Colorado Advanced Industry Investment Tax Credit

Colorado Advanced Industry Investment Tax CreditIn an effort to help spur private sector investment in Colorado advanced industries, the state created the Colorado Advanced Industry Investment Tax Credit.

See also Tax Services

Investors are incentivized to inject capital into start-up, high-potential companies and receive an immediate return on a portion of their investment via a tax credit against their Colorado state income tax liability.

The credit is equal to 25% of the qualified investment if the business receiving the investment is not in a rural or economically distressed area (Enterprise Zone) or 30% of the qualified investment if they are - up to a maximum of $50,000 per investment. Credits are not refundable and must be used by the investor, but any unused credit can be carried forward five years.

Both the investor and investee must meet certain criteria in order to qualify. Hanson & Co. has provided a summary of the guidelines below to help our clients and others understand the various tax credit requirements:

Investee Qualifications

In order for an investor to claim the Advanced Industry Investment Tax Credit, the recipient of the investment funds (or the “investee”) must:

  • Be a corporation, partnership, LLC, or other business entity – not an individual
  • Be involved in either advanced manufacturing, aerospace, bioscience, electronics, energy/natural resources and clean tech, infrastructure engineering, or information technology
  • Have its headquarters located in Colorado or have at least 50% of its employees in Colorado
  • Have received less than $10 million from third-party investors (not including grants) since the formation of the business
  • Have annual revenues of less than $5 million
  • Have been actively operating and generating revenue for less than five years

An investee may have multiple investors, each of whom can apply for the tax credit.

Investor Qualifications

For tax credit eligibility, the investor must be an individual, S corporation, partnership, LLC, or other business entity (other than a C corporation, which is not eligible for this program). The investor must also hold no more than 30% of the voting interest before the investment and less than 50% after the investment.

The investment itself must also meet certain criteria. It must:

  • Have been received by the investee on or after January 1, 2016
  • Be an equity security (i.e. common stock, preferred stock, partnership/LLC interest, or a security or debt instrument that is convertible into an equity security)
  • Be at least $10,000

An investor can only claim one tax credit for their investment in a business, but they can invest in as many advanced companies as they wish and apply separately for tax credits.

Before You Apply

The process for the investment tax credit must follow a certain order, and completing certain steps before application will speed the review process.

First, both the investor and investee must have an account with the Office of Economic Development and International Trade (OEDIT’s) Department of Business Funding and Incentives. The investee will need to certify that they are eligible to participate in the program, though this can be done post-application if necessary, and have a valid Enterprise Zone pre-certification number, if applicable.

Perhaps most importantly, the investment must be made and received by the recipient company before the investor submits a tax credit application to the OEDIT.

Application and Available Funds

For 2016, $750,000 is available for this initiative, and applications are being reviewed on a first come, first served basis. To date, there have been 19 applications totaling approximately $271,000 with only one being denied so far. Several of these applications have yet to be reviewed and approved or denied, but to ensure you have an opportunity to take advantage of the tax credit this year, the OEDIT recommends sending in your application as soon as you have made the investment and completed the other necessary steps.

If the annual tax credit limit for the program is reached, the state will suspend their acceptance of applications until the first business day of 2017.

Contact Us

The Colorado Advanced Industry Investment Tax Credit offers a significant advantage for both advanced industry start-up companies and potential investors. If you have questions about this program or want to assess your eligibility for the tax credit, Hanson & Co. wants to help! Call us at (303) 388-1010 or click here to contact us. We look forward to speaking with you!

TaxScott Norquist