 2017 to
offset the entire tax amount due. The remaining $275
of credit is carried forward to tax year 2018.

The following is a list of statutes, regulations, forms,
and guidance pertaining to the enterprise zone
research and experimental activities credit. 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.

For tax year 2018, the taxpayer will have available
credits totaling $1,550, consisting of the following:

 $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
experimental activities.

 $600, equal to 25% of the total credit allowed for
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
to tax year 2019.

Forms and guidance
 Colorado.gov/Tax
 Certification of Qualified Enterprise Zone Research & Development Expenditures (DR 0077)

23
Revised January 2020

Part 7: Vacant Building Rehabilitation Credit
Non-qualified expenditures

Any taxpayer who is the owner or tenant of a qualified
building in an enterprise zone may claim an income tax
credit for qualified expenditures for the purpose of
rehabilitating the building. This Part 7 provides
information about qualifying expenditures and the credit
calculation.

A variety of costs that may be associated with
rehabilitation do not qualify for the credit. Qualified
expenditures do not include costs associated with:

Qualified buildings
A qualified building is a building located in an enterprise
zone that is at least 20 years old and has been
unoccupied for at least two years. The pre-certification
described in Part 1 of this publication must identify the
location of the building.

 acquisition

 interior furnishings

 excavation

 landscaping

 grading

 repairs to outbuildings

 paving
 new additions, except as may be required to
comply with building and safety codes
Additionally, “soft costs” do not qualify for the credit.
“Soft costs” include costs associated with:

Qualified expenditures

 loan fees

 bid bonds

 closing

 appraisals

 bids

 sales and marketing

 insurance

 project signs and phones

 mechanical improvements, or

 copying

 temporary power

 electrical improvements.

 rent loss during construction

Qualified expenditures are expenditures necessary to
rehabilitate a qualified building for commercial use that
are associated with any:
 exterior improvements,
 structural improvements,

Examples of Qualified Expenditures

 building permit, use, and inspection fees
 legal, accounting, and realtor fees

Qualified expenditures necessary to rehabilitate a
qualified building may include expenditures
associated with any of the following:
 demolition

 painting

 exterior repair

 carpentry

 ceilings

 tuckpointing

 sheetrock

 fixtures

 cleanup

 plaster

 doors

 roofing and

 windows

 cleaning

 architectural, engineering, and interior design
fees

flashing

 sprinkler systems for fire protection purposes

24
Revised January 2020

Part 7: Vacant Building Rehabilitation Credit

Credit calculation

Certification

The allowable credit is generally equal to 25% of the
taxpayer’s aggregate qualified expenditures during the
tax year. However, the total credit a taxpayer can claim
for any qualified building is limited to $50,000.
Additionally, a taxpayer who is allowed a federal
rehabilitation credit pursuant to sections 38, 46, and 47
of the Internal Revenue Code cannot claim the vacant
building rehabilitation credit for the same rehabilitation
expenditures.

Any taxpayer who intends to claim a credit must first
obtain pre-certification from the applicable enterprise
zone administrator. See Part 1 for additional information
about pre-certification.
Any taxpayer claiming the credit must obtain
certification of the qualified nature of expenditures from
the enterprise zone administrator. See Certification of
Qualified Nature of Enterprise Zone Rehabilitation
Expenditures (DR 0076) and chooseco