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.
Sales and Use Taxes (November 2006) |
Tax |
Fort Collins |
Loveland |
City Sales Tax |
3.0% |
3.0% |
State Sales Tax |
2.9% |
2.9% |
Larimer County
Sales Tax |
.8% |
.8% |
TOTAL |
6.7% |
6.7% |
Corporate Income Tax:
Effective January 1, 2002, Colorado’s corporate income tax is a flat 4.63% of
Colorado net income, defined as the corporation’s federal taxable income with
some modifications. All corporations that are located in or doing business in
Colorado are subject to state corporate income tax. Corporations are required
to file annual declarations of estimated tax if the tax liability anticipated exceeds
$5,000.
Colorado is unique in that businesses may choose to calculate their state tax
liability on the basis of a two-factor formula (revenue and property) or on the
basis of the standard three-factor (revenue, property and payroll), which is less.
Furthermore, the apportionment method can be changed annually.
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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) |
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