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Basic Business Taxes

Corporate income tax credits include child-care programs, a credit for the purchase of vehicles using clean-burning alternative fuels, 10 percent of qualified school-to-career expenditures, credits for rehabilitation/ restoration of historic buildings, contributions to the High-Tech Scholarship Program, and contributions to the Colorado Institute for Telecom and Education. Additional credits apply in enterprise zones.

Sales and use taxes:
Colorado collects a 2.9 percent sales or use tax on goods purchased by a business that are not intended for resale. Local governments may collect up to an additional 4.7 percent sales tax. The average sales tax is 6.2 percent.

Services are not taxed; only sales of non-food items are taxed.

State sales or use taxes on manufacturing equipment or machine tools are not collected on purchases over $500. Additionally, sales or use taxes are not collected on component parts, fuels and electricity, ink and newsprint, packaging materials, general maintenance aircraft parts, farm equipment and machinery, clean-fuel vehicles, or biotech equipment. Biotech R&D is eligible for sales and use tax refund.

Unemployment taxes and workers' compensation:
An employer's unemployment insurance tax liability is based on the taxable wage base, which is the first $10,000 of each worker's wages. If covered for the first time, the tax rate will be 1.7 percent of the wage base plus a small surcharge (0.22 percent in 2005) and a solvency surcharge of 1.2 percent for a total of 3.12 percent. After one full year of coverage, the tax rate will be calculated based upon the employer's individual experience.

Workers' compensation insurance is provided by over 200 private companies and the state's Compensation Insurance Fund, which carries coverage for the majority of Colorado employers.

Property tax:
Property taxes are not levied by state government. These revenues are exclusively for local government services, primarily school districts.

Commercial and industrial real and personal property is assessed for property tax purposes at 29 percent of market value. If total personal property is valued less than $2,500, it is exempt.

Personal property (furniture, fixtures, and equipment) used in commercial and industrial operations is subject to personal property tax. This property is also assessed at 29 percent of actual value (based on replacement cost, expected economic life of the equipment, and other factors). Business personal property with an economic life of one year or less (consumables), or with an acquisition cost of less than $250, is exempt. Computer and telecommunications equipment have accelerated depreciation schedules. Local governments have the option to negotiate up to a 50 percent rebate or credit on personal property tax as an economic development incentive. In years when there is a state surplus there are income tax credits for a portion of personal property tax paid.

Local governments in enterprise zones have the option of providing new companies with a rebate or credit not to exceed the difference in property taxes after development less the property taxes prior to zone designation.

Inventory taxes:
Inventory taxes are not assessed in the state.

Severance taxes:
Colorado levies a tax upon the severance from the earth of metallic minerals and energy resources based upon the gross income of the extraction operation or upon the amount extracted. Only operations exceeding $19 million in annual gross income are subject to this tax.

Investment tax credits:
Business investments qualifying under the former federal guidelines for an investment tax credit qualify for a 1 percent investment tax credit in Colorado, up to a maximum credit of $1,000 in any tax year. Excess credits may be carried forward three years.

Enterprise zone tax credits:
Businesses making investments in equipment used exclusively in an enterprise zone, which would have qualified for the pre-1986 federal investment tax credit, may claim a credit against their Colorado income taxes equal to 3 percent of the amount of the investment, up to a maximum of $5,000 in any tax year, plus 50 percent of the tax liability above $5,000. Excess credits may be carried forward 12 years or back three years.

A new or expanded business facility located in an enterprise zone is entitled to an income tax credit of $500 per new employee. An additional $500 per new business facility employee may be claimed by businesses that add value to agricultural commodities through manufacturing or processing.

In certain designated "Enhanced Rural EZ" counties, additional job credits of $2,000 per new job or $2,500 per new agriculture processing job are available for tax years beginning on or after January 1, 2003.

An additional credit of $200 per employee during the first two years in the zone may be claimed for employees covered by a company-sponsored health insurance plan. A minimum of 50 percent of the cost must be paid by the company.

Employers who carry out a qualified job-training program for their enterprise zone employees may claim an income tax credit of 10 percent of their eligible training expenses. A qualified training program means a structured training or basic education program to improve the job skills of employees. Training may be done either on or off the employer's site. It may be conducted by the taxpayer or contracted to another entity. The trainees must be working predominantly within an enterprise zone.

There is a credit of 25 percent of qualified expenditures up to $50,000 to rehabilitate buildings that are at least 20 years old and have been vacant at least two years.

There is a 25 percent credit up to $100,000 for private contributions to local zone administrators or approved nonprofit organizations for enterprise zone development projects.

There is an income tax credit for private expenditures on research and experimental activities (as defined by federal tax law) conducted in an enterprise zone. It is equal to 3 percent of the amount of the increase in the taxpayer's R&D expenditures within the zone for the current tax year above a base level.