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State program

Colorado Research and Development Credit

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  • Offset only
  • Pre-approval required

Last reviewed November 2026

At a glance

  • Jurisdiction: Colorado (CO)
  • Credit name: Enterprise Zone Research and Experimental Activities Credit (C.R.S. § 39-30-105.5; 1 CCR 201-2, Rule 39-30-105.5).
  • Administering agency: Colorado Office of Economic Development and International Trade (OEDIT) and local Enterprise Zone administrators (pre-certification and certification); Colorado Department of Revenue (credit on the return).
  • Rate(s) and base: 3% of research and experimental expenditures made in an Enterprise Zone in excess of the average of the taxpayer's expenditures in the same zone for the two preceding tax years.
  • Refundable? No.
  • Transferable? No.
  • Carryforward: Any allowed installment that exceeds the year's tax carries forward until used (no fixed period in the guidance).
  • Annual cap / proration: No dollar cap, but the credit is spread evenly over four years: 25% in the year the expenditures are made and 25% in each of the next three years. From tax years beginning on or after January 1, 2027, the credit is available only to taxpayers with at least $150,000 of qualifying enterprise zone research expenditures (HB26-1289).
  • Pre-approval / application and deadline: Required. Pre-certify online through OEDIT before any research activity for the tax year begins (a separate pre-certification each year). Obtain final certification from the zone administrator before filing the return.
  • Forms: DR 1366 (Certified Economic Development Credit Schedule) with the Colorado return, plus the OEDIT enterprise zone certification. Electronic filing is required unless it would cause undue hardship.
  • Sunset / recent changes: No sunset. HB26-1289 (signed June 3, 2026) adds the $150,000 minimum from 2027 and repeals Colorado's § 280C wage deduction from 2027.

What it is

Colorado does not have a statewide R&D credit. Instead, it offers an Enterprise Zone credit for increases in research and experimental spending at locations inside a designated Enterprise Zone. The credit is based on expenditures allowed or allowable under IRC § 174, not on IRC § 41 qualified research expenses.

Who can claim it

Businesses (corporations, pass-through owners and individuals) that make research and experimental expenditures at a location inside a Colorado Enterprise Zone, pre-certify before the activity begins, and obtain final certification. From 2027, total qualifying zone expenditures must be at least $150,000.

How it is calculated

  1. Identify § 174 research and experimental expenditures (research in the experimental or laboratory sense) made in the zone: for example, research staff salaries, facility operating costs such as utilities, depreciation and rent, research materials and supplies, patent costs, and contract research.
  2. Exclude land and depreciable property acquisition or improvement, mineral or oil exploration, routine quality control, efficiency or management studies, consumer surveys, advertising, acquired patents or processes, and literary or historical research.
  3. Subtract the average of the two preceding years' expenditures in the same zone. Multiply the increase by 3%.
  4. Claim 25% of the credit in the year earned and 25% in each of the next three years. Example: a $90,000 increase gives a $2,700 credit, claimed $675 a year for four years.

How to claim it

  1. Pre-certify through OEDIT's online system before any research activity for the tax year. No credit is allowed for activity before pre-certification.
  2. After year-end, request final certification from the zone administrator before filing. Certification confirms location and pre-certification only; the Department of Revenue may still examine and adjust the credit.
  3. Claim the credit on DR 1366 with the return for the year it is earned, even if there is no tax that year. Carryforwards are available only if the credit was properly claimed on DR 1366 for the year earned.

Recent changes

  • HB26-1289 (signed June 3, 2026): For tax years beginning on or after January 1, 2027, the credit requires at least $150,000 of qualified research and experimental investment in an enterprise zone. The same bill repeals the Colorado deduction for wages disallowed under IRC § 280C beginning in 2027.
  • Enterprise Zone Tax Guide (revised April 2026): Confirms the 3% rate, two-year base, four-year installment rule and pre-certification requirements. The 2026 investment-credit restrictions (retail fuel and wireless facilities) do not affect this credit.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Colorado and other locations, how Colorado amounts reconcile to federal Form 6765, the Colorado credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Colorado tax.

  1. Provide the OEDIT pre-certification and show it predates the year's research activity.
  2. Provide the final enterprise zone certification for the year.
  3. Show the address of each research location and that it lies within the zone.
  4. Show that the expenditures are § 174 research and experimental costs and exclude non-qualifying items such as depreciable property acquisitions and routine testing.
  5. Provide the two prior years' zone expenditures used for the base.
  6. Show the four-year installment schedule and DR 1366 for each year.
  7. From 2027, show that zone expenditures were at least $150,000.

Common weak spots

  • Research started before pre-certification, which disqualifies that activity.
  • Using IRC § 41 QREs instead of § 174 expenditures, or including depreciable property.
  • Claiming the full credit in year one instead of 25% a year.
  • Base computed across all Colorado locations rather than the same zone.
  • Credit not claimed on DR 1366 in the year earned, which forfeits later carryforwards.
  • Not modelling the $150,000 threshold from 2027.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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