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New employee-owned businesses eligible for refundable Colorado income tax credit

(The Center Square) – New businesses partially or wholly owned by employees will be eligible for a refundable state income tax credit under a new Colorado law.

For tax years 2025 through 2033, House Bill 24-1157 will create an income tax credit for businesses operating for less than seven years. The tax credits will be allowed for 50 percent of qualifying costs and up to $50,000 annually.

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Costs eligible for the credit will be issued in guidelines from the Employee Ownership Office within the state’s Office of Economic Development and International Trade. They’re expected to include accounting, legal, business advisory and similar professional services.

The law requires the office support the development and advancement of employee-owned businesses with a special emphasis on providing technical support to small businesses owners desiring to transition into employee-owned ownership models.

The new law limits the amount of tax credits to $1.5 million annually. However, any amount under the cap that’s not certified in a tax year may be certified by the Employee Ownership Office in a subsequent tax year.

The law’s fiscal note projected it would decrease state revenue by $446,250 during fiscal year 2024-2025, $1.1 million in 2025-2026 and $1.4 million in 2026-2027. The annual $1.5 million cap is expected to limit the reduction of tax revenue in later fiscal years.

The office is allowed to charge an application fee of up to $250 to pay for a portion of certification costs. The office also will collect taxpayer identifying information from applicants and send the information to the Department of Revenue for its review.

The legislation put the Employee Ownership Office into law after it was created administratively in 2020 by Democrat Governor Jared Polis. The office was funded with term-limited federal funds made available during the COVID-19 pandemic. The legislature didn’t provide funding for the office during fiscal year 2024-2025 and Polis didn’t request any funding in his budget request for the year.

The bill was sponsored by Representatives William Lindstedt, D-Adams, and Stephanie Vigil, D-El Paso, and Senators Jeff Bridges, D-Arapahoe, and Chris Kolker, D-Arapahoe. The bill passed the Senate 25-10 and 54-9 in the House on the last day of the 2020 legislative session.