Colorado Enterprise Zone Research and Development Increase Tax Credit

Program overview

Colorado ties its research incentive to its Enterprise Zone program, which directs investment to economically distressed areas. Businesses that increase qualified research expenditures within a zone over the average of the prior two years may claim a credit equal to a percentage of the increase. The credit must be pre-certified with the local Enterprise Zone administrator before the activity begins, and it is claimed over multiple years rather than all at once, so cash-flow planning is part of the analysis.

Eligibility

Businesses conducting qualified research, as defined under IRC Section 41, at a physical location inside a Colorado Enterprise Zone, with annual pre-certification from the zone administrator.

Benefits

Credit against Colorado income tax claimed at 25% of the credit amount per year until fully used.

Colorado IDR questions

What an examiner is likely to ask about this credit. S1–S7 apply to every state claim; the rest come from this program's own rules.

1. S1Confirm the research was physically performed within Colorado.
2. S2Provide the Colorado qualified research expense calculation and base amount.
3. S3Reconcile Colorado expenses to the federal Form 6765.
4. S4Show how wages and supplies were apportioned between Colorado and other locations.
5. S5Provide the Colorado return and credit schedule for each year claimed.
6. S6Show the carryforward schedule for unused Colorado credits.
7. S7Confirm the entity claiming the credit is the entity subject to Colorado tax.
8. CO-1Provide the pre-approval, certification or application filed for the Colorado credit, with its filing date.

Draft questions for illustration, reviewed by a specialist before any engagement.