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.
  • 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

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