Forest ProductsTax Credit Sourcebook

Colorado · Research and Development · CO-EZ-RD-001

Enterprise Zone Research and Development Credit

Publication revised September 24, 2026. Sourcebook page 60.

Credit amount / calculation

For tax years beginning before January 1, 2027, the credit is 3% of qualifying research-and-experimental expenditures in the zone exceeding the average of the taxpayer's actual qualifying expenditures in the same area during the immediately preceding two income tax years. The statute references federal §174 for these years. Use the state-law expenditure definition and location rules; do not substitute total engineering spending or automatically copy the federal §41 credit base. Twenty-five percent of each generated credit is scheduled for use in the initial year and each of the following three years. The 2026 provision allows unused credit to carry forward until used, subject to the installment and liability rules. "Four years" describes the scheduled release of the credit, not a guarantee of complete use within four years.

Business fit and eligible activity

A mill or forest-products manufacturer may qualify through properly substantiated research into products or processes conducted in the zone. A logging business needs qualifying research of its own; an ordinary equipment purchase or normal production activity is insufficient. The statute excludes expenditures funded with money made available under federal or state law. Capital acquisition cost is not automatically an eligible research expense; apply the incorporated research-expense treatment rather than treating a machine's purchase price as the credit base.

Illustrative business benefit

Assume a precertified wood-products manufacturer has $250,000 and $350,000 of qualifying research expenditures in the relevant zone area in the preceding two years, and $500,000 in 2026. The baseline is ($250,000 + $350,000) ÷ 2 = $300,000. The increase is $200,000, giving a $6,000 credit at 3%. The scheduled amount from this credit is $1,500 in 2026 and $1,500 in each of the next three years. Assuming sufficient liability in each year, the business uses $1,500 in the first year and $6,000 across four years. Insufficient liability can postpone actual use; it does not turn the $6,000 into a first-year refund. Enacted change for 2027 For tax years beginning on or after January 1, 2027, §39-30-105.5(1.5) requires at least $150,000 of qualifying research-and-experimental expenditures and references federal §174A. The 3% rate and preceding-two-year comparison remain. This is a minimum current-year expenditure threshold, not a requirement for a $150,000 increase. Do not apply it retroactively to 2026. The December 31, 2033 repeal of the older subsection does not repeal the entire program.

Timing / first action

Complete annual precertification before the qualifying research activity. Document the research, its location, the current and preceding two years' costs, funding sources, and each year's credit installments and unused balances. Obtain the applicable certification for the tax claim. No separate advance equipment- purchase approval applies to this research credit. Using the credit Ordinary use is nonrefundable and limited by tax liability and the statutory installment schedule. No general sale/transfer authority is established for this ordinary credit. For the 2026 credit, unused amounts may carry forward until used under §39-30-105.5(2); do not replace that rule with a four-year expiration.

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