A Bill for an Act
Page 1, Line 101Concerning tax incentives for businesses that transition to
Page 1, Line 102employee-owned businesses in whole or in part.
Bill Summary
(Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.)
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.
This Unofficial Version Includes Committee
Amendments Not Yet Adopted on Second Reading
Page 2, Line 1Be it enacted by the General Assembly of the State of Colorado:
Page 2, Line 2SECTION 1. In Colorado Revised Statutes, 39-22-104, add
Page 2, Line 3(4)(dd) as follows:
Page 2, Line 439-22-104. Income tax imposed on individuals, estates, and
Page 2, Line 5trusts - single rate - report - tax preference performance statement
Page 2, Line 6- legislative declaration - definitions - repeal. (4) There shall be
Page 2, Line 7subtracted from federal taxable income:
Page 2, Line 8(dd) (I) For income tax years commencing on or after
Page 3, Line 1January 1, 2027, but before January 1, 2038, an amount equal to
Page 3, Line 2qualifying capital gains that are subject to tax under this
Page 3, Line 3article 22 and that are realized by an owner during the taxable
Page 3, Line 4year for the qualified sale of a qualified business.
Page 3, Line 5(II) As used in this subsection (4)(dd), unless the context
Page 3, Line 6otherwise requires:
Page 3, Line 7(A) "Office" means the Colorado office of economic
Page 3, Line 8development created in section 24-48.5-101.
Page 3, Line 9(B) "Owner" has the same meaning as set forth in section
Page 3, Line 1039-22-542 (2)(h).
Page 3, Line 11(C) "Qualified business" has the same meaning as set forth
Page 3, Line 12in section 39-22-542 (2)(i).
Page 3, Line 13(D) "Qualified employee-owned business" has the same
Page 3, Line 14meaning as set forth in section 39-22-542 (2)(j).
Page 3, Line 15(E) "Qualified sale" means the conversion to a qualified
Page 3, Line 16employee-owned business; except that the conversion must be by
Page 3, Line 17an increment of at least twenty percent of the total ownership
Page 3, Line 18of the entire qualified employee-owned business.
Page 3, Line 20(F) "Qualifying capital gains" means the amount of net
Page 3, Line 21capital gains, as defined in section 1222 (11) of the internal
Page 3, Line 22revenue code, subject to the limitation set forth in subsection
Page 3, Line 23(4)(dd)(V) of this section.
Page 3, Line 24(III) In accordance with section 39-21-304 (1), which
Page 3, Line 25requires each bill that creates a new tax expenditure to include
Page 3, Line 26a tax preference performance statement as part of a statutory
Page 3, Line 27legislative declaration, the general assembly finds and
Page 4, Line 1declares that the purpose of the income tax subtraction
Page 4, Line 2provided in this subsection (4)(dd) is to:
Page 4, Line 3(A) Induce certain designated behavior by taxpayers,
Page 4, Line 4specifically for businesses to establish employee stock
Page 4, Line 5ownership plans or employee ownership trusts or to convert to
Page 4, Line 6a worker-owned cooperative; and
Page 4, Line 7(B) Provide tax relief for certain businesses or
Page 4, Line 8individuals, specifically to businesses that establish employee
Page 4, Line 9stock ownership plans or employee ownership trusts or that
Page 4, Line 10convert to a worker-owned cooperative.
Page 4, Line 11(IV) The general assembly and the state auditor shall
Page 4, Line 12measure the effectiveness of the subtraction in achieving the
Page 4, Line 13purpose specified in subsection (4)(dd)(III) of this section based on
Page 4, Line 14the number and aggregate amount of subtractions claimed in a
Page 4, Line 15tax year.
Page 4, Line 16(V) (A) On or before June 30, 2026, the office shall
Page 4, Line 17establish and post on its website the total amount of capital
Page 4, Line 18gains that may be subtracted from an owner's federal taxable
Page 4, Line 19income pursuant to this subsection (4)(dd), which amount is in
Page 4, Line 20effect for income tax years commencing on or after January 1,
Page 4, Line 212027, but before January 1, 2038, or until the office adjusts the
Page 4, Line 22amount as set forth in subsection (4)(dd)(V)(B) of this section.
