Are R&D Tax Credits Available in Colorado?
Yes. The state of Colorado provides 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 from the same enterprise zone.
- 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.
- To the extent that the credit for any year exceeds the tax liability for such a year after other credits have been claimed, the excess may be carried forward and claimed until it is used.
Example: A Taxpayer claimed Colorado R&D tax credits in 2018 and 2019 of $10,000, respectively. Limited to 25% of the credit per year, it claimed $2,500 in 2018 and carried forward $2,500 to 2019, 2020, and 2021, respectively. For 2019, Taxpayer claimed 25% of its $10,000 credit PLUS the $2,500 carried forward from 2018 for a total credit of $5,000 in 2019. If the facts stay the same for 2020, Taxpayer's credit would include $2,500 each from 2018, 2019, and 2020 for a total R&D credit of $7,500 in 2020.
- Beginning January 1, 2012, taxpayers must annually pre-certify with their local EZ Administrator to be eligible to claim the credits by electronically filing form DR on the Colorado Department of Economic Development’s Enterprise Zone Web page.
- 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.
Colorado R&D Tax Credit Case Study
A Denver-based engineering firm had never claimed the R&D Tax Credits before. This project involved the tax year 2021.
The Company qualified for the federal R&D credit of $130,000 and an additional $15,750 in Colorado State R&D Tax Credits, of which $3,938 could be claimed in 2021.
FEDERAL
|
FLORIDA
|
|||||
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
2021
|
$1,300,000
|
$130,000
|
$1,300,000
|
$110,000
|
You can read more about this Colorado case study here.
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.Research and Development Tax Insights

Engineering Firms Loses R&D Credits in Court Ruling
02/12/2025By Michael Maroney | Director, Research & Development Tax Credits The Phoenix Design Group, Inc. v. Commissioner decision issued on December 23, 2024, is an important reminder of the hurdles faced when substantiating research activities for the R&D tax credit. The court denied all research credits claimed by Phoenix Design Group (PDG), a multidisciplinary engineering … Read More

KBKG Tax Insight: Michigan R&D Tax Credit Now Available
02/07/2025By Michael Maroney | Director, Research & Development Tax Credits On January 13, 2025, Michigan Governor Gretchen Whitmer signed HBs 5099-5102 and 4368 to establish the Innovation Fund and the R&D tax credit. With the passage of HBs 5100 and 5101, Michigan will again offer a state-level R&D tax credit. The Michigan research credit offers … Read More

Texas Issues Guidance on Franchise Tax Credits and Carryforward
01/23/2025By Bill Taylor | Principal, Research & Development Tax Credits Recently, the Texas Comptroller’s Tax Policy Division issued guidance on how to apply multiple franchise tax credits and credit carryforwards when more than one is available. The updated guidance clarifies the order in which credits should be applied to maximize tax benefits for taxable entities. … Read More

45X Advanced Manufacturing Production Credit Regulations Update
12/19/2024By Jonathan Tucker | Principal – R&D Tax Credits Republican Senators Tom Cotton (R-AR) and Rick Scott (R-FL) have introduced a resolution (S.J.Res. 119) to overturn final regulations (TD 10010) implementing the Section 45X Advanced Manufacturing Production Credit, a green energy tax incentive created by the Inflation Reduction Act. This mirrors a bipartisan House resolution … Read More

KBKG Tax Insight: Potential Tax Changes Under a Republican Trifecta – Key Issues to Watch
12/03/2024By Jonathan Tucker | Principal, Research & Development Tax Credits Republicans are slated to take control of the legislative and executive branches this coming year, and shifts in fiscal policy will affect taxes, tariffs, and broader economic strategies. KBKG Insight: While there is excitement and talk around “tax cuts,” taxpayers should monitor this changing landscape, … Read More

Key Changes in Accounting Method Procedures for Section 174 Research Expenditures
10/02/2024The IRS has recently issued Rev. Proc. 2024-34, which modifies the method change procedures for specified research or experimental (SRE) expenditures under Section 174. This updated guidance provides important changes for taxpayers seeking to comply with the amended rules following the 2017 Tax Cuts and Jobs Act (TCJA). Here’s a breakdown of the key provisions … Read More

Senate Votes on Tax Relief Bill for IRC 174 R&E Expenditures, Bonus Depreciation and Section 163(j)
08/01/2024By Jonathan Tucker | Principal, Research & Development Tax Credits In a significant move after months of waiting, the Senate voted on the highly anticipated tax relief for American Families and Workers Act, aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer to bring a vote in … Read More

KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More

KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit
06/25/2024By Jonathan Tucker | Principal, Research & Development Tax Credits On June 21, 2024, the IRS released an updated draft form 6765 – Credit for Increasing Research Activities, the tax form taxpayers must file with their tax returns to claim the R&D tax credit. This revised draft provides much-needed relief for taxpayers by reducing the … Read More

KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds
06/20/2024By Jonathan Tucker | Principal, Research & Development Tax Credits The IRS issued new guidance around amending for R&D tax credit refunds postmarked as of June 18, 2024. This guidance reduces the documentation requirement to be submitted for amending by removing two previously required items. KBKG Insight: With just three documents needed to submit the … Read More