House Bill 25-1157 Engrossed

A Bill for an Act

• Page 1, Line 101Concerning the extension of the advanced industry

• Page 1, Line 102investment tax credit.

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.)

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.

• Page 3, Line 1Be it enacted by the General Assembly of the State of Colorado:

• Page 3, Line 3SECTION 1.  In Colorado Revised Statutes, 24-48.5-112, amend

• Page 3, Line 4(1)(e) introductory portion, (1)(e)(I), (1)(f), (1)(g)(I), (1.5)(b), (2)(a),

• Page 3, Line 5(2)(b), (2)(c), (2)(d), and (3)(b); repeal (1)(c), (1)(e)(III), and (1)(e)(IV); and add (1)(h) as follows:

• Page 3, Line 624-48.5-112.  Advanced industry investment tax credit -

• Page 3, Line 7administration - legislative declaration - definitions - repeal. (1)  As used in this section, unless the context otherwise requires:

• Page 3, Line 8(c)  "Affiliate" means any person or entity that controls, is

• Page 3, Line 9controlled by, or is under common control with another person or entity.

• Page 3, Line 10For purposes of this paragraph (c), "control" means the power to

• Page 3, Line 11determine the policies of an entity whether through ownership of voting securities, by contract, or otherwise.

• Page 3, Line 12(e)  "Qualified investment" means an a monetary investment

• Page 3, Line 13made at any time on or after July 1, 2014, but before January 1, 2027

• Page 3, Line 14January 1, 2032, in an equity security that meets all of the following requirements:

• Page 3, Line 15(I)  The equity security is common stock, preferred stock, an

• Page 3, Line 16interest in a partnership or limited liability company, a security that is

• Page 3, Line 17convertible into an equity security, a convertible debt investment, or other equity security as determined by the office; and

• Page 3, Line 18(III)  The qualified investor and its affiliates do not hold, of record

• Page 3, Line 19or beneficially, immediately before making an investment, equity

• Page 4, Line 1securities possessing more than thirty percent of the total voting power of all equity securities of the qualified small business; and

• Page 4, Line 2(IV)  The qualified investor and its affiliates hold, of record or

• Page 4, Line 3beneficially, immediately after making the investment, equity securities

• Page 4, Line 4possessing less than fifty percent of the total voting power of all equity securities of the qualified small business.

• Page 4, Line 5(f)  "Qualified investor" means an individual, limited liability

• Page 4, Line 6company, partnership, S corporation, as defined in section 39-22-103

• Page 4, Line 7(10.5), C.R.S., or other business entity that makes a qualified investment

• Page 4, Line 8in a qualified small business. "Qualified investor" does not include a C

• Page 4, Line 9corporation, as defined in section 39-22-103 (2.5), C.R.S. a person

• Page 4, Line 10subject to tax under article 22 of title 39 that makes a qualified

• Page 4, Line 11investment in a qualified small business, except that a C

• Page 4, Line 12corporation, as defined in section 39-22-103 (2.5), including any

• Page 4, Line 13limited liability company or other legal entity treated as a C

• Page 4, Line 14corporation for state and federal income tax purposes, is not a

• Page 4, Line 15qualified investor. A qualified investor may include a partner,

• Page 4, Line 16shareholder, or beneficiary that is allocated a credit pursuant

• Page 4, Line 17to section 39-22-532 (7). A qualified investor may be a

• Page 4, Line 18partnership, which includes any limited liability company or

• Page 4, Line 19other legal entity treated as a partnership for state and

• Page 4, Line 20federal income tax purposes, or an S corporation, which includes

• Page 4, Line 21any limited liability company or other legal entity treated as

• Page 4, Line 22an S corporation for state and federal income tax purposes. A

• Page 4, Line 23qualified investor does not include a person that has control of

• Page 4, Line 24a qualified small business for six months preceding or following

• Page 4, Line 25the date of the investment in the qualified small business. For

• Page 5, Line 1purposes of this subsection (1)(f), "control" means the power to

• Page 5, Line 2determine the policies of the qualified small business, whether

• Page 5, Line 3through ownership of voting securities, by contract, or

• Page 5, Line 4otherwise, including involvement in the qualified small

• Page 5, Line 5business's operations. A founder, employee, or contractor or the

• Page 5, Line 6spouse of a founder, employee, or contractor of a qualified

• Page 5, Line 7small business is not a qualified investor. A person that has

• Page 5, Line 8invested more than fifty thousand dollars in the qualified small

• Page 5, Line 9business or owns more than ten percent of the qualified small business on a fully diluted basis is not a qualified investor.

• Page 5, Line 10(g)  "Qualified small business" means a corporation, limited liability company, partnership, or other business entity that:

• Page 5, Line 11(I)  Is in an advanced industry, as defined in section 24-48.5-117 (2)(a).

