The Colorado Department of Revenue (DOR) held a working group and formal hearing to propose changes to rules for tax credits for donations to Enterprise Zone Contribution Projects.
The proposed rule would make the following changes:
1. Application of the 50% credit limit on in-kind contributions. Credits for in-kind contributions will limited to 50 percent or less of the total credit claimed by the taxpayer. The modified rule is proposed due to a review of § 39-30-103.5(1)(b) of the Colorado Revised Statutes. This statutory provision says that "in-kind contributions shall not exceed fifty percent of the total credit claimed."
2. Defines monetary contributions. Defined as donations of cash, check, electronic funds transfer, debit card, credit card, or any similar form of payment. This includes distributions of funds from retirement accounts.
3. Defines in-kind contributions. Any contribution other than a monetary contribution. This includes stocks, bonds, or similar intangible property.
4. Prohibits credits for contributions for donor advised funds. Legally, these funds are the property of the entity holding the donor advised fund.
5. Requires the taxpayer to submit a certificate when filing taxes for any donation. The certificate must be signed by an EZ administrator or official of the project. Previously, this requirement was limited to donations of $250 or more.
We submitted the following written comments in response to the rulemaking
Colorado established its enterprise zone program in the early 1990s to "promote a business friendly environment in economically distressed areas by offering state income tax credits that incentivize businesses to locate and develop in- and nonprofit organizations to assist with the needs of - these communities."
Eligible areas must have populations less than or equal to 150,000 in rural areas or 115,000 in urban areas.
These areas must have per capita income less than 75% of the state average, an unemployment rate 25% greater than the state average over the last year, or population growth less than 25% of the state average over the past five years.
Since the late 1990s, Colorado has allowed donors to a project, program, or organization certified by an enterprise zone administrator to claim a tax credit for cash or in-kind donations.
Donations must be used for a purpose that is directly related to job creation or preservation, housing programs, and community development programs.
Most Enterprise Zone contribution projects are managed by nonprofits and the program has helped increase charitable giving to nonprofits with certified projects and certified nonprofit organizations.
Currently, donors receive a 25% tax credit for the amount of a cash donation. Credits for in-kind donations are 50% of the value of the donor's contribution.
Traditionally, this has been treated as a 12.5 credit. Total credits generated by a donor per tax year may not exceed $100,000. If the amount of the credit exceeds the donor's tax liability, credits may be carried forward for up to five tax years.
In 2017, the Colorado Economic Development Commission adopted modified policies for the program. The new policies limit projects to five-year terms, call for measurable outcomes, and focus on how projects implement local economic development plans and support job creation, retention, and business expansion.
The policies also indicate "phased end-dates" over the next five years for ongoing projects that lack end dates currently. "Zone administrators may present a new application for an existing project prior to its end-date if there is good reason to continue the project activity without a break."