Taxes

Colorado provides a competitive business tax structure that rewards investment and innovation. With very low taxes at the state level, and a wide range of local tax structures, Colorado offers almost unlimited choices to meet the needs of all types of businesses.
Colorado ranked 44th in per capita state government spending. When looking at tax revenues relative to personal income, Colorado places 48th among the 50 states for state level taxes. (Source: Colorado Office of Economic Development and International Trade)

Sales and Use Tax:
The State of Colorado collects a 2.9% sales and use tax on goods purchased or used in Colorado that are not intended for resale. Colorado’s state sales tax rate is the lowest among 45 states that collect sales tax.
(Source: Colorado Office of Economic Development and International Trade)

Legislation passed in 2001 allows for a 50% sales and use tax refund on tangible personal property used for research and development in years when there is a revenue surplus. Major exemptions include:

Manufacturing equipment on machine tools over $500 purchased in one calendar year

• Component parts
• Fuels and electricity
• Packaging materials
• Aircraft parts used in general maintenance
• Interstate long distance telephone charges
• Ink and newsprint
• Farm Equipment and machinery

Local governments may collect additional sales taxes. Exemptions in home ruled municipalities may be different from the state’s exemption.

Investment Tax Credits:
Business investments that qualify under the former federal guidelines for an investment tax credit can receive a one percent investment tax credit in Colorado, up to a maximum of $1,000 in any tax year. Excess credits may be carried forward up to three years.
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Enterprise Zone Tax Credits:
Businesses in Colorado’s urban and rural enterprise zones receive various investment tax credits, new employee tax credits, credits for research and experimental activities, vacant building rehabilitation, and contributions for miscellaneous building rehabilitation, and contributions for various qualifying activities with the enterprise zones. See description of Enterprise Zone benefits in the section labeled Incentives within.
*Example: Business tax credits available to corporations include the following: Investment Tax Credit of 1% of the purchase price with a maximum credit of $1,000 per year. The unused portion may be carried forward for three years. Domestic corporations receiving dividends from controlled foreign corporations can get credit for a portion of taxes paid by the foreign corporation to any state.
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Unitary Taxation:
Colorado has a liberal “water’s edge” base for combined returns that does not apply the unitary tax concept beyond the United States. Specifically, foreign organized corporations, as well as U.S. organizations “80/20” corporation (those with 80% or more property and payroll outside the U.S.) are not included in a combined tax return with the companies doing business in Colorado. A foreign corporation or U.S. “80/20” corporation that does not do business in Colorado will not need to file, and one that does do business in Colorado will file an “entity only” apportioning return.
Corporations doing business in Colorado, as well as other states, must apportion to Colorado that portion of their net income derived from sources within Colorado. These corporations may choose to utilize either Colorado Income Tax Act or the Multi-State Tax Compact as the basis to determine their Colorado income.
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Individual/Personal Income Tax:
Individual income taxes are a flat rate of 4.63% of federally adjusted taxable income, with some modifications. Local governments in Colorado do not assess income taxes.
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Property Taxes:
The state does not levy a property tax. Depending on the location within Larimer County, property taxes will amount to approximately 1.0% to 2.5% of the actual value of real estate. Industrial property is assessed for tax purposes at 29% of actual value.
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Unemployment Taxes:
An employer’s unemployment insurance tax liability is based on the taxable wage base, which is the first $10,000 of each worker’s wage. If covered for the first time, the tax rate will be 1.7% (plus a .22% surcharge) of the wage base or a rate equal to the average for the industry, whichever is greater. Employers who are not yet eligible for the computed rate will be assessed a small surcharge. Beginning with the third and fourth year of coverage (rate calculations begin on January 1st and three years of data are required), the rate is changed to a computed rate based on the employer’s individual experience.
Most jobs pay significantly more than $10,000 per year, making the effective unemployment tax rate much lower than the 1.7% nominal rate. Colorado ranks 11th lowest in the nation for unemployment insurance premiums. (Source: Colorado Office of Economic Development and International Trade.)
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Worker’s Compensation:
Worker’s compensation insurance is provided by over 200 private companies authorized to conduct business in the State of Colorado. Coverage for the majority of Colorado employers is provided by the State Compensation Insurance Fund, doing business as Pinnacol Assurance. The fund is a permanent, self-sustaining, nonprofit service organization operated for the benefit of its Policyholders and their employees.
Employers meeting strict financial and loss control standards are permitted to self-insure under Colorado law.
Recent reforms have resulted in significant premium reductions for most employers. These reductions have saved Colorado employers well over $100 million in insurance premiums alone. Colorado ranks in the middle group of states in comparative worker’s compensation costs. (Source: Colorado Office of Economic Development and International Trade)