Page 4, Line 23(B) After June 30, 2026, on or before June 30, 2027, and on
Page 4, Line 24or before June 30 of each year thereafter until June 30, 2036, the
Page 4, Line 25office may adjust the total amount of capital gains that may be
Page 4, Line 26subtracted from an owner's federal taxable income that the
Page 4, Line 27office has previously established in accordance with this
Page 5, Line 1subsection (4)(dd)(V). The adjusted amount must be posted on the
Page 5, Line 2office's website and is in effect for income tax years commencing
Page 5, Line 3on or after January 1 of the year immediately following the
Page 5, Line 4year in which the adjustment is made but before January 1, 2038,
Page 5, Line 5or until the office subsequently adjusts the amount as set forth
Page 5, Line 6in this subsection (4)(dd)(V)(B).
Page 5, Line 7(C) An owner may not subtract more than the amount of
Page 5, Line 8capital gains established by the office in accordance with
Page 5, Line 9subsection (4)(dd)(V)(A) or (4)(dd)(V)(B) of this section in the
Page 5, Line 10income tax year.
Page 5, Line 11(D) Beginning in January 2027, and in January every year
Page 5, Line 12thereafter following a year in which the office adjusts the
Page 5, Line 13amount of capital gains that may be subtracted from an owner's
Page 5, Line 14federal taxable income pursuant to subsection (4)(dd)(V)(B) of
Page 5, Line 15this section, the office shall include, as part of its presentation
Page 5, Line 16during its "SMART Act" hearing required by section 2-7-203,
Page 5, Line 17information concerning the amount of capital gains that may be
Page 5, Line 18subtracted from an owner's federal taxable income that the
Page 5, Line 19office has established pursuant to subsection (4)(dd)(V)(A) or
Page 5, Line 20(4)(dd)(V)(B) of this section and the method that the office used
Page 5, Line 21to establish the amount.
Page 5, Line 22(VI) This subsection (4)(dd) is repealed, effective July 1,
Page 5, Line 232042.
Page 5, Line 24SECTION 2. In Colorado Revised Statutes, 39-22-304, add (3)(s)
Page 5, Line 25and (3)(t) as follows:
Page 5, Line 2639-22-304. Net income of corporation - legislative declaration
Page 5, Line 27- definitions - repeal. (3) There shall be subtracted from federal taxable
Page 6, Line 1income:
Page 6, Line 2(s) (I) For income tax years commencing on or after
Page 6, Line 3January 1, 2027, but before January 1, 2038, an amount equal to
Page 6, Line 4qualifying capital gains that are subject to tax under this
Page 6, Line 5article 22 and that are realized by an owner during the taxable
Page 6, Line 6year for the qualified sale of a qualified business.
Page 6, Line 7(II) As used in this subsection (3)(s), unless the context
Page 6, Line 8otherwise requires:
Page 6, Line 9(A) "Office" means the Colorado office of economic
Page 6, Line 10development created in section 24-48.5-101.
Page 6, Line 11(B) "Owner" has the same meaning as set forth in section
Page 6, Line 1239-22-542 (2)(h).
Page 6, Line 13(C) "Qualified business" has the same meaning as set forth
Page 6, Line 14in section 39-22-542 (2)(i).
Page 6, Line 15(D) "Qualified employee-owned business" has the same
Page 6, Line 16meaning as set forth in section 39-22-542 (2)(j).
Page 6, Line 17(E) "Qualified sale" means the conversion to a qualified
Page 6, Line 18employee-owned business; except that the conversion must be by
Page 6, Line 19an increment of at least twenty percent of the total ownership
Page 6, Line 20of the entire qualified employee-owned business.
Page 6, Line 22(F) "Qualifying capital gains" means the amount of net
Page 6, Line 23capital gains, as defined in section 1222 (11) of the internal
Page 6, Line 24revenue code, subject to the limitation set forth in subsection
Page 6, Line 25(3)(s)(V) of this section.
