Colorado R&D Tax Credit

STATE and FEDERAL Credits Available

Credit Rate

∞

Carryforward

Enterprise Zone

Only

The Colorado Research & Development (R&D) Tax Credit encourages innovation by offsetting state income tax for qualified research in designated Enterprise Zones. Available since 1989, it targets manufacturing, technology, and other sectors within zones.

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Credit Rate

∞

Carryforward

Enterprise Zone

Only

Key Highlights

Nonrefundable credit; offsets Colorado income tax only
Applies exclusively to research in Enterprise Zones
Available to C corps, S corps, partnerships, and LLCs
Requires pre-certification from local EZ administrator
No refund; income offset only with indefinite carryforward (25% annual usage limit

Who Qualifies for the Colorado R&D Tax Credit

Eligibility requires qualified research activities (QRAs) conducted within Colorado Enterprise Zones, aligning with IRC §41 standards.

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the Colorado R&D Tax Credit

Colorado uses a regular incremental method based on zone-specific QREs over the prior two years.

Regular Method

Determine Enterprise Zone QREs for the current year.
Calculate base = average QREs from the prior two years.
Compute excess = current QREs - base (if positive).
Credit = 3% of excess; claim up to 25% per year, carry forward remainder indefinitely.

Example Calculation

Current QREs = $1M;

Prior avg = $800K;

Excess = $200K

→ Credit = 3% × $200K = $6K

(claim $1.5K/year for 4 years or carry forward)

Base Calculation for Colorado R&D Tax Credit

Identify QREs conducted in the Enterprise Zone for the prior 2 tax years.
Compute average = (Year -1 QREs + Year -2 QREs) / 2.
Apply as base amount (if no prior QREs, base = $0).
Ensure zone-specific only; exclude non-zone expenses or receipts.

Example Calculation

Prior Year -1 QREs = $900K;

Year -2 = $700K;

→ Base = ($900K + $700K) / 2 = $800K

If no prior:

→ Base = $0 (full current QREs qualify as excess)

Estimate Your Credits

Colorado-Specific Rules

Colorado's R&D credit is tied to Enterprise Zones with unique limits and benefits.

Enterprise Zone Limits

3% rate on increases in zones only; drives $50M+ utilization in manufacturing and tech sectors.

No Cap on Carryforward

Indefinite carryforward provides long-term value; 25% annual usage limit spreads benefits.

Pass-Through

Maximizes group benefits via pro-rata allocation to owners in partnerships/LLCs.

Local Approval Required

Pre-certification from local EZ administrator mandatory before claiming.

No Refund

Credits offset income tax only; no cash refunds available.

Audit

Retain records for 4 years; state audits focus on zone compliance.

Enterprise Zone Limits

3% rate on increases in zones only; drives $50M+ utilization in manufacturing and tech sectors.

No Cap on Carryforward

Indefinite carryforward provides long-term value; 25% annual usage limit spreads benefits.

Pass-Through

Maximizes group benefits via pro-rata allocation to owners in partnerships/LLCs.

Local Approval Required

Pre-certification from local EZ administrator mandatory before claiming.

No Refund

Credits offset income tax only; no cash refunds available.

Audit

Retain records for 4 years; state audits focus on zone compliance.

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Frequent Asked Questions

3% on excess QREs; available only for research conducted in designated Enterprise Zones.

Indefinitely, with a 25% annual usage limit on the total credit balance.

No. The credit is nonrefundable and can only offset Colorado income tax liability.

Pre-certification from the local Enterprise Zone administrator before claiming the credit on your tax return.

Base = average QREs from the prior 2 years. If no prior QREs, base = $0.

Wages, supplies, contract research, and computer rentals for qualified research activities conducted within an Enterprise Zone, aligned with IRC §41.

Yes. Credits flow to partners/members via Schedule K-1 for S corps, partnerships, and LLCs.

No specific industry restrictions, but research must be in an Enterprise Zone and meet IRC §41 standards.

Retain documentation for at least 4 years; state audits focus on Enterprise Zone compliance.

No. Only research conducted within designated Colorado Enterprise Zones qualifies.

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Next Steps

Estimate Credits

Use our calculator to estimate your potential federal and state benefits

Estimate your Credits

Speak to Expert

Schedule a consultation to structure your California research activities

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Official Resources

Colorado Department of Revenue — R&D Credit Overview

Eligibility, calculation methods, and filing guidance for Enterprise Zone credits.

Enterprise Zone Tax Credit Forms

Colorado R&D credit forms and instructions.

Colorado Office of Economic Development — Enterprise Zones

Information on Enterprise Zone locations and administrator contacts.

C.R.S. §39-30-105

Statutory framework for the Colorado Enterprise Zone R&D credit.

Colorado R&D Tax Credit

Key Highlights

Who Qualifies for the Colorado R&D Tax Credit

How to Calculate the Colorado R&D Tax Credit

Colorado-Specific Rules

What is the Colorado R&D Tax Credit rate for 2025?

How long can Colorado R&D credits be carried forward?

Is the Colorado R&D credit refundable?

What is required to claim the Colorado R&D credit?

How is the base calculated for Colorado?

What qualifies as Colorado QREs?

Can pass-through entities claim the credit?

Are there industry restrictions?

What records should I retain?

Are out-of-zone R&D expenses eligible?

Next Steps

Official Resources