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Employee Credits
Colorado Department of Revenue, Taxpayer Service Division
Employee Credits
Enterprise
Zone New Business Facility Employee Credits
(Revised 09/99)
This FYI contains information on the three "new business facility" employee credits available to qualified businesses located in an enterprise zone. They are:
- The new business facility employee credit.
- The new business facility agricultural processing employee credit.
- The employer-sponsored health insurance credit.
See FYI General 6, "General Information About Colorado Enterprise Zones" for information about other enterprise zone credits.
The New Business Facility Employee Credit
Any taxpayer who establishes a new business facility within an enterprise zone can claim a credit of $500 for each new business facility employee. [§39-30-105 C.R.S.]
A new business facility is a newly acquired, constructed or leased facility used by the taxpayer to operate a revenue-producing enterprise. This includes any factory, mill, plant, refinery, warehouse, feedlot, building or complex of buildings, including land, buildings, machinery and equipment located at the facility and used in connection with the operation of the facility. [§39-22-508.2(2)(a) C.R.S.]
The term "new business facility" includes qualified replacement facilities and qualified expansion facilities.
A replacement business facility is a facility located in an enterprise zone that replaces an old facility located in Colorado but only if the taxpayer operated the old facility for more than three full tax years of the five tax years immediately preceding the opening of the new facility. [§39-22-508.2 (8) (a) C.R.S.] Generally, replacement business facilities do not qualify for the new business facility employee credits. An exception is a "qualified replacement facility."
A "qualified replacement facility" is a facility located in an enterprise zone in which the taxpayer's investment exceeds $3 million or, if less, 300 percent of the investment in the old facility. [§39-22-508.2 (8) (a) (III) C.R.S.]
When a qualified new business facility moves from one location in an enterprise zone to another location in the same or a different zone, it will not be considered to be a replacement facility. The qualification of the prior facility will continue to apply.
An expansion of an existing nonqualified facility may qualify as a new business facility. The expansion may be either by new investment or by an increase in the number of persons employed at the facility.
1) Qualification by investment. A taxpayer may create an expansion new business facility by investing over $1,000,000 in a nonqualified facility located an enterprise zone. Or the investment of an amount less than one million dollars will qualify an expansion if such investment is at least equal to the amount invested in the old facility. [§39-22-508.2 (2) (b) (I) (A) C.R.S.]
2) Qualification by increase in employees. An increase of 10 or more employees at a facility in excess of the base number of persons employed at the facility will create an expansion facility. For taxable years beginning on or after Jan. 1, 1996, an increase of 10 percent (at least one full-time employee) over the base number of persons employed at a facility will qualify as an expansion facility. [§39-22-508.2 (2) (c) (I) C.R.S.]
NEW BUSINESS FACILITY EMPLOYEE CREDIT COMPUTATION SCHEDULE
New Business Facility Employee Credit Computation Schedule
NOTE: Do not try to complete this schedule if your credit
is being passed through to you by an S corporation or a partnership. Your
credits have already been computed for you.
| 1) Monthly average of current year new business facility employees. | _________ |
| 2) Number of employees for which credit has previously been claimed. | _________ |
| 3) Increase in number of employees, line 1 minus line 2. | _________ |
| 4) Number of employees on line 3 that qualify as agricultural processing employees. | _________ |
| 5) Total of lines 3 and 4. | _________ |
| 6) Number of employees on line 5 multiplied by $500. | _________ |
| 7) Number of employees on line 3 that qualify for the health insurance credit. | _________ |
| 8) Number of employees on line 7 multiplied by $200. | _________ |
| 9) Employee credit carried over from preceding tax year. | _________ |
| 10) Total credit, add lines 6, 8 and 9. | _________ |
Common Questions
Can I claim the new business facility employee credit more than once for the same facility?
Once a facility has qualified as an enterprise zone new business facility, the new business facility employee credit may be claimed each subsequent year for each additional qualifying employee above the maximum number employed in any prior year. [§39-30-105(1) C.R.S.]
Does investment in equipment for expansion for an existing facility count toward the $1 million/100 percent qualification?
Yes. New business facility investment means the value of real and tangible personal property, except inventory or property held for sale to customers in the ordinary course of business. [§39-22-508.2(6) C.R.S.]
Does leasing a building qualify the building owner (lessor) for the new business facility employee credit?
No.