Page 6, Line 26(III) In accordance with section 39-21-304 (1), which
Page 6, Line 27requires each bill that creates a new tax expenditure to include
Page 7, Line 1a tax preference performance statement as part of a statutory
Page 7, Line 2legislative declaration, the general assembly finds and
Page 7, Line 3declares that the purpose of the income tax subtraction
Page 7, Line 4provided in this subsection (3)(s) is to:
Page 7, Line 5(A) Induce certain designated behavior by taxpayers,
Page 7, Line 6specifically for businesses to establish employee stock
Page 7, Line 7ownership plans or employee ownership trusts or to convert to
Page 7, Line 8a worker-owned cooperative; and
Page 7, Line 9(B) Provide tax relief for certain businesses or
Page 7, Line 10individuals, specifically to businesses that establish employee
Page 7, Line 11stock ownership plans or employee ownership trusts or that
Page 7, Line 12convert to a worker-owned cooperative.
Page 7, Line 13(IV) The general assembly and the state auditor shall
Page 7, Line 14measure the effectiveness of the subtraction in achieving the
Page 7, Line 15purpose specified in subsection (3)(s)(III) of this section based on
Page 7, Line 16the number and aggregate amount of subtractions claimed in a
Page 7, Line 17tax year.
Page 7, Line 18(V) (A) On or before June 30, 2026, the office shall
Page 7, Line 19establish and post on its website the total amount of capital
Page 7, Line 20gains that may be subtracted from an owner's federal taxable
Page 7, Line 21income pursuant to this subsection (3)(s), which amount is in
Page 7, Line 22effect for income tax years commencing on or after January 1,
Page 7, Line 232027, but before January 1, 2038, or until the office adjusts the
Page 7, Line 24amount as set forth in subsection (3)(s)(V)(B) of this section.
Page 7, Line 25(B) After June 30, 2026, on or before June 30, 2027, and on
Page 7, Line 26or before June 30 of each year thereafter until June 30, 2036, the
Page 7, Line 27office may adjust the total amount of capital gains that may be
Page 8, Line 1subtracted from an owner's federal taxable income that the
Page 8, Line 2office has previously established in accordance with this
Page 8, Line 3subsection (3)(s)(V). The adjusted amount must be posted on the
Page 8, Line 4office's website and is in effect for income tax years commencing
Page 8, Line 5on or after January 1 of the year immediately following the
Page 8, Line 6year in which the adjustment is made but before January 1, 2038,
Page 8, Line 7or until the office subsequently adjusts the amount as set forth
Page 8, Line 8in this subsection (3)(s)(V)(B).
Page 8, Line 9(C) An owner may not subtract more than the amount of
Page 8, Line 10capital gains established by the office in accordance with
Page 8, Line 11subsection (3)(s)(V)(A) or (3)(s)(V)(B) of this section in the income
Page 8, Line 12tax year.
Page 8, Line 13(D) Beginning in January 2027, and in January every year
Page 8, Line 14thereafter following a year in which the office adjusts the
Page 8, Line 15amount of capital gains that may be subtracted from an owner's
Page 8, Line 16federal taxable income pursuant to subsection (3)(s)(V)(B) of
Page 8, Line 17this section, the office shall include, as part of its presentation
Page 8, Line 18during its "SMART Act" hearing required by section 2-7-203,
Page 8, Line 19information concerning the amount of capital gains that may be
Page 8, Line 20subtracted from an owner's federal taxable income that the
Page 8, Line 21office has established pursuant to subsection (3)(s)(V)(A) or
Page 8, Line 22(3)(s)(V)(B) of this section and the method that the office used to
Page 8, Line 23establish the amount.
Page 8, Line 24(VI) This subsection (3)(s) is repealed, effective July 1,
Page 8, Line 252042.
Page 8, Line 26(t) (I) For income tax years commencing on or after
Page 8, Line 27January 1, 2027, but before January 1, 2038, an amount equal to
Page 9, Line 1a qualified taxpayer's federal taxable income for the tax year
Page 9, Line 2not to exceed one million dollars.
Page 9, Line 3(II) As used in this subsection (3)(t), unless the context
Page 9, Line 4otherwise requires:
Page 9, Line 5(A) "Qualified taxpayer" means a taxpayer that is subject
Page 9, Line 6to tax under this article 22 and that is a worker-owned
Page 9, Line 7cooperative.
Page 9, Line 8(B) "Worker-owned cooperative" has the same meaning as
Page 9, Line 9set forth in section 1042 (c)(2) of the internal revenue code.