• Page 5, Line 12(1.5)  In accordance with section 39-21-304 (1), which requires

• Page 5, Line 13each bill that extends an expiring tax expenditure to include a tax

• Page 5, Line 14preference performance statement as part of a statutory legislative declaration, the general assembly hereby finds and declares that:

• Page 5, Line 15(b)  The specific legislative purpose of the tax credit allowed by

• Page 5, Line 16this section is to encourage investment in small businesses located in

• Page 5, Line 17Colorado in advanced industries, including in quantum fields, and in

• Page 5, Line 18particular in small businesses in advanced industries, including in

• Page 5, Line 19quantum fields, located in a rural area or economically distressed area of the state; and

• Page 5, Line 20(2) (a)  The office shall receive and evaluate applications that are

• Page 5, Line 21submitted by qualified investors to receive an advanced industry

• Page 5, Line 22investment tax credit for qualified investments made in a qualified small

• Page 6, Line 1business that has been evaluated and certified as eligible to receive qualified investments for the purposes of this section.

• Page 6, Line 2(b)  To be eligible for an advanced industry investment tax credit,

• Page 6, Line 3a qualified investor must file a completed application with the office

• Page 6, Line 4within ninety days after making a qualified investment in a certified

• Page 6, Line 5and qualified small business. The office shall prescribe the manner

• Page 6, Line 6and form of the application. The office shall note the time and date of

• Page 6, Line 7each application received. In addition to any other requirements

• Page 6, Line 8established by the office, the application must include the name, address,

• Page 6, Line 9and federal income tax identification number of the applicant, the number

• Page 6, Line 10of new employees hired by the qualified small business as a result of the

• Page 6, Line 11qualified investment, and any additional information that the office

• Page 6, Line 12requires. The office may require the qualified investor to provide

• Page 6, Line 13information to confirm that a qualified investment has been

• Page 6, Line 14made in a qualified small business, the intended use of the

• Page 6, Line 15qualified investment, and the expected number of new employees

• Page 6, Line 16that will be hired by the qualified small business as a result of the qualified investment.

• Page 6, Line 17(c)  A business may request shall submit an application to the

• Page 6, Line 18office to determine whether it is a qualified small business. Upon

• Page 6, Line 19receiving the request or upon receipt of an application for an advanced

• Page 6, Line 20industry investment tax credit from a qualified investor, the office shall

• Page 6, Line 21determine whether the business that is named in the application or written

• Page 6, Line 22request is a qualified small business. After determining the qualifications,

• Page 6, Line 23the office shall certify the qualified small business as being eligible to

• Page 6, Line 24receive qualified investments for purposes of this section. A certified

• Page 6, Line 25small business must report to the office as requested by the

• Page 7, Line 1office to confirm the certified small business's status as a

• Page 7, Line 2qualified small business. The office may certify a small business

• Page 7, Line 3through October 1, 2031. The certification for a qualified small

• Page 7, Line 4business that is certified after July 1, 2014, is valid until January 1, 2027;

• Page 7, Line 5except that the certification is revoked if the business no longer meets the

• Page 7, Line 6qualifications. A business shall notify the office within thirty business

• Page 7, Line 7days from the date that it no longer meets the qualifications. A qualified

• Page 7, Line 8small business that receives a qualified investment shall report

• Page 7, Line 9data relevant to the impact of the tax credit and development

• Page 7, Line 10of the qualified small business annually to the office for a

• Page 7, Line 11five-year period following an initial qualified investment. If the

• Page 7, Line 12certification is revoked or a business fails to meet its reporting

• Page 7, Line 13requirements, the office may assess a penalty against the business that

• Page 7, Line 14is equal to the amount of the advanced industry investment tax credits

• Page 7, Line 15authorized after the date that the business no longer meets the

• Page 7, Line 16qualifications. The state treasurer shall deposit the penalty into the state

• Page 7, Line 17general fund. If the certification is revoked, subsequent investments in the

• Page 7, Line 18business do not qualify for a tax credit. All tax credits issued before the

• Page 7, Line 19revocation of the certification remain valid. The office shall not deny any

• Page 7, Line 20application for a tax credit on the basis of the revocation of the certification if the investment was made before the date of the revocation.

