The Enterprise Zone New Employee Tax Credit helps businesses in distressed communities add employees to their workforce. Businesses earn a state income tax credit of $1,100 per net new employee that works at a qualified enterprise zone business facility. Excess credits can be carried forward for up to five years.
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.
Businesses may qualify for these additional specialized new employee tax credits:
- Agricultural Processing or Manufacturing New Employee Credit
- Enhanced Rural Agricultural Processor New Employee Credit
- Enhanced Rural Enterprise Zone New Employee Credit
Local enterprise zone administrators manage their respective enterprise zones.
We recommend reviewing the Enterprise Zone Income Tax Credit Guide for the complete eligibility requirements.
The following credits may be taken in addition to the standard New Employee Tax Credit.
Agricultural Processing or Manufacturing New Employee Credit
For business that add value to agricultural commodities through manufacturing or processing. Employees do not need to work directly in agricultural manufacturing or processing, but need to be employed in the operation of the facility that adds value to agricultural commodities through manufacturing or processing.
Enhanced Rural Agricultural Processor New Employee Credit
For businesses located in enhanced rural enterprise zones that adds value to agricultural commodities through manufacturing or processing. Employees do not need to work directly in agricultural manufacturing or processing, but needs to be employed in the operation of the facility that adds value to agricultural commodities through manufacturing or processing.
Enhanced Rural Enterprise Zone New Employee Credit
For businesses located in an enhanced rural enterprise zone.
|Specialized Tax Credit||Additional Credit||Carry Forward|
|Agricultural Processing or Manufacturing||$500||5 years|
|Enhanced Rural Agricultural Processor||$500||7 years|
|Enhanced Rural Enterprise Zone||$2,000||7 years|
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 location needs to be pre-certified in advance of the tax year.
The business facility needs to be a:
- any other building or complex of buildings where your employees work or that are used to house machinery, equipment, or other property
Temporary structures and mobile units do not qualify as business facilities, except to the extent that they are associated with permanent structures that qualify as business facilities.
Agricultural processors are businesses that manufacture or process agricultural commodities.
Qualified employees receive compensation for duties performed in the operation of the business facility from which social security, medicare, and income taxes are withheld by either:
- the taxpayer
- an employee leasing company acting as the employing unit for, or co-employer with, the taxpayer, if the taxpayer is a work-site employer
Qualified employees perform duties for at least 20 hours per week both within the enterprise zone and in connection with the operation of the business facility.
Calculate the number of employees by adding the number of employees on the last business day of each month of the tax year and dividing the total by 12.
If your business was not in operation for the full year, the employee count is calculated only for full calendar months in which the business was in operation. Add the number of business facility employees on the last business day of those months in which the business operated for the full month, and divide by the number of full calendar months in which the business was in operation.
A credit may be earned for each employee for the first year that a business operates in an enterprise zone. For each subsequent year:
- you are allowed a credit of $1,100 for each new employee
- the credit is allowed only for new employees, even if you did not operate the facility in the prior years or acquired the facility
If you acquired a business, you will need to get employee count records from the previous owner.
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.