INSIGHT: Investments in Colorado Companies in Advanced Industries Eligible for Tax Credit

If you’re an investor in some of Colorado’s “advanced” industries, it’s possible you’re either taking advantage of a sizable state tax credit or leaving money on the table for some other investor to pick up.

And, if you’re a start-up company in one of these industries and desperately seeking capital investment in a tight market, you’re either using this little-discussed tax credit to entice needed investors, or you’re also walking away from as much as $50,000 in savings that can go toward your organization’s capital needs.

Colorado’s relatively new (and not widely known) tax credit for investors in certain industries is known as the Advanced Industry Investment Tax Credit (AIITC), and it can serve as a valuable benefit to particular investors and start-up companies alike.

To be eligible for an AIITC-qualified investment, the investee business entity must be in one of the following fields: aerospace, advanced manufacturing, bioscience, electronics, energy/natural resources/clean technology, information technology, or infrastructure engineering.

Additionally, an investee must be headquartered in Colorado or have at least 50% of its employees in the state, and it must be in a relatively early stage: It cannot have received more than $10 million in investment over the life of the business, must be less than five years old. Importantly, the investee business must have less than $5 million in revenue.

Aside from these requirements, eligibility for AIITC is fairly open. A qualified investee for the tax credit could be a company that is reasonably well established, or just one or two people on their laptops, operating in a co-working space with a new idea. Investees must meet a few additional minor criteria established by the Colorado Office of Economic Development and International Trade, and are required to prequalify for the investment by registering here.

Note that there are some limitations on investors and the types of investments that will be eligible for the tax credit. Investors must invest at least $10,000 in an eligible investee through equity or convertible debt, and they can receive a maximum of 25% of the investment as a tax credit (or 30% for investment in rural or distressed areas), up to $50,000.

The investor cannot hold more than 30% of the investee entity’s voting equity prior to the investment, and they cannot hold more than 50% of the voting equity after investment. Investors also cannot be C-corporations.

Investors should note, though, that the state’s tax credits are limited to a pot of $750,000 each year, and that money is provided to investors on a first-come, first-served basis. Also, investors must apply for the AIITC in the same calendar year and within 90 days of the investment.

So, what can companies and investors do to make the most of the AIITC? First, both need to prequalify for the AIITC program before they seek funding, and they need to inform potential investors of their qualification and the credit’s benefits. Given the relatively low statewide annual cap on the credit, investors should consider the timing of their investment—the earlier in the year they invest, the more likely they are to fit under the $750,000 cap.

The AIITC can be a valuable program for investors, of course, but it also can help the investee companies make better decisions regarding the future growth trajectories of their operations, too. And the qualified companies that don’t take advantage of the credit—or file for it before it’s gone—are essentially walking away from a tidy sum of money.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Andrew Comer is a partner at Fortis Law Partners.