Enterprise Zone Sales and Use Tax Exemption for Manufacturing and Mining

The Enterprise Zone Manufacturing Sales and Use Tax Exemption for Manufacturing and Mining expands the Manufacturing Sales and Use Tax Exemption (PDF). It expands eligibility to non-capitalized machinery, parts and tools to repair machinery, and to machinery used in mining.

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.

We recommend reviewing the Enterprise Zone Income Tax Credit Guide for the complete eligibility requirements.

Overview

Type: Tax credit

For: Businesses located in enterprise zones

Application deadline: Rolling

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.

Visit the Colorado Information Marketplace for enterprise zone map resources.

Eligible businesses

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.

Any Colorado business can claim an exemption from sales and use taxes if machinery, machine tools, or their parts:

  • are used in Colorado
  • were purchased for more than $500
  • would have qualified for the federal investment tax credit provided by Section 38 of the U.S. Internal Revenue Code
  • are used directly and predominantly in manufacturing tangible personal property for sale or profit

Colorado law defines machinery as any apparatus consisting of interrelated parts used to produce an article of tangible personal property. The term includes both the basic unit and any adjunct or attachment necessary for the basic unit to accomplish its intended function. Machinery, machine tools, and parts thereof needs to also meet requirements under federal law to qualify for the Colorado exemption.

Enterprise zone status

If your business is in an enterprise zone, and the qualified machinery, machine tools, and their parts thereof that are used solely and exclusively in an enterprise zone, your business may claim an expanded sales and use tax exemption in three ways: 

  1. The exemption applies additionally to materials for the construction or repair of machinery or machine tools.
  2. In addition to manufacturing, the exemption is allowed for machinery and machine tools used directly and predominantly in refining, blasting, exploring, mining and mined land reclamation, quarrying for, processing and beneficiation, or otherwise extracting from the earth or from waste or stockpiles or from pits or banks any natural resource.
  3. The exemption applies whether your business capitalizes or expenses the machinery or machine tools.
  4. If your business uses the machinery or machine tools both inside and outside an enterprise zone, you are not eligible for this exemption.

Haul trucks qualify for this exemption if they are both used:

  • exclusively in an enterprise zone
  • directly and predominantly in refining, blasting, exploring, mining and mined land reclamation, quarrying for, processing and beneficiation, or otherwise extracting from the earth or from waste or stockpiles or from pits or banks any natural resource

The expanded enterprise zone exemption does not apply to blasting caps, explosives, detonators, fuses, or cords.

To claim this tax credit, complete form DR 1191 or DR 1192 through the Colorado Department of Revenue.

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