Page 9, Line 10(III) In accordance with section 39-21-304 (1), which
Page 9, Line 11requires each bill that creates a new tax expenditure to include
Page 9, Line 12a tax preference performance statement as part of a statutory
Page 9, Line 13legislative declaration, the general assembly finds and
Page 9, Line 14declares that the purpose of the income tax subtraction
Page 9, Line 15provided in this subsection (3)(t) is to:
Page 9, Line 16(A) Induce certain designated behavior by taxpayers,
Page 9, Line 17specifically for businesses to convert to a worker-owned
Page 9, Line 18cooperative; and
Page 9, Line 19(B) Provide tax relief for certain businesses, specifically
Page 9, Line 20to provide ongoing support to businesses that convert to a
Page 9, Line 21worker-owned cooperative.
Page 9, Line 22(IV) The general assembly and the state auditor shall
Page 9, Line 23measure the effectiveness of the subtraction in achieving the
Page 9, Line 24purpose specified in subsection (3)(t)(III) of this section based on
Page 9, Line 25the number and aggregate amount of subtractions claimed in a
Page 9, Line 26tax year and the number of subtractions claimed year over
Page 9, Line 27year.
Page 10, Line 1(V) This subsection (3)(t) is repealed, effective July 1, 2042.
Page 10, Line 2SECTION 3. In Colorado Revised Statutes, 39-22-542, amend
Page 10, Line 3(1)(a)(I), (1)(a)(III), (2)(a)(II), (2)(e), (2)(j)(II), (2)(j)(III), (3)(a)
Page 10, Line 4introductory portion, (3)(a.5)(I), (3)(c), (3)(d), (4), (5)(a)(V), (5)(a)(VI),
Page 10, Line 5(6)(a)(I), (8), (10), (11) introductory portion, and (14); repeal (2)(j)(I);
Page 10, Line 6and add (2)(c.5), (2)(j.5), (2)(k.5), (3)(a.3), (3)(a.5)(III), (3)(a.7),
Page 10, Line 7(3)(b)(III), and (5)(a)(VII) as follows:
Page 10, Line 839-22-542. Employee-ownership tax credit - definitions -
Page 10, Line 9legislative declaration - repeal. (1) Legislative declaration. (a) The
Page 10, Line 10general assembly hereby finds and declares that:
Page 10, Line 11(I) The purpose of this section is to provide an incentive for
smallPage 10, Line 12businesses to establish employee stock ownership plans or employee
Page 10, Line 13ownership trusts or to convert to a worker-owned cooperative, and to
Page 10, Line 14provide an incentive to entities that support businesses in such
Page 10, Line 15establishment or conversion;
Page 10, Line 16(III) This section encourages
smallPage 10, Line 17
through three different options,Page 10, Line 18that contributed to their success; and
Page 10, Line 19(2) Definitions. As used in this section, unless the context
Page 10, Line 20otherwise requires:
Page 10, Line 21(a) (II) The office shall develop guidelines that clarify the types
Page 10, Line 22of employee ownership grants that qualify as an alternate equity structure.
Page 10, Line 23The office may develop guidelines that adjust the percentages
Page 10, Line 24set forth in subsection (2)(a)(I) of this section; except that the
Page 10, Line 25percentages shall not be adjusted to an amount less than
Page 10, Line 26twenty percent. The office may periodically update any guidelines
Page 10, Line 27issued pursuant to this subsection (2)(a)(II).
Page 11, Line 1(c.5) "Corporate headquarters" means the sole location
Page 11, Line 2within a regional or national area where the majority of the
Page 11, Line 3taxpayer's or qualified support entity's staff members or
Page 11, Line 4employees are domiciled and employed and where the majority
Page 11, Line 5of the taxpayer's or qualified support entity's financial,
Page 11, Line 6personnel, legal, planning, or other business functions are
Page 11, Line 7conducted on a regional or national basis.
Page 11, Line 8(e) "Employee ownership trust" means an indirect form of
Page 11, Line 9employee ownership in which a trust holds
a controlling stakePage 11, Line 10twenty percent of the fully diluted securities in a qualified
Page 11, Line 11business and benefits all employees on an equal basis.
