The word colorado means “colored red” in Spanish. The Colorado River was given this name by Spanish Explorers because of the red sandstone soil in the surrounding region. The territory inherited the name after the river and eventually became the 38th state of the US. This week we focus on Colorado.

 

Business Climate

Colorado is considered the 8th largest state area wise and has a very diverse geography. From the Colorado Eastern Plains to the Rocky Mountains, the state takes full advantage of the land and much of it is favored towards the agriculture industry. In fact, over 60% of Colorado’s land  is used for agriculture. Livestock is one area of agriculture that has done especially well. Colorado has over 15,000 beef producers, 200 feedlots, and 20 USDA certified slaughter plants. Beef is the number one agricultural commodity from the state. In addition to livestock, the state is also the nation’s leader in producing beer, with nearly 150 breweries. Denver, Colorado is known as the “Napa Valley of Beer.”

The extensive geography  plays in the state’s favor also for tourism. In 2013, Colorado experienced 64.6 million travelers and visitors spent $17.3 billion. Colorado is considered the “Switzerland of America,” because of its collection of mountains that are ideal for winter sports. These mountains attract millions of tourists to flock to ski resorts and has contributed in making Colorado #1 in the nation for overnight ski visits. Asides from the winter attractions, Colorado’s outdoors is just as enjoyable in all the other seasons. In fact, this past summer the tourism industry experienced waves of visitors and the state expects to break previous tourism records. Some are skeptical though and believe it is because of the legalization of medicinal and recreational marijuana use that more and more people are flocking into the state. Regardless, Colorado’s tourism industry is doing well.

Taxes

Colorado has a favorable tax climate according to the State Business Tax Climate Index. Of the 50 states, it ranked 19th due to having low corporate income tax (8th lowest) and individual income tax rates (13th lowest). Both are flat rates of 4.63%. In 2014, from January to July the state collected $5,650 million in individual income tax and $716 million in corporate income tax.

Colorado’s state sales tax rate is the lowest in the country at 2.9%. However, sales tax overall is much higher as counties and local government add on multiple tiers, some reaching sales tax rates as high as 10.4%. The combined state and average local sales tax rate is 7.39%, making it the 15th highest in the nation. The City and County of Denver, the largest city in the state, has a sales tax rate of 7.62%. In 2014, from January to July the state collected $2.3 billion in sales tax.

Colorado has 61 cities and 35 towns that are home rule municipalities (self-governing). This contributes to the unfavorable sales tax ranking considering that vendors and retailers do not only have to file a tax return for the state for state sales tax, but, if located in a home rule municipality, they must also file a tax return with the city for local sales tax.

Tax Credits and Incentives

Colorado’s tax credits and incentives programs are mainly centered on its Enterprise Zone (EZ) Program. An enterprise zone is an economically distressed area in which the state would like to encourage business expansion in order to promote a business friendly environment.  A distressed area must meet at least one of the following criteria:

  • Unemployment rate 25% higher than the state average
  • Per capita income below 75% of the state average
  • Population growth less than 25% of the state average

With these criteria in place, approximately 77% of the state’s land area is within an EZ and a majority of those zones are rural. Roughly 5% of the state’s land area in an EZ is considered urban. Denver is 150 square miles and only 30 square miles are qualified for the EZ. However, of those 30 square miles most of it is considered commercially zoned real estate.

The Colorado Economic Development Commission has the authority to designate and terminate areas as Enterprise Zones. Companies that wish to utilize the program must annually apply to be pre-certified to be eligible to claim EZ tax credits. A business’ eligibility starts the date their pre-certification is approved to the end of the income tax year. This precertification entitles companies to generate the enterprise zone credits they want.

While there are a few tax credits and incentives programs outside of the EZ, the state encourages businesses to participate in its Enterprise Zone Program. Having a business within a zone opens the door to several credits and incentives that generally would not be available to a business not located within the zone. For the tax credits and incentives available to any business, usually a business within the EZ can earn an additional amount (as seen in the Investment Tax Credit, see below). Below are two examples of tax credits and incentives businesses can take advantage of.

Investment Tax Credit (ITC): The ITC is a credit of any qualified investment in particular property (section 38 property), that is acquired and placed in service or constructed during the tax year and must be used exclusively within a Colorado EZ for the first year. The credit is equal to 3% credit (1% for non-EZ) of the basis of the property.The ITC is allowed to the extent of the first $5,000 of tax liability, plus 50% of the liability in excess of $5,000 (a maximum of $750,000 plus any ITC carryovers previously allowed). The tax credit can be carried back 3 years and forward up to 12 years.

New Business Facility Employee Credit: Any business that establishes a qualified new business facility in an EZ can claim a tax credit of $500 per employee within that facility. A qualified new business facility can be acquired, constructed, or leased and must be used to operate a revenue-producing enterprise. The calculation is based on the average number of newly qualified employees per month multiplied by $500. The amount is prorated according to the number of months of employment during the year. Excess credits are carried forward up to 5 years.

Random Colorado Facts

  • The 13th step of the state capital in Denver is exactly 1 mile above sea level.
  • Colorado was nicknamed The Centennial State because it became a state 100 years after the US Declaration of Independence (1776).
  • In Denver, Colfax Avenue is considered the longest continuous street in America, running 53.3 miles.
  • Colorado has the highest mean altitude (6,800 feet) of all the states.
  • Katherine Lee Bates wrote “America the Beautiful” after being inspired by the views from Pikes Peak.
  • Colorado is the only state in history to turn down the Olympics. Denver could have hosted the event in 1976, but state voters voted against it.

Photo Credit: L. Lamsa via Flickr

Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credits and incentives maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit. To learn more, contact us today at www.MilesConsultingGroup.com.

Colorado Enterprise Zone Tax Credits tax credits and incentives