A facility is not considered a new business facility in the hands of a
taxpayer if the taxpayer's only activity with respect to the facility
is to lease it to another party. If the facility is used to operate a
qualifying new business, the owner of the business (lessee) would qualify
for the credit, not the owner of the facility (lessor). [§39-22-508.2(3)
C.R.S.]
How should a new business facility investment before and after the expansion be calculated? How is an investment which is spread over time to be calculated?
The business would use the original cost of the investment without depreciation. For an investment spread over time, check the original investment against the date of the creation of the enterprise zone. All investments which take place after that date will be expansion investments.
Can a facility that is operating in an enterprise zone and acquired by the taxpayer from another person qualify as a new business facility?
What about a facility that changes ownership as a result of restructuring in bankruptcy or receivership?
If the new taxpayer continues to operate the same or a substantially identical revenue producing enterprise as was operated immediately prior to the transfer of title or commencement of lease, the facility does not qualify as a new business facility. The mere change of ownership of an ongoing business does not qualify it as a new business facility. [§39-22-508.2(3)(c) C.R.S.]
Can a facility located in an enterprise zone that has been shut down and subsequently is sold to a new owner and reopened qualify as a new business facility?
Yes. However, be sure to review preceding question on changes in ownership.
Can a facility established during 1986 but before an enterprise zone was designated on Sept. 15, 1986 (or other designation date) qualify for the enterprise zone new business facility employee credit?
No. The facility must be established or qualify as an expansion facility on or after the date the enterprise zone was designated.
How is the number of employees computed for purposes of this credit if a business is growing? is seasonal? employs part-time workers? qualifies for the credit as an expansion or replacement business facility?
Calculate the average of the number of new business facility employees on the last business day of the each month of the taxable year. Include regular, full-time employees, part-time employees who are customarily employed for at least 20 hours per week throughout the year, and seasonal employees who are employed for substantially all of the season customary for their positions. For qualifying replacement facilities, only the increase in the average number of employees over the preceding three-year average counts as new business facility employees. For qualifying expansion facilities, only the increase in the average number of employees over the preceding 12-month average shall count as new business facility employees.
Is the amount of the new business facility employee credit limited by my Colorado income tax liability?
For income tax years beginning on or after January 1, 1993, the new business facility employee credit is not a refundable credit. Any excess credit may be carried forward and used to offset the taxpayer's Colorado tax liability for up to five years. Any credit not used in the five-year period will expire.
When and how do I claim the enterprise zone new business facility jobs tax credit?
For new business facilities acquired in a tax year beginning on or after Jan. 1, 1989, the new business facility employee credit is allowed at the rate of $41.67 per month of employment.
Example: A calendar year taxpayer acquires a new business facility on Sept. 1, 1989. The average new business facility employment for September through December 1989 is four. The average employment for 1990 is 12 and for 1991 is 21. Credits are computed as follows:
1989 Four employees at four months at $41.67 per month = $667
1990
12 employees at 12 months at $41.67 = $6,000
$6,000 minus $667 = allowable credit of $5,333
1991
21 employees at 12 months at $41.67 per month = $10,500
$10,500 - $6,000 = allowable credit of $4,500.
How are mobile employees, who sometimes work outside the zone, to be considered when determining the new business facility jobs tax credit?
Employees who work in and out of the zone are counted as partial new business facility employees in the ratio of the time worked in the zone to total working time.
For tax years beginning on or after Jan. 1, 1994, new business facility employees with a Commercial Driver's License (e.g., truck drivers) whose primary duties consist of operating a commercial motor vehicle are considered to be working 100 percent within the zone if they spend no more than five percent of their total time at any of the employer's facilities other than the facility located in the zone. [§39-30-105 (1) (a) I C.R.S.]
This rule is not retroactive. It may not be used to claim additional credit with respect to persons employed prior to 1994.
Are leased employees or employees from a temporary service included in the computation of the employee credits?
No, only actual employees of the business qualify for the credits.
The New Business Facility Agricultural Processing Employee Credit
Any taxpayer who operates a business within an enterprise zone which adds value through manufacturing or processing to agricultural commodities is allowed an additional credit of $500 for each new business facility employee. The general rules and interpretations for the new business facility employee credit discussed in preceding questions apply to this credit as well. In the preceding example, the combined basic credit/agricultural processing credit would be allowed at a rate of $83.33 per month. [§39-30-105(3) C.R.S.]
