Colorado Research Tax Credit

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The Colorado research and development (”R&D”) income tax credit is intended to reward taxpayers who increase research spending in certain Colorado enterprise zones.  

Amount of the Colorado Research Credit

The Colorado R&D income tax credit is equal to three percent of the difference between the taxpayer’s research expenses for activities in an enterprise zone in the current year and the average of the taxpayer’s research expenses for activities in the prior two tax years in the same enterprise zone.   For purposes of simplicity, the prior two tax years are referred to as the “base period.” 

Research Tax Credit Base Period

The base period requirement makes it possible to determine if the taxpayer increased its research spending. The amount of the taxpayer’s Colorado R&D income tax credit will be larger if the taxpayer has fewer qualified research expenses in the base period. If the taxpayer does not have expenses for research activities in any one or both of the years making up its base period, the taxpayer does not have to include any research expenses in the tax credit calculation for that year or years.  

Limitation on the Amount Claimed

The Colorado statute limits the amount of the R&D income tax credit that taxpayers can claim for any one year to twenty five percent of their Colorado R&D income tax credit earned in that year.   Excess credit amounts are carried forward indefinitely.   Credits carried forward can be claimed in the current year along with up to twenty five percent of the current year credit.

Carrying out a Trade or Business

The Colorado R&D income tax credit statute excludes non-business expenses. Expenses must be incurred in “carrying out a trade or business” to qualify for the Colorado R&D income tax credit