Page 11, Line 12(j) "Qualified employee-owned business" means a taxpayer that
Page 11, Line 13is subject to tax under this article 22, including but not limited to a C
Page 11, Line 14corporation, S corporation, limited liability company, partnership, limited
Page 11, Line 15liability partnership, sole proprietorship, or other similar pass-through
Page 11, Line 16entity, that:
Page 11, Line 17(I)
Is owned in whole or in part by an employee ownership trust;Page 11, Line 18(II) Has its corporate headquarters located in this state;
ForPage 11, Line 19
purposes of this subsection (2)(j), "corporate headquarters" means thePage 11, Line 20
sole location within a regional or national area where the taxpayer's staffPage 11, Line 21
members or employees are domiciled and employed, and where thePage 11, Line 22
majority of the taxpayer's financial, personnel, legal, planning, or otherPage 11, Line 23
business functions are conducted on a regional or national basis.Page 11, Line 24(III) (A) Is owned in whole or in part by an employee
Page 11, Line 25ownership trust;
Page 11, Line 26(B) Has an employee stock ownership plan;
Page 11, Line 27(C) Is in whole or in part a worker-owned cooperative; or
Page 12, Line 1(D) Has an alternate equity structure; and
Page 12, Line 2(j.5) "Qualified support entity" means an organization
Page 12, Line 3exempt from taxation under section 501 (c)(3) of the internal
Page 12, Line 4revenue code or a taxpayer subject to tax under this article 22,
Page 12, Line 5including a C corporation, S corporation, limited liability
Page 12, Line 6company, partnership, limited liability partnership, sole
Page 12, Line 7proprietorship, or other similar pass-through entity that:
Page 12, Line 8(I) Has been in existence for not less than twelve months
Page 12, Line 9prior to January 1 of the income tax year for which the qualified
Page 12, Line 10support entity claims the credit;
Page 12, Line 11(II) Either has provided services that have supported at
Page 12, Line 12least one successful conversion to or expansion of a qualified
Page 12, Line 13employee-owned business in the income tax year or has provided
Page 12, Line 14services that have supported at least three either qualified
Page 12, Line 15businesses that have the intent of converting to qualified
Page 12, Line 16employee-owned businesses or qualified employee-owned
Page 12, Line 17businesses that have the intent of expanding;
Page 12, Line 18(III) Has its corporate headquarters located in this state;
Page 12, Line 19and
Page 12, Line 20(IV) Is approved by the office for the tax incentives in this
Page 12, Line 21section.
Page 12, Line 22(k.5) (I) "Support costs" means, subject to guidelines
Page 12, Line 23developed by the office pursuant to subsection (5)(a) of this
Page 12, Line 24section, costs that are or are related to:
Page 12, Line 25(A) Staff salaries and benefits for staff involved in
Page 12, Line 26business development, marketing, and outreach;
Page 12, Line 27(B) Marketing and outreach for producing educational
Page 13, Line 1materials or hosting workshops or conferences on converting
Page 13, Line 2a business to employee-ownership and similar costs; and
Page 13, Line 4(C) A proportional amount of basic organizational
Page 13, Line 5overhead costs including general or administrative costs,
Page 13, Line 6expenses, rent, and facilities costs.
Page 13, Line 7(II) "Support costs" does not include any costs that are
Page 13, Line 8conversion or expansion costs.
Page 13, Line 9(3) (a) Except as otherwise provided in subsection (3)(a.3)
Page 13, Line 10of this section and subject to certification by the office pursuant to this
Page 13, Line 11section, for income tax years commencing on or after January 1, 2022, but
Page 13, Line 12
prior to January 1, 2027Page 13, Line 13is allowed a credit with respect to the income taxes imposed pursuant to
Page 13, Line 14this article 22 as follows:
Page 13, Line 15(a.3) For income tax years commencing on or after
Page 13, Line 16January 1, 2026, but before January 1, 2032, the allowable
Page 13, Line 17percentage of conversion costs incurred by a qualified business
Page 13, Line 18for the applicable conversion of the qualified business set forth
Page 13, Line 19in subsections (3)(a)(I), (3)(a)(II), and (3)(a)(III) of this section for
Page 13, Line 20purposes of calculating the credit is up to seventy-five percent
Page 13, Line 21of the conversion costs.
