The New Colorado investment tax credit
39-22-507.6
(1)The investment tax credit allowed by section 39-22-507.6, C.R.S. is designated the "new" Colorado investment tax credit. The "new" investment tax credit is 1% of the qualifying investment in "Section 38 property" (disregarding the termination provisions of I.R.C. § 49 as such section existed prior to the enactment of the federal Revenue Reconciliation Act of 1990) to the extent such property would have qualified for the federal "regular percentage" investment tax credit and to the extent such property is used in Colorado.
(2)Limitations.
(a)Only C corporations may claim the "new" investment credit. However, a C corporation cannot carry-forward unused credit to a tax year in which it elects under federal rules to be taxed as an Scorporation.
(b)The "new" investment tax credit is limited to $1,000 per tax year reduced by any "old" investment tax credit claimed for the same tax year.
(c)Excess tax credits may be carried forward for up to three tax years, but may not be carried back to an earlier year.
(d)The "new" investment tax credit has no recapture provisions.
(3)Property.
(a)In the case of tangible personal property used both within and without Colorado, the credit shall be apportioned based on the time the property was used in Colorado during the tax year compared to the time of total usage of such property during the tax year unless the taxpayer can justify a more equitable apportionment method.
(b)Claiming the credit does not reduce the cost basis of the property.
(c)The enterprise zone investment tax credit and the new investment tax credit can be claimed for the same property.
(d)The purchase of equipment included in the purchase of business can qualify for the new investment tax credit, although the total investment in used equipment is limited to $150,000 per year.
(i)A controlled group of corporations must apportion the credit limitations of the property among its members. The election of the apportionment shall apply to the income tax year of the members with or including a common December 31. Should such members fail to agree on an allocation of the limitation amount, it shall be divided equally among all members of the controlled group.
(4)Qualified Investment in Section 38 Property.
(a)For new Section 38 property subject to I.R.C.§ 168 (Accelerated Cost Recovery System), the amount of qualified investment is 100% of the basis of for all new property in recovery classes of more than three years, and 60% of the basis for new three-year recovery property. For used Section 38 property subject to I.R.C. § 168, the amount of qualified investment is 100% of the cost of all used recovery property in recovery classes of more than three years, and 60% of the cost for used three-year recovery property. For used property, cost is limited to a maximum of $150,000.
(b)For Section 38 property not subject to I.R.C. § 168, the basis or cost (up to $150,000 for the cost of used property) that qualifies is limited if the property has a useful life of less than seven years. The limit is only 2/3 of the basis or cost qualifies if the useful life is five years or more but less than seven years. In addition, the limit is only 1/3 of the basis or cost qualifies when the useful life is three years or more but less than five years. No credit is allowed if the useful life is less than three years.
(c)No investment tax credit is allowed to a purchaser of used property if the property is currently or was previously used by the purchaser or a related party before the purchase. This includes a leaseback of used property or a purchase of leased property by the lessee.
(d)No investment tax credit is allowed for Section 38 property to the extent such property is financed with nonqualified nonrecourse financing. This limitation applies to certain closely held corporations engaged in business activities that are subject to the loss limitation at-risk rules of I.R.C. § 465.
(5)Section 38 property.
(a)The "new" investment tax credit is available only for expenditures in Section 38 property. Section 38 property means Section 38 property as defined in Section 48 of the Internal Revenue Code as said Section 48 existed prior to the enactment of the federal Revenue Reconciliation Act of 1990.
(b)Section 38 property is either property subject to I.R.C.§ 168 (Accelerated Cost Recovery System) or other depreciable or amortizable property having a useful life of three years or more that is:
(i)Tangible personal property (other than air conditioning units, heating units, and certain boilers fueled by petroleum or petroleum products and failing to meet special qualifications);
(ii)Other tangible property (not including a building or its components) used as an integral part of:
(A)manufacturing,
(B)extraction,
(C)production, or
(D)furnishing of transportation, communications, electrical energy, gas, water, or sewage disposal services.
