This bill extends and modifies the Advanced Industry Investment Tax Credit while expanding eligibility to certain manufacturing businesses and adjusting investor requirements.
Key Changes & Extensions:
Extended Tax Credit Duration
The credit, originally set to expire on December 31, 2026, is now extended to December 31, 2031.
Expanded Eligibility to Non-Advanced Industry Businesses
Currently, the credit applies only to investments in advanced industries.
Starting January 1, 2028, it will also apply to qualified small businesses in the manufacturing sector that:
Generate revenue from operations.
Are primary employers.
Produce products distributed outside Colorado.
Are commercially scalable and capital-intensive, contributing to incremental local economic income (as determined by the Colorado Office of Economic Development).
Loosening of Voting Power Restrictions for Investors
Removes the current limit preventing an investor from:
Holding more than 30% of voting power before investment.
Holding more than 49% of voting power after investment.
Updated Definition of Qualified Investor
Clarifies that entities subject to income tax (excluding C corporations) may qualify as investors.
Excludes individuals who had control of a qualified small business within 6 months before or after investment.
Excludes founders, employees, contractors, and their spouses.
Excludes individuals who:
Have invested more than $50,000 in the business.
Own more than 10% of the company on a fully diluted basis.
New Business Reporting Requirements
A qualified small business must report data for five years after receiving an investment, including:
Confirmation of investment details.
Intended use of investment funds.
Expected job creation from the investment.
The Colorado Office of Economic Development can assess penalties for failing to report.
Tax Credit Allocation for Trusts
If a trust receives the tax credit, it can allocate the credit among its beneficiaries.
The Office will issue credit certificates to beneficiaries, who can claim their portion accordingly.
Reduced Annual Tax Credit Cap
The current credit cap of $4 million per year (until 2026) will decrease to $2.5 million per year from 2027 to 2031.
Potential Impacts:
Encourages investment in capital-intensive manufacturing businesses beyond advanced industries.
Relaxes restrictions on investor control, making it easier for investors to acquire larger stakes.
Reduces overall tax credit funding while extending program longevity.
Strengthens accountability through new reporting requirements.
Summary
Currently, the advanced industry investment tax credit (credit)
expires on December 31, 2026. The bill extends the credit until December 31, 2031. The credit is currently available to a qualified investor that makes a qualified investment in a qualified small business that is in an advanced industry. On and after January 1, 2028, the credit is also available to a qualified investor that makes a qualified investment in a qualified small business that is not an advanced industry business, operates in the manufacturing sector, generates revenue from operations, is a primary employer, is producing a product that is distributed outside of Colorado, and, in the judgment of the Colorado office of economic development (office), is a commercially scalable and capital-intensive business that will bring incremental income to the local economy.
The bill changes the definition of qualified investment by
eliminating the current prohibition against a qualified investor having more than 30% of the voting power in the qualified small business before the investor makes a qualified investment and more than 49% of the voting power in the qualified small business after making a qualified investment.
The bill changes the definition of qualified investor by clarifying
that an entity subject to income tax may qualify as an investor, except that a C corporation, including any limited liability or other legal entity treated as a C corporation for federal and state income tax purposes, is not a qualified investor. A qualified investor may include a partner, shareholder, or beneficiary that is allocated a credit. A qualified investor does not include a person that had control of a qualified small business for 6 months preceding or following the date of the investment in the qualified small business. A founder, employee, or contractor or a spouse of a founder, employee, or contractor of a qualified small business is not a qualified investor. A person that has invested more than $50,000 in the qualified small business or owns more than 10% of the qualified small business on a fully diluted basis is not a qualified investor.
The office administers the credit. The office may certify a small
business as a qualified small business until October 1, 2031. A small business certified as a qualified small business must report to the office as requested to confirm the certified small business's status as a qualified small business. The office may require a qualified small business to provide information to confirm that a qualified investment has been made in the qualified small business, the intended use of the qualified investment, and the expected number of new employees that will be hired by the qualified small business as a result of the qualified investment. A qualified small business that receives a qualified investment is required to report data relevant to the impact of the credit and development of the qualified small business annually to the office for 5 years following a qualified investment. The office may assess a penalty against a qualified small business that does not meet this reporting requirement.
The office may issue $4 million in credits per calendar year for the
years through the 2026 calendar year for which the credit is currently available. The bill decreases the cap to $2.5 million per calendar year beginning with the 2027 calendar year through the 2031 calendar year.
If the qualified investor receiving a credit is a trust, the qualified
investor may allocate the credit between the trust and its beneficiaries in any manner determined by the trust. The office shall issue a credit certificate to a trust beneficiary and a trust beneficiary may claim the amount indicated on the credit certificate.
