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%. It is assessed on Colorado net income, defined as the corporation's federal taxable income, with some modifications. Colorado ranks among the top-20 states (16th) for best corporate tax system and busines friendly tax climate according the Tax Foundation's 2017 State Business Tax Climate Index.
Sales and Use Taxes
Colorado’s sales and use tax is 2.9% on goods purchased by a business that are not intended for resale. Services and food items are excluded from sales tax, with the exception of soda and candy. 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 (Relevant to Business)
- Purchases of manufacturing equipment or machine tools of over $500
- Component parts
- Fuels and electricity used for agriculture, railroad transportation and power generation
- Ink and newsprint
- Aircraft parts used in general maintenance
- Interstate long distance telephone charges
- Farm equipment and machinery
- Some packaging materials
- Products made from Pine Beetle wood
- Components used in the production of electricity from a renewable energy source
- Personal property used in an orbital space facility, aspace propulsion system, satellite, or space station
State Sales Tax Refunds
Colorado 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 the research and development of biotechnology.
An employer's unemployment insurance tax liability is based on the taxable wage base, which is the first $12,500 of each worker's wages. If covered for the first time, the tax rate will be 1.7% of the wage base rate and a bond principal rate of .41%, which makes a combined rate of 2.11%. After an employer has paid wages for a sufficient number of quarters, it is eligible for a computed rate based on the experience of the business. 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 303-318-9000, 1-800-388-5515, or on the web www.colorado.gov/CDLE
Worker's compensation insurance is purchased through private insurance companies in Colorado. The Colorado Legislature created Pinnacol Assurance, a nonprofit insurance carrier, to sell workers' compensation insurance. The Colorado Division of Insurance approved a 1.9% reduction for the average loss costs component of workers' compensation insurance premiums for 2016.
Colorado had the 16th-lowest workers' compensation rates in the country in 2016, with an average rate of $1.56 per $100 of payroll.
For more information on workers’ compensation, see the Colorado Department of Labor & Employment.
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.
The Colorado Legislature determines assesment rates, and local taxing entities determine mill levies. The assessment rate for commercial and industrial property is set at 20% of market value. Montrose countywide 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% 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% 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 from taxation. Legislation passed in 2008 increases Colorado business personal property tax exemption to over $7,000 over five years. From the tax year beginning January 1, 2015 onward, the exemption will be increased biennially to account for inflation.
Computer and telecommunications equipment have 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 ten 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% for income under $25,000 to 5% for income of $300,000 and over. Very small operations are exempt. A credit is allowed against severance tax equal to 87.5% 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% 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% of federal taxable income, with some modifications. Colorado is one of just 8 states having a single-rate tax structure. Local governments in Colorado do not assess income taxes.
The State of Colorado levies a 2.9% sales tax on all non-food retail sales. Cities, counties, and special districts are permitted to collect additional local sales tax by public referendum. Colorado state sales tax rate is the lowest of the states that levy sales tax. Exact rates can be found at www.colorado.gov.
Residential property is assessed at 7.96% 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 Colorado Department of Local Affairs .