Increase cash flow with Colorado’s tax credits and incentives programs

To foster economic growth, the state of Colorado administers several tax credit and incentive programs that can apply to both local businesses and out-of-state expansions.

Given the ever-evolving nature of the tax landscape, identifying credits and incentives applicable to your business can be challenging. And yet, overlooking these opportunities can cause you to miss significant saving opportunities — savings that can be invested back into your business.

Gain insights into Colorado’s tax credit and incentive programs and how they can support business success, including:

• Enterprise Zone Program
• Job growth incentive tax credit
• Strategic fund job growth incentive
• Other Colorado-specific opportunities

Enterprise Zone Program

The Colorado legislature created the Enterprise Zone (EZ) Program to encourage development in economically distressed areas of the state. The 16 designated enterprise zones have high unemployment rates, low per capita income, or slow population growth.

Enterprise zones in rural counties meeting additional distressed criteria receive enhanced rural enterprise zone status. Businesses locating within these zones can qualify for additional tax credits when adding new employees.

These zones are re-evaluated and redesignated every 10 years. The Office of Economic Development & International Trade (OEDIT) is currently in the process of redesignating the enterprise zones and will result in new zone maps effective Jan. 1, 2026.

Potential benefit

Businesses locating within an enterprise zone are eligible for state income tax credits and sales and use tax exemptions for specific business investments and activities. The benefit is received through the following incentive programs outlined below.

Investment tax credit (ITC)

Businesses may claim a credit for investments in equipment and other tangible personal property. The general credit is 3% of investment made during the tax year. Special rules apply to investment in:

• Used property
• Property used for less than one-year
• Renewable energy
• Leased property
• Commercial vehicles

The amount of the annual credit used is the lesser of:

• 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.

Unused ITC credit has a fourteen-year carryforward.

Business facility new employee tax credit

Businesses may claim a $1,100 credit for each net new job created within the EZ. A company may receive additional credit for the following categories:

Job training investment tax credit

A taxpayer who invests in a qualified job training program for employees who work predominantly within the EZ may claim a credit equal to 12% of the qualified investment.

Unused credits have a fourteen-year carryforward.

Research and development tax credit

A taxpayer who increases research and experimental expenditures within the EZ above the average expenditures for the previous two years within the same EZ can receive a 3% credit for the increased activity. The taxpayer takes 25% of the credit in year one and 25% in the following three tax years.

Sales and use tax exemption for manufacturing and mining

A taxpayer is exempt from state-administered local sales and use taxes if all four conditions below are met.

To qualify for exemption, machinery, machines tools, or parts thereof must:

• Be purchased for more than $500
• Be used solely and exclusively in an enterprise zone
• Satisfy certain requirements prescribed by federal law
• Be used directly and predominantly in the manufacturing of tangible personal property for sale or profit, as manufacturing is defined by law for the enterprise zone exemption

Vacant building rehabilitation credit

Any taxpayer who is the owner or tenant of a qualified building in an EZ may claim an income tax credit for qualified expenditures to rehabilitate the building. The building must be at least 20 years old and unoccupied for at least two years.

The allowable credit is generally equal to 25% of the taxpayer’s aggregate qualified expenditures during the tax year. The credit is limited to $50,000 with a five-year carryforward.

Program qualifications

It should be noted that each incentive program within the EZ Program has its own unique qualification criteria, and a company can pursue as many individual programs as it qualifies for. However, initial qualification for the overall EZ Program requires that an interested party:

• Verifies that the business is in an enterprise zone.
• Completes the pre-certification application in the OEDIT application portal. Must pre-certify in advance of engaging in the activity which will qualify for credit.
• Completes the certification application in the OEDIT portal.

Files Colorado income taxes including the appropriate certification documents.

Job growth incentive tax credit

The job growth incentive tax credit (JGITC) is a job creation incentive to support competitive, multi-state, or country relocation and expansion projects. This discretionary tax credit gives businesses a Colorado state income tax credit equal to 50% of the Federal Insurance Contributions Act (FICA) tax paid by the business per net new job each calendar year for up to eight years.

Potential benefit

The JGITC is a performance-based credit earned by the businesses for each net new job for each calendar year in the credit award period. Each year during the award period, the state will only distribute the tax credit if the company has at least 20 net new employees in the state above the baseline number of existing employees.

If the taxpayer’s credit exceeds its income tax liability for the tax year, the unused tax credit may be carried forward for up to ten years.

Program qualifications

To be eligible for the JGITC, companies must:

• Create at least 20 net new jobs in Colorado — or at least five if located in an Enhanced Rural Enterprise Zone
• Pay the net new employees at least 100% of the average annual wage in the county where the project is located
• Maintain the net new jobs for at least a year
• Consider at least one other state or international market for the project
• Demonstrate that the JGITC is a major factor in the decision to locate in Colorado

Applicants may not start or announce the proposed project in Colorado until a final application is submitted to Global Business Development and the Colorado Economic Development Commission approves the application.

You must wait to complete any of these activities including but not limited to:

• Locating or expanding in the state
• Signing a lease
• Hiring employees related to the project
• Making material expenditures for the project

Strategic fund job growth incentive

The strategic fund job growth incentive is considered Colorado’s deal-closing program. This fund is designed to provide discretionary cash incentives to businesses considering expanding or relocating in Colorado. It’s used strategically to close deals that might not otherwise decide to locate in Colorado without additional support.

Potential benefit

This program is designed to be flexible, allowing it to cater to the specific needs and circumstances of different businesses and projects. This flexibility helps to maximize the incentive's effectiveness in closing deals.

These grants are disbursed based on project milestones outlined in a formal agreement. The size of the grant is based on the number of jobs created and how many are located in an Economically Disadvantaged area. A company can receive up to $6,500 per eligible job depending on the project location and annual average wage rate.

See the tables below for the annual average wage rate.

Program qualifications

To be eligible, a successful applicant must:

• Create permanent, full-time net new jobs in Colorado
• Maintain the net new jobs for at least one year
• Have inter-state competitive factors
• Secure a 1-to-1 local matching commitment
• Have the potential for significant economic spinoff benefits, such as attracting prestigious companies or suppliers, developing a large expansion initiative, or generating tourism and travel activity
• Produce significant capital investment

Businesses may not receive the Strategic Fund Job Growth Incentive and the Job Growth Incentive Tax Credit for the same permanent net new jobs.