The Enterprise Zone Investment Tax Credit encourages enterprise zone businesses to invest in business personal property. Businesses can earn a state income tax credit of 3% of the value of the qualified investment. The amount of the tax credit that can be claimed in any tax year is limited. The tax credit may be carried forward up to 14 years.
For investments in property that generates electricity from renewable resources, the taxpayer has an option to take the credit as a refund at 80% of the credit’s value. This option expires on December 31, 2020 - a project needs to be placed in service by this date for the option to take the credit as a refund.
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.
Local enterprise zone administrators manage their respective enterprise zones.
We recommend reviewing the Enterprise Zone Income Tax Credit Guide for the complete eligibility requirements.
Type: Tax credit
For: Businesses located in enterprise zones
Amount: 3% of qualified investment in business personal property
Application deadline: December 31
OEDIT division: Business Funding and Incentives
To use this map, type in your address in the top left-hand corner. You may need to scroll out to identify whether or not you are located within an enterprise zone. If your location is highlighted in a color, you are located in an enterprise zone. If your location is in a checkered colored area, it is located in an enhanced rural enterprise zone.
Both new and existing businesses located in enterprise zones may qualify for the credit. For businesses that open in the middle of a tax year, you will need to prorate the credit based on the number of full calendar months during the year that the business operated in the zone.
Businesses need to be legal under both state and federal law. For example, businesses in the marijuana industry do not qualify for this tax credit.
The business owner needs to use the investment exclusively in a Colorado enterprise zone for the first year of ownership.
Your business typically needs to place the asset into service before you can claim the tax credit. An exception is made for certain projects that have a construction period of over two years, so you can claim a portion of the credit before placing the asset into service.
“Section 38 property” under Colorado Revised Statutes 39-22-507.6 (PDF) has the detailed investment eligibility. Section 38 property is either federal recovery property or other depreciable or amortizable property with a useful life of three years or more that qualifies under one of these categories:
- tangible personal property includes machinery, furniture, appliances, books, vehicles, livestock, and lodging
- other tangible property that does not include a building or its components used as an integral part of manufacturing, extraction, production, or furnishing of transportation, communications, electrical energy, gas, water, or sewage disposal services
- elevators and escalators
- research facilities and facilities for the bulk storage of fungible commodities
- single-purpose agricultural or horticultural structures
- qualified rehabilitation expenditures
- qualified timber property
- petroleum storage facilities
Generally, software does not qualify.
Equipment included when purchasing a business qualifies for the investment tax credit if the total investment in used equipment is limited to $150,000 per year.
The amount of credit a taxpayer can use for a given tax year is limited. If the credit allowed to the taxpayer exceeds these limits, the taxpayer can generally carry forward the excess credit for application toward the tax due for subsequent tax years. The amount of credit a taxpayer can use in a given tax year 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
The $750,000 limit applies to:
- any credit applied toward tax
- any refund the taxpayer receives for a renewable energy investment
- the combined total of credit applied and refund claimed by the taxpayer for the tax year
If a taxpayer claims a $750,000 refund for a renewable energy investment, the taxpayer cannot apply any credit toward tax for the same tax year. The $750,000 limit does not apply to any credit the taxpayer has carried forward from a tax year prior to 2014.
Relocation and expansion
Generally your business may not be eligible for this tax credit if you relocated a business operation from elsewhere in Colorado to the enterprise zone, even if you moved from one enterprise zone to another. Once you establish your business in the new location, new investments will qualify for the investment tax credit. This restriction also applies to assets purchased while relocating part of a facility.
However, if your relocation is a qualified expansion facility, your resulting investments will qualify for the enterprise zone investment tax credit, even if your business qualified as a new business facility before relocating.
To qualify, your business needs to have:
- invested at least $1 million in the old facility
- invested fewer than $1 million, but 100% of the investment was in the old facility
- increased employment by 10 employees or 10% over the previous 12-month average
Before you make any investments towards this tax credit, you need to pre-certify with your local enterprise zone administrator.
Once you determine that your business is in an enterprise zone, there are three steps to claim this tax credit.
1. Complete the pre-certification application on the OEDIT application portal. You will need to pre-certify each business location. You will need to apply for pre-certification in advance of the activity that is eligible for the credit.
- Log in to your account or create a new account. To protect your personal information, we manually add new users to the portal, so it may take several days to activate your account. Review this Enterprise Zone Pre-certification How-To Guide (PDF).
- Pre-certify each year. You can pre-certify up to three months before the start of the business’ tax year. You can pre-certify at any time during the tax year; however the business is only eligible to earn enterprise zone tax credits for the period certified.
- The local enterprise zone administrator will review and approve your pre-certification application.
2. Complete the certification application on the OEDIT application portal.
- Log in to your account and fill out the certification application. Review this Enterprise Zone Certification How-To Guide (PDF).
- Activity conducted during the covered pre-certification period is eligible for enterprise zone tax credits.
- The local enterprise zone administrator will review and approve your certification application.
3. File Colorado income taxes and include certification documents.
- Once the certification application is approved by the local enterprise zone administrator, you will receive via email a tax credit certificate that you need to submit with your Colorado income tax return. You can also access the certificate in the OEDIT application portal. This certificate replaces Colorado Department of Revenue forms DR0074, DR0076, and DR0077.
- Complete and submit the Colorado Department of Revenue form DR1366 and the EZ Tax Credit Certificates with your Colorado income tax return.
- Partnerships need to also complete and submit the DR0078a for distribution of the credits.
Amend your enterprise zone record
If you misreported or need to modify your enterprise zone certification application, you can amend or reset your certification by submiting the amendment form. To amend or submit certification applications for years 2014 or earlier (formatted YY-XXXXXX) you need to use the Enterprise Zone Legacy Application System.
Transfer ownership of your enterprise zone record
If your business changed accounting firms, you will need to transfer your pre-certification and certification records. A business owner or authorized company official will need to submit the transfer form.