Colorado R&D Tax Credit Summary
Colorado provides Research and Development (R&D) Tax Credit for activities conducted within a Colorado Enterprise Zone (EZ). The R&D credit is administered by the Colorado Enterprise Zone Program, in accordance with Colorado Code of Regulations § 39-30-105.5, Enterprise zone research and experimental expenditures credit. A taxpayer who makes “expenditures in research and experimental activities” as defined in IRC § 174 can take an income tax credit.
Some highlights of the Colorado R&D tax credit include:
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The credit is equal to 3% of the amount by which qualified research expenditures (QREs) in the enterprise zone exceed the taxpayer's average QREs from the preceding two years.
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In each tax year, the taxpayer may claim no more than 25% of the total credit (the remainder being carried forward) plus any applicable carryover amount from a prior year up to 25% of the original credit.
CO R&D Credit Summary
The R&D tax credit equals:
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3% of the amount claim period QREs exceeds the average QREs from the prior two years
Example: Taxpayer claimed Colorado R&D tax credits in 2013 and 2014 of $10,000, respectively. Limited to 25% of the credit per year, it claimed $2,500 in 2013 and carried forward $2,500 to 2014, 2015 and 2016, respectively. For 2014, Taxpayer claimed 25% of its $10,000 credit PLUS the $2,500 carried forward from 2013 for a total credit of $5,000 in 2014. If the facts stay the same for 2015, Taxpayer's credit would include $2,500 each from 2013, 2014 and 2015 for a total R&D credit of $7,500 in 2015.
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Beginning January 1, 2012, taxpayers must annually pre-certify with their local EZ Administrator to be eligible to claim the credits by filing form DR 0074.
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Pre-certified taxpayers who intend to claim EZ R&D credits must complete a certification application (form DR 0077) and receive approval from the local EZ Administrator. Certification documents must be submitted with the Colorado income tax filing.
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To the extent that the credit for any year exceeds the tax liability for such year after other credits have been claimed, the excess may be carried forward and claimed until it is used.
Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships
Deadline for Tax Filing: Due with Colorado Tax Return. However, precertification must be applied for online or by submitting DR 0074, DR 0076 or DR 0077 certification forms to the zone administrator prior to claim filing.
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Electronic Filling
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For any tax year beginning on or after January 1, 2012, any Colorado original or amended income tax return that claims an enterprise zone credit must be filed electronically. The return must also include a carryforward schedule (form to be developed during 2012) for all enterprise zone credits.
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Taxpayers who are unable to file electronically can file a paper return. However, the department strongly encourages taxpayers to file electronically to avoid unnecessary delays and problems that can occur when taxpayers file a paper return for these complex credits and schedules.
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Electronic Notification
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For any credit generated on or after January 1, 2012, the Office of Economic Development and International Trade (OEDIT) will electronically notify the Department of Revenue of any credits generated in 2012 or later. Enterprise Zone credits cannot be claimed on a tax return filed prior to this notification. The Department of Revenue will post notification on its Web site in the Income Tax Index when the information is available and returns can be filed to claim these credits, which should occur NO LATER than March 31.
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The department strongly recommends that taxpayers use the online certification process to ensure that the credit data is accurately and timely transmitted to the Department of Revenue. This is particularly important for passthrough entities that must provide the name, ID number and the amount of the distributed credit of each partner/shareholder/member of the entity. Failure to accurately provide this information will result in the tax credit being denied until the information is corrected with the Enterprise Zone administrator.
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Data Required to Compute Credit
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Claim Period Colorado Qualified R&D Expenses (QREs)
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QREs for Prior 2 Years
Refundable/Transferable Tax Credit: No
Credit Carryforward: 4 Years. Total amount of credit must be divided equally over four years. Entity may claim 25% of the credit expenditure was made and 25% in each of the following 3 years. To the extent the credit for any year exceeds the tax liability for such year after other credits have been claimed, the excess may be carried forward and claimed until it is used up. See Regulation 39-30-105.5.
Important Links and Forms: