Colorado R&D Tax Credit Summary


Colorado State R&D Tax Credit

A taxpayer who makes “expenditures in research and experimental activities” as defined in IRC § 174 can take an income tax credit.  The 3% credit is based on the increase of a company’s research and experimental expenditures within an enterprise zone over the average of such expenditures conducted in the same enterprise zone during the previous two (2) income tax years.

Qualified research must satisfy three criteria:

  • It must be technological in nature
  • It must be useful in the development of a new or improved product or component of the business
  • It must utilize the process of experimentation
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    In-house research expenses may include:

    • Wages, excluding fringe benefits.
    • Supplies.
    • Payments for the right to use computers.

    Contract research expenses may include the amount paid for research done by a third-party for the benefit of the
    contracting firm.

    The following types of expenses do not qualify:

    • Land or improvements to land
    • Depreciable equipment
    • Management surveys
    • Costs incurred to adapt a product to a particular customer’s needs
    • Research funded by any government entity
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    How to obtain the credit?

    Electronic Certification Process

    The enterprise zone certification is now available online and taxpayers are encouraged to use this new system, which is more accurate and secure than the paper certification process. This online system will be used for both the pre-certification process and the final certification of the tax credits.

    Electronic Notification

    For any credit generated on or after January 1, 2012, the Office of Economic Development and International Trade (OEDIT) will electronically notify the Department of Revenue of any credits generated in 2012 or later. Enterprise Zone credits cannot be claimed on a tax return filed prior to this notification. The Department of Revenue will post a notification on its Web site in the Income Tax Index when the information is available and returns can be filed to claim these credits, which should occur no later than March 31.

    The department strongly recommends that taxpayers use the online certification process to ensure that the credit data is accurately and timely transmitted to the Department of Revenue. This is particularly important for passthrough entities that must provide the name, ID number and the amount of the distributed credit of each partner/shareholder/member of the entity. Failure to accurately provide this information will result in the tax credit being denied until the information is corrected with the Enterprise Zone administrator.

    Electronic Filling

    For any tax year beginning on or after January 1, 2012, any Colorado original or amended income tax return that claims an enterprise zone credit must be filed electronically. The return must also include a carryforward schedule (form to be developed during 2012) for all enterprise zone credits.

    Taxpayers who are unable to file electronically can file a paper return. However, the department strongly encourages taxpayers to file electronically to avoid unnecessary delays and problems that can occur when taxpayers file a paper return for these complex credits and schedules.

    Refundable/Transferable Tax Credit – No