Page 13, Line 22(a.5) (I) Except as otherwise provided in subsection
Page 13, Line 23(3)(a.5)(III) of this section and subject to certification by the office
Page 13, Line 24pursuant to this section, for
thePage 13, Line 25January 1, 2024, but
prior to January 1, 2027Page 13, Line 26a qualified employee-owned business is allowed a credit with respect to
Page 13, Line 27the income taxes imposed pursuant to this article 22 of up to fifty percent
Page 14, Line 1of the expansion costs, not to exceed twenty-five thousand dollars,
Page 14, Line 2incurred to expand a qualified employee-owned business's employee
Page 14, Line 3ownership trust, employee stock ownership plan, worker-owned
Page 14, Line 4cooperative, or alternate equity structure.
Page 14, Line 5(III) For income tax years commencing on or after January
Page 14, Line 61, 2026, but before January 1, 2032, the allowable percentage of
Page 14, Line 7expansion costs incurred by a qualified employee-owned business
Page 14, Line 8to expand a qualified employee-owned business as set forth in
Page 14, Line 9subsection (3)(a.5)(I) of this section for purposes of calculating
Page 14, Line 10the credit is up to seventy-five percent of the expansion costs.
Page 14, Line 11(a.7) Subject to certification by the office pursuant to this
Page 14, Line 12section, for income tax years commencing on or after January
Page 14, Line 131, 2027, but prior to January 1, 2032, a qualified support entity is
Page 14, Line 14allowed a credit with respect to the income taxes imposed
Page 14, Line 15pursuant to this article 22 of up to seventy-five percent of the
Page 14, Line 16support costs, but not to exceed one hundred sixty-seven
Page 14, Line 17thousand dollars, incurred in providing services that support
Page 14, Line 18the conversion of qualified businesses to qualified
Page 14, Line 19employee-owned businesses or the expansion of qualified
Page 14, Line 20employee-owned businesses.
Page 14, Line 21(b) (III) In the case of a qualified support entity, the credit
Page 14, Line 22is allowed to the qualified support entity.
Page 14, Line 23(c) The maximum amount of all tax credit certificates that the
Page 14, Line 24office may reserve under subsection (6)(a) of this section
in any tax yearPage 14, Line 25
is ten million dollars.Page 14, Line 26(I) Ten million dollars for any income tax year
Page 14, Line 27commencing on or after January 1, 2022, but before January 1,
Page 15, Line 12026;and
Page 15, Line 2(II) Two million dollars for any income tax year
Page 15, Line 3commencing on or after January 1, 2026, but before January 1,
Page 15, Line 42032.
Page 15, Line 6(d) (I) A qualified business or qualified employee-owned business
Page 15, Line 7may apply for and claim only one tax credit for the conversion or
Page 15, Line 8expansion costs incurred per tax year.
Page 15, Line 9(II) A qualified support entity may apply for and claim
Page 15, Line 10only one tax credit per tax year.
Page 15, Line 11(4) (a) A business or, where applicable, a nonprofit
Page 15, Line 12organization shall submit an application to the office for the issuance
Page 15, Line 13of a credit certificate for the credit allowed in this section by the deadlines
Page 15, Line 14established in the office's guidelines. Except as otherwise provided in
Page 15, Line 15subsection (4)(b) of this section, the application must include
Page 15, Line 16information, as set forth in the office's guidelines, regarding the type of
Page 15, Line 17conversion or expansion the business intends to undertake, a list of the
Page 15, Line 18expected conversion or expansion costs, and an estimated amount, as
Page 15, Line 19calculated by the business, of the expected conversion or expansion costs.
Page 15, Line 20(b) An application for a business or a nonprofit
Page 15, Line 21organization submitting the application to be approved as a
Page 15, Line 22qualified support entity must include information, as set forth
Page 15, Line 23in the office's guidelines, regarding the support services the
Page 15, Line 24business or the nonprofit organization provides to qualified
Page 15, Line 25businesses or qualified employee-owned businesses, whether the
Page 15, Line 26business or the nonprofit organization supported a successful
Page 15, Line 27conversion of a qualified business to a qualified employee-owned
Page 16, Line 1business or expansion of a qualified employee-owned business in
Page 16, Line 2the taxable year, if the business or the nonprofit organization
Page 16, Line 3has not supported a successful conversion or expansion, the
Page 16, Line 4number of qualified businesses or qualified employee-owned
Page 16, Line 5businesses the business or the nonprofit organization is
Page 16, Line 6supporting that intend to convert or expand, as applicable, and
Page 16, Line 7the status of the anticipated conversions or expansions, and
Page 16, Line 8information regarding support costs incurred in the income tax
Page 16, Line 9year.
