Colorado Research and Development Tax Credit Summary

Colorado provides a research and development (R&D) tax credit for activities conducted within a Colorado enterprise zone (EZ). The R&D credit is administered by the Colorado Enterprise Zone Program, in accordance with Colorado Code of Regulations § 39-30-105.5, Enterprise zone research and experimental expenditures credit.  Some highlights of the Colorado R&D tax credit include:

  • The credit is equal to 3% of the amount by which qualified research expenditures (QREs) in the enterprise zone exceed the taxpayer’s average QREs from the preceding two years.
  • In each tax year, the taxpayer may claim no more than 25% of the total credit (the remainder being carried forward) plus any applicable carryover amount from a prior year up to 25% of the original credit.
    • Example: A Taxpayer claimed Colorado R&D tax credits in 2013 and 2014 of $10,000, respectively. Limited to 25% of the credit per year, it claimed $2,500 in 2013 and carried forward $2,500 to 2014, 2015 and 2016, respectively. For 2014, Taxpayer claimed 25% of its $10,000 credit PLUS the $2,500 carried forward from 2013 for a total credit of $5,000 in 2014. If the facts stay the same for 2015, Taxpayer’s credit would include $2,500 each from 2013, 2014 and 2015 for a total R&D credit of $7,500 in 2015.
  • Beginning January 1, 2012, taxpayers must annually pre-certify with their local EZ Administrator to be eligible to claim the credits by filing form DR 0074.
  • Pre-certified taxpayers who intend to claim EZ R&D credits must complete a certification application (form DR 0077) and receive approval from the local EZ Administrator.  Certification documents must be submitted with the Colorado income tax filing.
  • To the extent that the credit for any year exceeds the tax liability for such year after other credits have been claimed, the excess may be carried forward and claimed until it is used.

Colorado R&D Tax Credit Case Study

A Denver-based engineering firm had never before claimed the R&D Tax Credits. This project involved the tax year 2014. The Company qualified for the federal R&D credit of $156,333 and an additional $15,750 in Colorado State R&D Tax Credits, of which $3,938 could be claimed in 2014. The Company qualified for the federal R&D Tax Credit of $156,333 and an additional $15,750 of state R&D Tax Credit in Colorado, of which $3,938 could be claimed in 2014. The remaining Colorado credits were carried forward. Summary of credits:

Year  End Total QREs Credit Total QREs Credit
2013 $1,300,000 $156,333 $1,300,000 $15,750
2012 900,000 900,000
2011 650,000 650,000
2010 450,000 450,000
Total $3,300,000 $156,333 $3,300,000 $15,750

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