For income tax years beginning on or after January 1, 1993, this credit is no longer a refundable credit. Any excess credit may be carried forward and used to offset the taxpayer's Colorado tax liability for up to five years. Any credit not used in the five-year period will expire. [§39-30-105 (5) (a) C.R.S.]
For tax years beginning in 1986 through 1992, taxpayers claiming the New Business Facility Agricultural Processing Employee Credit were entitled to a refund if the credit allowed exceeded the tax liability.
Is this credit in addition to the basic new business facility employee credit?
Yes. A qualifying agricultural processing business in an enterprise zone may claim a total credit of $1,000 per new business facility employee.
What types of activities qualify as "adding value" to agricultural commodities? Would a business that packages and ships commodities qualify? What about a restaurant or other food retailer?
Only businesses directly engaged in manufacturing or processing agricultural commodities into some form other than that which enters normal agricultural commodity marketing channels qualify for this special incentive. Harvesting, cleaning, packaging, storing, transporting, wholesaling, retailing or otherwise distributing products without changing their form do not qualify.
Can an existing agricultural processing business claim this credit for adding employees?
An agricultural processing new business facility employee is a type of new business facility employee. Therefore, all of the rules regarding qualification of new business facility employees in general also apply to agricultural processing new business facility employees.
Credit for Employer-Sponsored Health Insurance
An enterprise zone taxpayer who qualifies for the new business facility employee credit can also qualify for the first two full income tax years while in an enterprise zone, for a credit of $200 for each new business facility employee who is insured under a health insurance plan or program provided through the employer.[§39-30-105(1)(b) C.R.S.]
Is this credit in addition to the basic new business facility employee tax credit?
Yes. A qualifying business in an enterprise zone may claim a total credit of $700 ($1,200 for agricultural processing businesses) per new business facility employee covered under employer-sponsored health insurance.
What sort of health insurance must be provided in order to qualify?
Any health insurance, health maintenance organization or pre-paid health plan which is approved by the state insurance commissioner for sale in Colorado qualifies. The employer must contribute 50 percent or more of the total cost of the plan.
Does a self-insurance program qualify?
Yes, it may qualify. The self-insurance program must be reduced to writing and it must be legally enforceable against the taxpayer.
How long may this credit be claimed?
The employee health insurance credit may be claimed for the first two full income tax years a new business facility is in operation.
For example, a calendar year taxpayer opened a new business facility in September 1995. His average number of new business facility employees for 1996 was 19 and for 1997 the average was 25. The taxpayer may claim no health insurance credit for 1995 as they facility was not in operation for the full tax year. He may claim a credit of $3,800 for 1996 and $5,000 for 1997. He may claim the $200 credit in 1997 for the 19 employees who qualified for the basic credit in 1996. He may not claim any health insurance credit with respect to this facility in 1998.
If the same taxpayer opened a separate new business facility in the zone, the separate facility would have its own two-year health insurance qualifying period.
How is the number of employees calculated?
This credit may be claimed for the average number of insured new business facility employees working at the end of each month during each of the two tax years with each year's average calculated separately for that year's tax return.
Does an existing business that qualifies as a new business facility due to expansion qualify for the health insurance credit?
Yes, but only on the new business facility employees. The employees employed at the facility prior to expansion will not qualify for the health insurance credit.
What if the health insurance credit exceed the tax liability?
For tax year beginning on or after Jan. 1, 1996, excess health insurance credits may be carried forward for up to five year. Excess health insurance credits for tax years beginning prior to Jan. 1, 1996 were lost.
Further Information
For more information on related topics, consult the following DOR publications:
- FYI General 1 "Department of Revenue Publications";
- FYI General 6 "General Information About Colorado Enterprise Zones";
- FYI General 8 "The FYI Program - Index and General Information";
- FYI Income 11 "Enterprise Zone Investment Tax Credit";
- FYI Income 22 "Research and Development For Enterprise Zones";
- FYI Income 23 "Tax Credit for Private Contributions to Enterprise Zone Programs";
- FYI Income 24 "Tax Credit for the Rehabilitation of Vacant Buildings in an Enterprise Zone";
- FYI
Sales 10 "Sales/Use Tax Manufacturing Equipment."
Other Colorado "FYI" Tax Publications
Colorado Tax Forms (commonly requested forms)
