The bill aims to encourage the transition of businesses to employee ownership, thereby promoting economic stability and growth within Colorado.
Key Provisions:
Income Tax Subtractions:
Capital Gains Subtraction: For tax years beginning on or after January 1, 2027, and before January 1, 2038, taxpayers can subtract from their taxable income the amount of state capital gains realized during the taxable year from converting at least 20% ownership of a qualified business to a qualified employee-owned business. Eligibility aligns with those qualifying for the tax credit for conversion costs to employee business ownership.
Worker-Owned Cooperatives Subtraction: Worker-owned cooperatives can subtract from their taxable income up to $1 million of their federal taxable income for tax years within the same period.
Extension and Enhancement of Tax Credit:
The tax credit for conversion costs to employee business ownership is extended through tax year 2037.
The aggregate amount of credits that can be claimed is set at $3 million for each tax year from January 1, 2026, to January 1, 2032, and $4 million for each tax year from January 1, 2032, to January 1, 2038.
The percentage of conversion or expansion costs eligible for the credit increases from 50% to 75% starting in tax year 2026, while maintaining existing dollar caps for different conversion methods.
Eligibility and Support for Qualified Support Entities:
Definitions are revised to expand eligibility for the credit.
Qualified support entities—nonprofit organizations assisting businesses in converting to employee ownership—are eligible to receive up to 75% of costs incurred for providing such support, including staff salaries, marketing, and consulting, not exceeding $167,000.
Summary
The bill creates 2 income tax subtractions for income tax years
commencing on or after January 1, 2027, but before January 1, 2038. The first subtraction is for an amount equal to state capital gains that are realized by a taxpayer during the taxable year for the conversion by an increment of at least 20% ownership to a qualified employee-owned business of a qualified business. The taxpayers that are eligible for this subtraction are the same taxpayers that would be eligible for the tax credit for conversion costs for employee business ownership.
The second subtraction is allowed to worker-owned cooperatives
in an amount equal to the worker-owned cooperative's federal taxable income for the tax year not to exceed $1 million.
The bill also makes changes to the tax credit for conversion costs
for employee business ownership (credit). Under current law, the credit is available through income tax year 2026. The bill extends the credit through income tax year 2037. The bill also specifies that the aggregate amount of credits that can be claimed for each income tax year commencing on or after January 1, 2026, but before January 1, 2032, is $3 million and that the aggregate amount of credits that can be claimed for each income tax year commencing on or after January 1, 2032, but before January 1, 2038, is $4 million. The percentage of conversion or expansion costs that are eligible to be claimed for the credit is currently 50%; however, the bill increases this percentage to 75% beginning in tax year 2026 while maintaining the existing dollar caps for the different methods of conversion.
Additionally, the bill revises several definitions to expand
eligibility for the credit and allows for qualified support entities, which are nonprofit organizations that provide services to businesses that qualify under the credit to convert or expand to employee-ownership, to be eligible to receive the credit for up to 75% of the costs incurred for providing such support, including for staff salaries and benefits, marketing and outreach, and consulting and technical assistance not to exceed $167,000.
The bill makes conforming amendments to several of the credit's
expanded definitions that are also applicable to the tax credit for new employee-owned businesses.
