04.23.14 |
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Colorado’s Enterprise Zones: Many Ways for Businesses to Save

While many states use enterprise zones and tax credits to help underdeveloped areas, Colorado may have taken it a step further, offering a variety of ways that businesses can cut down their tax bill when investing in these economically depressed zones. The zones are spread across the state, particularly in rural areas; an interactive map showing the location of these zones is made available by Colorado’s state Office of Economic Development and International Trade.

What do the credits do? Broadly speaking they’re tax incentives offered to businesses that expand or locate within these areas in an effort to create new jobs and investments in these zones. As the U.S. economy continues to rebound, it’s worth knowing whether they qualify. According to the state’s Enterprise Zone Annual Report, between 5,000 and 6,000 businesses claim the credit each year.

How Colorado’s Enterprise Zone Tax Credit worksColorado2
Colorado has a variety of enterprise zone credits that businesses can claim, ranging from allowances for creating new jobs to training workers, adding value to agricultural products and investing in research and development, among others.

The basic tax credit is $1,100 for hiring in an enterprise zone, $3,100 for hiring in a rural enterprise zone. Additional credits are also available in certain circumstances. For example, employers that pay at least half the cost of a new employee’s health insurance can claim an additional $1,000 for the first two years the business is located in an enterprise zone.

Another credit available to certain Colorado businesses is the Job Training Tax Credit (JTTC). The JTTC credits businesses 12% of their investment in a qualified training program to improve the job skills of employees working predominantly in an enterprise zone. That can include real property costs associated with the training program and other expenses such as equipment and training staff.

Yet another way for businesses to claim an enterprise zone credit is through investment in property, plant and equipment. The Colorado Enterprise Zone Investment Tax Credit (a credit with carryforward) is calculated at 3% of qualified equipment purchasesThe investment must be used exclusively in the zone for the first year of ownership.  Taxpayers may utilize up to the lesser of $750,000 a year (plus any  carryforward), or the sum of $5,000 plus 50% of tax liability in excess of $5,000.

In the same vein, the R&D Increase Tax Credit is calculated at 3% of increased research and development expenditures; the Vacant Building Rehabilitation Tax Credit is equal to 25% of rehabilitation expenditures with a maximum credit of $50,000 per building and applies to the rehabilitation of certain vacant buildings in an Enterprise Zone.

Getting “pre-certified”
Most enterprise zone tax credits in Colorado require businesses to get “pre-certified” by the appropriate zone administrator before they hire, invest, train or build—that is, before the businesses engage in the activity they’ll claim for the credit. Pre-certification lasts through the end of the tax year when the application is approved.

Pre-certification can be completed online or by submitting certification forms to the appropriate zone administrator.
According to internal ADP data, up to 50% of the billions of dollars in tax savings available nationwide go unclaimed. Find out more about the ADP SmartComplianceSM Tax Credits Module here.


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