Colorado Business & Personal 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. Under Amendment One, also known as the Taxpayer’s Bill of Rights (TABOR) passed by the voters of Colorado in 1992, a constitutional limit was placed on both revenues and expenditures of state and local governments. Without voter approval, both are limited to the increase in inflation plus the population growth rate.
TABOR & Referendum C
Under TABOR, large surpluses, reaching $927 million in 2000, resulted from a lengthy economic expansion. State government alone has refunded over a billion dollars to Colorado taxpayers, and enacted permanent tax cuts in the state income and sales taxes. At the same time, voter-mandated funding increases to education, demands for transportation projects and other programs strained budgets. In 2005, Colorado voters approved Referendum C, which allows the State to retain all revenue it collects. Under the provisions of Referendum C, the State will retain $3.6 billion from FY 2005-06 through FY 2009-10. There will not be a TABOR surplus during this five-year “time out” period.
Corporate Income Tax
Colorado's corporate income tax rate is a flat 4.63 percent. It is assessed on Colorado net income, defined as the corporation's federal taxable income, with some modifications. This corporate income tax rate is among the lowest in the nation. Colorado ranks 39th nationally in per capita corporate income tax revenue. Collections in 2007 totaled $99 per capita, compared to a national average of $201 for corporate income tax revenue.
Sales and Use Taxes
Colorado’s 2.9 percent sales or use tax on goods purchased by a business that are not intended for resale is the lowest among the 45 states that collect sales tax. Services are not taxed, only sales of non-food items. Use taxes substitute for sales taxes in cases where an item is purchased for consumption in Colorado from a source outside Colorado or other circumstances where a sales tax was not paid.
State Sales Tax Exemptions:
Purchases of manufacturing equipment or machine tools of over $500 are exempt from state sales and use tax. Component parts, fuels and electricity, ink and newsprint, aircraft parts used in general maintenance, interstate long distance telephone charges, farm equipment and machinery, and packaging materials are also exempt from state sales and use tax. Pollution control equipment may be eligible for a refund of state sales tax contingent upon a state budget surplus. Legislation passed in 2008 abolished Colorado's "fly-away" sales tax on airplanes made in Colorado but sold to out-of-state owners. This will be a tool to entice aircraft manufacturers to Colorado.
State Sales Tax Refunds:
State sales and use taxes paid on the sale, storage, use or consumption of tangible personal property to be used in Colorado directly and predominantly in research and development of biotechnology, clean technology and medical devices are refundable.
An employer's unemployment insurance tax liability is based on the taxable wage base, which is the first $10,000 of each worker's wages. If covered for the first time, the tax rate will be 1.7 percent of the wage base rate, plus an annually computed surtax. The surtax is 0.22 percent, plus a solvency surcharge of 0.6 percent, for a total of 2.52 percent. After twelve months the employer is eligible for a calculated rate. Specific information on the tax rate for a business can be obtained from the Colorado Department of Labor and Employment Unemployment Insurance Tax Branch at (303) 381-9100, or on the web www.coworkforce.com
Workers’ compensation insurance is provided by over 200 private insurance companies and the State Compensation Insurance Fund, d.b.a. Pinnacol Assurance, an independent political subdivision of the state which operates as a workers compensation insurance company. The fund is a permanent, self-sustaining, nonprofit service organization operated for the benefit of its policyholders and their employees. In 2009, Pinnacol announced it will refund $120 million to Colorado businesses, rewarding those companies with good safety records and low claims. Including this year’s checks, it has returned more than $347 million over the past five years. About 89% of policyholders will qualify.
Over one-third of Colorado employers have Pinnacol insurance. Other carriers insure another 51 percent of companies, and 13 percent are self-insured. Self-insurance is an option, available by special permit specifying strict financial and loss control standards, for companies employing 300 or more Colorado employees.
Colorado’s workers’ compensation premium ranking in 2008 was 43rd (with 1st being the highest). Colorado’s index rate of 1.76 was 78% of the national median rate of $2.26, based on the 2008 Oregon Workers’ Compensation Premium Rate Ranking Summary.
For more information on workers’ compensation, please see Department of Labor & Employment, Workers’ Compensation web site at http://www.coworkforce.com/dwc/
The State of Colorado does not impose property taxes on businesses; local governmental units assess property taxes primarily to fund public school operations and local government services.
Commercial and industrial property is assessed for property tax purposes at 29 percent of market value. Montrose county wide average of local mill levies in 2008 was 54.902 mills. Cities or counties in state-designated Enterprises Zones have the option of providing an incentive payment to new companies. This incentive cannot exceed the difference in property taxes after development less the property taxes prior to Zone designation. Local governments have the option to negotiate up to 50 percent rebate or credit on their portion of personal property tax as an economic development incentive
Personal property (machinery and equipment) used in commercial and industrial operations is also assessed at 29 percent of actual value, based on replacement cost, expected economic life of the asset and other factors. Business personal property with an economic life of one year or less, or with acquisition cost of $250 or less, is exempt. Businesses with total business personal property valued at less than $2,500 are exempt. Beginning in 2008, the exemption was raised to $7,000 over five years.
Computer and telecommunications equipment have new, accelerated depreciation schedules and reduced residual values.
Business personal property tax incentive agreements negotiated by cities, counties, or school districts may have a life span of up to ten years, giving local communities greater leverage to attract top-notch companies. Companies in former Enterprise Zones may have up to 10 years to use their Enterprise Zone tax credits earned while the area’s Enterprise Zone status was in effect.
Inventory taxes are not assessed in Colorado and there is no franchise tax.
Colorado levies a tax upon the severance from the earth of metallic minerals and energy resources based upon the gross income of the extraction operation or upon the amount extracted. This is a graduated tax that ranges from 2 percent for income under $25,000 to 5 percent for income of $300,000 and over. Very small operations are exempt. A credit is allowed against severance tax equal to 87.5 percent of all ad valorem taxes paid or assessed during the tax year.
Investment Tax Credits
The Colorado Tax Equity Act, signed into law during the 1987 legislative session, reinstates the Colorado Investment Tax Credit. With a maximum credit up to $1,000 per year, for tax years beginning on or after January 1, 1998, based on 10 percent of what the Federal Investment Tax Credit would have been had such credit not been restricted by the Tax Reform Act of 1986. Excess credits may be carried forward up to three years.
Colorado Personal Taxes
Individual income taxes in Colorado are a flat rate of 4.63 percent of federally adjusted taxable income, with some modifications. Local governments in Colorado do not assess income taxes.
The State of Colorado levies a 2.9 percent sales tax on all non-food retail sales. Cities, counties, and special districts are permitted to collect additional local sales tax by public referendum. Combined sales tax rates average about 6.5 percent statewide, but vary by specific location. Exact rates can be found at www.revenue.state.co.us/PDF/drp1002.pdf
Residential property is assessed at 7.96 percent of market value in 2009 (it fluctuates from year to year due to a statutory formula that specifies shares of revenue from commercial versus residential property). The mill levy, which is the tax rate on each dollar of assessed valuation, varies within the state. For 2008, the average total mill levy for the state was 72.748 mills. This figure includes counties, municipalities, school districts, and other special districts. The countywide average of local mill levies in 2008 was 52.705 mills. Mill levies for cities and counties in Colorado can be found in the Colorado Economic and Demographic Information System (CEDIS), which is maintained by the Department of Local Affairs on their web site: http://dola.colorado.gov/dpt/state_assessed/index.htm