Are R&D Tax Credits
Available in Colorado?
Yes. The state of Colorado provides a Research and Development (R&D) Tax Credit for activities conducted within a Colorado Enterprise Zone (EZ). The credit is administered by the Colorado Enterprise Zone Program, in accordance with Colorado Code of Regulations § 39-30-105.5.
Colorado R&D Tax Credit
Credit amount:
3% of the amount by which qualified research expenditures (QREs) in the enterprise zone exceed the taxpayer’s average QREs from the prior two years in the same EZ.
Annual limitation:
Taxpayers may claim no more than 25% of the total credit each tax year (plus carryover amounts). The remaining portion is carried forward until fully used.
Carryforward:
Excess credit can be carried forward until it is fully utilized.
Pre-certification requirement:
Beginning January 1, 2012, taxpayers must pre-certify annually with their local EZ Administrator by electronically filing Form DR via the Colorado Department of Economic Development’s Enterprise Zone webpage.
Certification:
Taxpayers must submit Form DR 0077 (certification application) approved by the EZ Administrator with their Colorado income tax return.
Colorado R&D Tax Credit Case Study
A Denver-based engineering firm had never claimed the R&D Tax Credit before. This project involved the tax year 2024.
The Company qualified for a federal R&D Tax Credit of $130,000 and an additional $15,750 in Colorado State R&D Tax Credits, of which $3,938 could be claimed in 2021.
FEDERAL | COLORADO | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,300,000 | $130,000 | $1,300,000 | $15,750 ($3,938 usable in 2024) |
Federal R&D Tax Credit Summary
Year | Total QREs | Credit |
2024 | $1,300,000 | $130,000 |
Colorado R&D Tax Credit Summary
Year | Colorado Credit |
2024 | $15,750 |
Criteria for Qualifying Research Activities
The four-part test below defines what counts as qualified research activities
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity must rely on hard sciences such as engineering, physical or biological sciences, or computer science. Artistic, social science, or routine data collection work does not qualify.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.