(iii)Elevators and escalators;
(iv)Research facilities and facilities for the bulk storage of fungible commodities (including liquids or gases) used in connection with the activities in (5)(b)(ii) Fungibles are commodities that are mutually interchangeable, such as oil or grain;
(v)Single purpose agricultural or horticultural structures. A single purpose agricultural structure is Section 38 property if it is designed, constructed and used for housing, raising and feeding a particular type of livestock, such as cattle, hogs or poultry, and their produce, in addition to housing equipment necessary for the particular activity. A horticultural structure is Section 38 property if it is specifically designed, constructed and used for the commercial production of plants and/or mushrooms. Work space in the structure is permitted if such space is used solely for stocking or caring for the plants, for collecting their product or for maintaining the structure and equipment or stock house in it;
(vi)In the case of qualified timber property (within the meaning of I.R.C. § 194(c)(1)), that portion of the basis of such property constituting the amortizable basis acquired during the taxable year (other than that portion of such amortizable basis attributable to property which otherwise qualifies as (pre-1991) I.R.C. § 38 property) and taken into account under I.R.C. § 194 (after application of I.R.C. § 194(b)(1);
(vii)A storage facility (not including a building and its structural components) used in connection with the distribution of petroleum or any primary product of petroleum. Both new property, including property reconstructed by a taxpayer (but only to the extent of the basis that is attributable to the reconstruction), and used property qualify for the credit;
(viii)Property used predominantly to furnish lodging, or used in connection with furnishing it is not Section 38 property, except in the case of:
(A)a hotel or motel furnishing accommodations predominantly to transients and
(B)coin-operated vending machines, washing machines and dryers in lodging facilities. Also non-lodging commercial facilities, such as tangible personal property in a drug store or restaurant situated in an apartment building or hotel, can qualify as Section 38 property if they are available to persons not using the lodging facilities.
(ix)Livestock (not including horses) qualify for the investment credit. However, if within a one-year period starting six months before the date of acquisition, substantially identical livestock is disposed of without any federal investment credit recapture, the credit will be allowed only on the excess of the cost of the acquired livestock over the amount realized on the disposition. The age and sex of the livestock and the use to which the livestock is put determine whether the livestock disposed of is substantially identical.
(c)In the case of pollution control facilities, if the property has a useful life or recovery period of at least five years and the taxpayer elects to amortize under the 60-month rule of I.R.C. § 169, 100% of its amortizable basis qualifies for the investment credit. If the facility is financed by federally tax exempt industrial development bond proceeds, the applicable percentage is only 50% of the rapidly amortized basis
(6)Leased property.
(a)The owner of the leased property may elect to pass on the "new" investment credit to a C corporation lessee if the leased property is new Section 38 property and is qualifying property both to the owner and to the lessee. A lessor cannot pass on the credit for used property to the lessee. The credit to the lessee is computed on the fair market value of the property except where the property is leased by a corporation that is a member of a controlled group of corporations to another member of the same group. In the latter event, the lessee takes the owner's basis as the basis for computing the investment credit.
(b)Where new Section 38 property with a January 1, 1986 Asset Depreciation Range (ADR) class life of more than 14 years is leased (not a net lease) for a period which is shorter than 80% of its class life, the lessor may pass through to the C corporation lessee only that portion of the credit which is equal to the ratio of the lease period to the class life of the property.
(c)When a tax exempt entity sells depreciable property to pass the tax benefits to the new owners and then leases back the property, the "new" investment tax credit will be denied for the property.
(d)Non-corporate lessors and S Corporation lessors are eligible for the investment credit if only:
(i)The leased property has been manufactured or produced by the lessor, or
(ii)The term of the lease is less than fifty percent of the January 1, 1986 Asset Depreciation Range (ADR) class life for the recovery (useful life for other property) of the leased property, and alsothe lessor’s business expense deductions (other than rental payments and reimbursed expenses) related to the property are more than fifteen percent of the rental income from the property for the first year of the lease
Cross Reference
1.The new investment tax credit is allowed for tax years beginning on or after January 1, 1988, and was enacted as a partial replacement for the "regular percentage" investment tax credit flow-through from the federal investment credit, which was allowed under section 39-22-507.5, C.R.S., but which ceased to exist when the federal credit was repealed.