Page 16, Line 10(5) (a) The office shall develop guidelines for the administration
Page 16, Line 11of this section, including, but not limited to:
Page 16, Line 12(V) Detailed guidelines regarding expansion costs;
andPage 16, Line 13(VI) Guidelines and standards for certifying a business as a
Page 16, Line 14qualified employee-owned business; and
Page 16, Line 15(VII) Guidelines and standards for certifying a business
Page 16, Line 16or a nonprofit organization as a qualified support entity.
Page 16, Line 17(6) (a) (I) After the office provides the written report required in
Page 16, Line 18subsection (5)(b) of this section, a reservation of tax credits is permitted
Page 16, Line 19for the tax credit allowed in this section. If the office determines that the
Page 16, Line 20application filed under subsection (4) of this section is complete, the
Page 16, Line 21office shall determine whether the business or, if applicable, the
Page 16, Line 22nonprofit organization is a qualified business,
orPage 16, Line 23employee-owned business, or a qualified support entity, review the
Page 16, Line 24list of the expected conversion or expansion costs, and review the
Page 16, Line 25estimated conversion,
orPage 16, Line 26the business or, if applicable, the qualified support entity. If the
Page 16, Line 27office approves the business or, if applicable, the nonprofit
Page 17, Line 1organization as a qualified business,
orPage 17, Line 2business, or a qualified support entity, the list of expected conversion
Page 17, Line 3or expansion costs, and the estimated conversion,
orPage 17, Line 4support costs, the office may reserve for the benefit of the qualified
Page 17, Line 5business, the qualified employee-owned business,
orPage 17, Line 6business, or the qualified support entity an allocation of a tax credit
Page 17, Line 7subject to the limitation specified in
subsection (3)(b)Page 17, Line 8of this section. The office shall notify the qualified business,
orPage 17, Line 9qualified employee-owned business, or the qualified support entity
Page 17, Line 10in writing of the amount of the reservation. The reservation of a tax credit
Page 17, Line 11does not entitle the qualified business, the qualified employee-owned
Page 17, Line 12business,
orPage 17, Line 13to an issuance of a tax credit certificate until the qualified business,
orPage 17, Line 14qualified employee-owned business, or the qualified support entity
Page 17, Line 15complies with all of the other requirements specified in this section for
Page 17, Line 16the issuance of the tax credit certificate.
Page 17, Line 17(8) If the credit allowed under this section exceeds the income
Page 17, Line 18taxes due on the income of the qualified business, qualified
Page 17, Line 19employee-owned business,
orPage 17, Line 20support entity, the amount of the credit not used to offset income taxes
Page 17, Line 21must be refunded to the qualified business, qualified employee-owned
Page 17, Line 22business,
orPage 17, Line 23(10) (a) To claim the income tax credit allowed in this section, the
Page 17, Line 24qualified business, qualified employee-owned business,
orPage 17, Line 25business, or qualified support entity shall attach a copy of the credit
Page 17, Line 26certificate to its state income tax return. No tax credit is allowed under
Page 17, Line 27this section unless the qualified business, qualified employee-owned
Page 18, Line 1business,
orPage 18, Line 2provides the copy of the credit certificate with its filed state income tax
Page 18, Line 3return. The amount of the credit that the qualified business,
orPage 18, Line 4qualified employee-owned business, or the qualified support entity
Page 18, Line 5may claim under this section is the amount stated on the tax credit
Page 18, Line 6certificate.
Page 18, Line 7(b) A qualified support entity that is an organization
Page 18, Line 8exempt from taxation under section 501 (c)(3) of the internal
Page 18, Line 9revenue code and that claims the credit allowed by this section
Page 18, Line 10shall file a return pursuant to section 39-22-601 (7)(b) and
Page 18, Line 11attach a copy of the credit certificate in accordance with
Page 18, Line 12subsection (10)(a) of this section.
