Applying for the New Colorado Job Growth Incentive Tax Credit

By Seth S. Gomm

Governor Bill Ritter recently signed into law a new tax credit for businesses that wish to create new jobs in Colorado. Businesses operating in Colorado can take advantage of the tax credit that can equate to 3.825% of the wage the business pays to each employee that qualifies under the credit.

Background

On May 4, 2009, Governor Bill Ritter signed into law House Bill 09-1001, known as the Colorado Job Growth Incentive Tax Credit (the “Credit”), which provides an income tax credit to firms that create jobs in Colorado. The Colorado Office of Economic Development and International Trade (the “Commission”) is charged with determining if an employer qualifies for the Credit. In order to qualify for the Credit an employer must, after applying and obtaining conditional approval from the Commission, create a certain number of jobs and maintain such new jobs for at least one year. The value of the Credit is typically equal to one-half of the amount the employer must pay in FICA taxes for the newly created jobs (approximately 3.825% per year for each new job’s annual wage). The Credit is available for tax years 2009 through 2018 with a maximum Credit eligibility period of no more than five total consecutive tax years per employer. Following is a checklist that can be used to help determine if an employer is eligible and to navigate the application process:

General Pre-Qualifications

1. The employer must show that, but for the Credit, the employer would have likely created the new jobs in a state other than Colorado.
2. The employer must retain the new jobs for at least one year.
3. The new jobs must pay an average yearly wage that is at least 110% of the average yearly wage of the county in which the employer is located.
4. The employer must provide a minimum of 20 new jobs if the project that created the new jobs is NOT located in an Enhanced Rural Enterprise Zone (“ERE Zone”). If the project that created the new jobs is located in a ERE Zone, the employer only needs to provide a minimum of five new jobs, but the local community located in the ERE Zone must provide rationale of the importance to such local community of the project that will create the jobs.

The Commission has developed the following list of Colorado counties that are considered ERE Zones for the 2009 and 2010 calendar years:

How to Apply for the Credit

An employer must submit an application for conditional approval of the Credit before the project commences in Colorado. The application requires the following information:

1. The specific jobs that will be created;
2. A cost differential analysis of the jobs created in Colorado versus the jobs created in a competing state (including such competing state’s incentive programs) which may include:
   1. Specific costs for labor, utilities, taxes, and any other costs of a competing state’s site; and
   2. The cost structure of the employer’s industry in the competing state.
3. The employer must provide certain documentation supporting the claim that, but for the Credit, the employer would have likely created the new jobs in a state other than Colorado. Such documentation must include information that would indicate that:
   1. The employer could locate the project that created the jobs in another state;
   2. At least one other state is being considered for the project;
   3. Receipt of the Credit is a major factor in the employer’s decision; and
   4. Without the Credit, the employer is unlikely to commence the project in Colorado.

What the Commission Considers

The Commission has the discretion to grant conditional approval and will consider the following factors:

1. The economic health of Colorado;
2. The economic viability of the proposed new jobs;
3. The economic benefits to Colorado of the new jobs; and
4. The maximum amount of Credit needed to attract the new jobs to Colorado.

Conclusion

While the Credit is not a large incentive compared to other states that compete for the creation of new jobs, the Commission believes that the Credit is significant enough to bring Colorado to the table in competing for new jobs. Colorado has traditionally relied heavily on non-economic incentives, such as the quality of life that the state offers, but now believes that offering the Credit will justify the Credit’s $16 million dollar price tag to the state. Businesses that create new jobs could save thousands of dollars by taking advantage of the Credit; however, such businesses must apply for the Credit before they create the new jobs. Considering the current recessionary period, any cost-saving measure means money in the bank.

1. J.D., M.B.A./Finance; an associate in the Corporate & Securities Practice Group at Kamlet Reichert, LLP.
2. H.R. 09-1001, 67th Gen. Assem., Reg. Sess. (Co. 2009).
3. Id.
4. A county is determined to be an ERE Zone if 2 of the 5 following criteria have been met:
   1. The county employment rate is 50% greater than the Colorado state average;
   2. The county per capita income is 75% less than the Colorado state average;
   3. The county population growth rate is 25% less than the Colorado state average;
   4. The county total non-residential assessed property value ranks in the lower half of all Colorado counties; or
   5. The county population is less than 5,000.
   See Enhanced Rural EZ (EREZ), http://www.colorado.gov/cs/Satellite/OEDIT/OEDIT/1167928215923; see also C.R.S. 39-30-103.2 (2008).
5. H.R. 09-1001, 67th Gen. Assem., Reg. Sess. (Co. 2009).
6. Id.
7. Ed Sealover, Ritter Signs Measure Creating Tax Credits for New Jobs, Denv. Bus. J., May 4, 2009 available at http://denver.bizjournals.com/denver/stories/2009/05/04/daily1.html; Bob Mook, House Committee OKs Jobs Creation Tax Credit, Denv. Bus. J., Feb. 5, 2009 available at http://denver.bizjournals.com/denver/stories/2009/02/02/daily58.html.
8. Paula Noonan, Economic Development Bill HB09-1001 Squeezes Through House Finance Committee, http://www.coloradocapitolwatch.net/index.php/blog/archives/economic-development-bill-hb09-1001-squeezes-through-house-finance-committe/ (Feb. 4, 2009).