Colorado R&D Increase Tax Credit – Overview of the R&D Rules
R&D Tax Credit in Colorado – Colorado offers a 3% credit based on the increase of research and experimental expenditures in an enterprise zone. The increase is determined based on the average expenditures for the prior two years in the same enterprise zone. R&D activities in different enterprise zones must be calculated separately, and the expenditures must meet the definition of research and experimental activities in IRC §174 (R&D expenses). Research expenses include wages, except fringe benefits, supplies, and payments for the right to use computers. Contract research may also be included, and it is not subject to the 65% limitation found in the federal version of the credit. However, the following expenses do not qualify: land or improvements to land, management surveys, depreciable equipment, research funded by a government entity, and costs incurred to adopt a product to a particular customer’s needs. Once the credit is calculated, the taxpayer must divide the credit equally over four years. If the company’s tax liability for a given year is less than the credit amount, the credit can be carried forward for an unlimited number of years.