Page 18, Line 13(11) The office shall, in a sufficiently timely manner to allow the
Page 18, Line 14department to process returns claiming the income tax credit allowed in
Page 18, Line 15this section, provide the department with an electronic report of each
Page 18, Line 16qualified business, qualified employee-owned business,
andPage 18, Line 17business, and qualified support entity that the office approved for the
Page 18, Line 18income tax credit allowed in this section for the preceding calendar year
Page 18, Line 19that includes the following information:
Page 18, Line 20(14) This section is repealed, effective
December 31, 2033Page 18, Line 21December 31, 2037.
Page 18, Line 22SECTION 4. In Colorado Revised Statutes, 39-22-542.5, amend
Page 18, Line 23(2)(a) introductory portion, (2)(d)(II), (2)(d)(III), and (2)(f); and repeal
Page 18, Line 24(2)(d)(I) as follows:
Page 18, Line 2539-22-542.5. Tax credit for new employee-owned businesses
Page 18, Line 26- employee ownership cash fund - tax preference performance
Page 18, Line 27statement - legislative declaration - definitions - repeal.
Page 19, Line 1(2) Definitions. As used in this section, unless the context otherwise
Page 19, Line 2requires:
Page 19, Line 3(a) "Alternate equity structure" means a mechanism under which
Page 19, Line 4an employer grants to employees a form of employee ownership,
Page 19, Line 5including but not limited to an employee stock purchase plan, LLC
Page 19, Line 6membership, phantom stock, profit interest, restricted stock, stock
Page 19, Line 7appreciation right, stock option, or synthetic equity. The office may
Page 19, Line 8develop guidelines that clarify the types of employee ownership grants
Page 19, Line 9that qualify as an alternate equity structure. The office may develop
Page 19, Line 10guidelines that adjust the percentages set forth in this
Page 19, Line 11subsection (2)(a); except that the percentages shall not be
Page 19, Line 12adjusted to an amount less than twenty percent. An alternate
Page 19, Line 13equity structure must at a minimum:
Page 19, Line 14(d) "Employee-owned business" means a taxpayer that is subject
Page 19, Line 15to tax under this article 22, including but not limited to a C corporation,
Page 19, Line 16S corporation, limited liability company, partnership, limited liability
Page 19, Line 17partnership, sole proprietorship, or other similar pass-through entity, that:
Page 19, Line 18(I)
Is owned in whole or in part by an employee ownership trust;Page 19, Line 19(II) (A) Is owned in whole or in part by an employee
Page 19, Line 20ownership trust;
Page 19, Line 21(B) Has an employee stock ownership plan;
Page 19, Line 22(C) Is beneficially owned in whole or in part by a worker-owned
Page 19, Line 23cooperative; or
Page 19, Line 24(D) Has an alternate equity structure; and
Page 19, Line 25(III) Has its corporate headquarters located in this state. For
Page 19, Line 26purposes of this subsection (2)(d), "corporate headquarters" means the
Page 19, Line 27sole location within a regional or national area where the majority of
Page 20, Line 1the taxpayer's staff members or employees are domiciled and employed,
Page 20, Line 2and where the majority of the taxpayer's financial, personnel, legal,
Page 20, Line 3planning, or other business functions are conducted on a regional or
Page 20, Line 4national basis.
Page 20, Line 5(f) "Employee ownership trust" means an indirect form of
Page 20, Line 6employee ownership in which a trust holds
a controlling stakePage 20, Line 7twenty percent of the fully diluted securities in a business and
Page 20, Line 8benefits all employees on an equal basis and otherwise meets the
Page 20, Line 9definition of an alternate equity structure.
Page 20, Line 10SECTION 5. Act subject to petition - effective date. This act
Page 20, Line 11takes effect at 12:01 a.m. on the day following the expiration of the
Page 20, Line 12ninety-day period after final adjournment of the general assembly; except
Page 20, Line 13that, if a referendum petition is filed pursuant to section 1 (3) of article V
Page 20, Line 14of the state constitution against this act or an item, section, or part of this
Page 20, Line 15act within such period, then the act, item, section, or part will not take
Page 20, Line 16effect unless approved by the people at the general election to be held in
Page 20, Line 17November 2026 and, in such case, will take effect on the date of the
Page 20, Line 18official declaration of the vote thereon by the governor.