• Page 7, Line 21(d)  As part of the application for an advanced industry investment

• Page 7, Line 22tax credit, the applicant and the qualified small business that receives the

• Page 7, Line 23investment must each provide written authorization to permit the

• Page 7, Line 24department of revenue to provide tax information to the office for the

• Page 7, Line 25purpose of determining if there are any misrepresentations on the

• Page 7, Line 26application. The authorization is limited to disclosure of income tax

• Page 8, Line 1information for the latest two years for which returns were filed with the

• Page 8, Line 2department of revenue preceding the date the application is filed and for

• Page 8, Line 3all tax years through the year in which the investment was made for

• Page 8, Line 4which a return was not filed as of the date of the application. The

• Page 8, Line 5applicant must also provide in the written authorization income tax

• Page 8, Line 6information for all tax years in which the applicant actually claims a tax

• Page 8, Line 7credit or carries forward a tax credit on a return filed with the department

• Page 8, Line 8of revenue. An applicant that is a partnership, limited liability company,

• Page 8, Line 9S corporation, or similar pass-through entity and or trust that may

• Page 8, Line 10allocate the credit among the its partners, shareholders, members, or

• Page 8, Line 11other constituent qualified investors beneficiaries pursuant to section

• Page 8, Line 1239-22-532 (7) must provide a written authorization with content similar

• Page 8, Line 13to the authorization, and in the same manner, as any other applicant is

• Page 8, Line 14required to provide. If an applicant or qualified small business fails to

• Page 8, Line 15comply with this subsection (2)(d), an applicant is ineligible for a tax credit.

• Page 8, Line 16(3) (b) (I)  The total amount of the advanced industry investment

• Page 8, Line 17tax credits shall not exceed three hundred seventy-five thousand dollars

• Page 8, Line 18for the 2014 calendar year; seven hundred fifty thousand dollars for each

• Page 8, Line 19calendar year from 2015 through 2022; and four million dollars for each

• Page 8, Line 20calendar year from 2023 through 2026; and two million five hundred

• Page 8, Line 21thousand dollars for each calendar year from 2027 through

• Page 8, Line 222031; except that, if the total amount of the credits for 2018 or a later

• Page 8, Line 23calendar year through 2022 is less than the maximum amount, then the

• Page 8, Line 24maximum amount for the next year is increased by an amount equal to the

• Page 8, Line 25remaining, unused tax credits from the prior year. The office shall

• Page 8, Line 26authorize the tax credits in the order that complete applications are

• Page 9, Line 1received by the office and shall deny any application received after the

• Page 9, Line 2limit has been met. The office may partially authorize the last tax credit that is awarded up to the limit.

• Page 9, Line 3(II)  The total amount of the tax credit for each qualified

• Page 9, Line 4investment in a qualified small business shall not exceed one hundred

• Page 9, Line 5thousand dollars. The aggregate amount of the credit allowed to

• Page 9, Line 6the partners or shareholders of a partnership or S corporation

• Page 9, Line 7that makes a qualified investment must not exceed one hundred

• Page 9, Line 8thousand dollars. A qualified investor may not claim more than one

• Page 9, Line 9tax credit per qualified small business, but regardless of whether the

• Page 9, Line 10qualified investment is made directly by the qualified investor

• Page 9, Line 11or indirectly through another entity.A qualified investor may

• Page 9, Line 12be eligible for a tax credit for qualified investments in different qualified small businesses in the same or a different year.

• Page 9, Line 13SECTION 2.  In Colorado Revised Statutes, 39-22-532, amend (7) as follows:

• Page 9, Line 1439-22-532.  Advanced industry investment tax credit -

• Page 9, Line 15definitions. (7)  If a qualified investor receiving a credit allowed in this

• Page 9, Line 16section is a partnership limited liability company, or S corporation, or

• Page 9, Line 17similar pass-through entity, the qualified investor may allocate the credit

• Page 9, Line 18among its partners or shareholders members, or other constituent

• Page 9, Line 19qualified investors in any manner agreed to by such partners or

• Page 9, Line 20shareholders. members, or other constituent qualified investors. If the

• Page 9, Line 21qualified investor receiving the credit allowed by this section

• Page 9, Line 22is a trust, the qualified investor may allocate the credit

• Page 9, Line 23between the trust and its beneficiaries in any manner determined

• Page 9, Line 24by the trust. The qualified investor shall certify to the Colorado office

• Page 10, Line 1of economic development the amount of the credit allocated to each

• Page 10, Line 2partner, shareholder, member, or other constituent qualified investor, or

• Page 10, Line 3beneficiary and the office shall issue credit certificates in the

• Page 10, Line 4appropriate amounts to each partner, shareholder, member, or other

• Page 10, Line 5constituent qualified investor, or beneficiary. Each partner, shareholder,

• Page 10, Line 6member, or other constituent qualified investor or beneficiary shall be

• Page 10, Line 7allowed to claim such amount subject to any restrictions set forth in this section and section 24-48.5-112.

• Page 10, Line 8SECTION 3.  Act subject to petition - effective date. This act

• Page 10, Line 9takes effect at 12:01 a.m. on the day following the expiration of the

• Page 10, Line 10ninety-day period after final adjournment of the general assembly; except

• Page 10, Line 11that, if a referendum petition is filed pursuant to section 1 (3) of article V

• Page 10, Line 12of the state constitution against this act or an item, section, or part of this

• Page 10, Line 13act within such period, then the act, item, section, or part will not take

• Page 10, Line 14effect unless approved by the people at the general election to be held in

• Page 10, Line 15November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.