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Investment Credits for Licensed Child Care Centers, Family Care

A child care center is a facility, by whatever name it is called, that is maintained for all or part of a day for the care of five or more children who are 18 years of age or younger, and who are not related to the owner, operator, or manager. The facility may be operated with or without compensation for such care and with or without stated educational purposes. The term includes, but is not limited to, facilities commonly known as day care centers, school-age child care centers, before and after school programs, nursery schools, kindergartens, preschools, day camps, summer camps, and centers for developmentally disabled children. “Child care center” also includes those facilities that give 24-hour care for children and includes those facilities for children under the age of six years with stated educational purposes operated in conjunction with a public, private or parochial college or private or parochial school. The term shall not apply to any kindergarten maintained in connection with a public, private, or parochial elementary school system of at least six grades.

Family Child Care Home

A family child care home is a facility for child care in a place of residence of a family or person for the purpose of providing less than 24-hour care for children under the age of 18 years who are not related to the head of such home.

Foster Care Home

A foster care home is a facility that is certified by a county department or a child placement agency for child care in a place of residence of a family or person. The foster care home provides 24-hour family care for a child under the age of 18 years who is not related to the head of such home, except in the case of relative care. The term includes any foster care home receiving a child for regular 24-hour care and any home receiving a child from any state-operated institution for child care or from any child placement agency. “Foster care home” also includes those homes licensed by the Department of Human Services that do not receive money from the counties nor children placed by the counties.

CHILD CARE CENTER, FAMILY CHILD CARE HOME, OR FOSTER CARE HOME INVESTMENT CREDIT

Taxpayers who operate a child care center, family child care home, or foster care home and who invest in qualified tangible personal property to be used in the operation of such facility may claim an investment tax credit equal to 20% of the investment. The facility must be licensed.

INVESTMENT CREDIT FOR EMPLOYERS WHO PROVIDE CHILD CARE FACILITIES FOR EMPLOYEES

Employers who provide child care facilities for the benefit of their employees can claim an investment tax credit. The tax credit is equal to 10% of the employer’s investment during the tax year in qualified tangible personal property to be used in the operation of the child care facility. The facility must be incidental to the employer’s business and must be licensed.

What qualifies as tangible personal property for the purposes of these investment credits?

Property (other than real estate) used in the child care business or in the family care home business which qualifies as depreciable property for federal income tax purposes. This includes tangible personal property, which wears out and has a determinable life that exceeds one year. This also includes Section 179 property, which is expensed rather than capitalized.  For example, if 20% of the cost of a van is for child care purposes, 20% of the expenditure for the van would qualify for the credit. If 10% of stove or refrigerator use is for the child care business, then 10% of the cost of the appliance would qualify for the credit. Property purchased for immediate consumption or which has a very limited life, such as food, diapers, office supplies and paper products, does not qualify as an investment for the purposes of this credit.

To encourage certain behavior, the state offers the plastic recycling investment tax credit  and the historic property preservation income tax credit

Plastic recycling investment tax credit

The plastic recycling investment tax credit is equal to 20% of the first $10,000 of net expenditures to third parties for rent, wages, supplies, consumable tools, equipment, test inventory and utilities made for new plastic recycling technology in Colorado. The credit is available to Colorado resident individuals only. The maximum credit that can be claimed on Colorado form 104 in any tax year is limited to the net tax liability. Any credit in excess of this amount may be carried forward for up to five years. For the average individual, there is not much value in this tax credit.

Historic property preservation income tax credit

Colorado offers an income tax credit to Colorado resident individuals and C corporations for the preservation and rehabilitation of a qualified historic property. The structure must be at least fifty years old, and must be:  a) designated individually or as a contributing property in the State Register of Historic Places;  b) designated as a landmark by a certified local government; or c) designated as a contributing property in a designated historic district of a certified local government. If the property on which a taxpayer wants to claim this credit has none of these designations, the taxpayer must apply for and secure such a designation.  In order to qualify for the historic preservation income tax credit, a taxpayer must be the property owner or tenant with a lease of five or more years. The project must involve physical rehabilitation work and must preserve the historic character of the building. Qualified rehabilitation costs must exceed $5,000, and the project must be completed within 24 months.  However,  one extension of time may be applied for. The project must receive initial approval from the reviewing agency (www.coloradohistory-oahp.org) between January 1, 1991 and December 31, 2019, and the taxpayer may claim the tax credit only for work completed by December 31, 2019.  The state income tax credit is 20% of qualified rehabilitation costs up to a maximum $50,000 credit per qualified property. In any given tax year, the allowable credit cannot exceed the amount of tax liability for the year. Any excess credit may be carried forward for a maximum of ten years.  If a taxpayer takes the tax credits and then decides to sell the property (or terminate the lease) within five years the credit must be recaptured according to a formula.  Availability of the credit is contingent upon the December legislative council revenue forecast issued prior to the tax year and that the general fund appropriation must grow 6% over the previous year.

Enterprise zone credits

The Enterprise Zone program provides incentives for new and established businesses to locate and expand in economically distressed areas of the Colorado.  Businesses in the Enterprise Zone may save thousands of dollars on their Colorado income tax bill each year for any or all of the following:

Making capital investments / Hiring new employees / Providing training for employees / Rehabilitating old buildings / Conducting Research & Development

Any business located in the Enterprise Zone is eligible to receive these tax credits.  In Colorado Springs, from I-25 and N Nevada exit, to east side of I-25 to Fountain.  The enterprise zone includes downtown and Old Colo City between Route 24 and Colorado Ave.

Enterprise Zone New Business Facility Employee Credits

• The new business facility employee credit

• The new business facility agricultural processing employee credit

• The employer-sponsored health insurance credit

Any taxpayer who establishes a new business facility in an enterprise zone can claim an income tax credit of $500 for each new business facility employee who is working within the zone, prorated according to the number of months of employment during the tax year. For subsequent tax years, a credit of $500 shall be allowed for any increase in the average number of new business facility employees working in the zone in excess of the maximum number employed in any prior tax year.  The credit is not refundable but a credit can be carried forward.  For tax years beginning on or after January 1, 1993, the excess credit is not refundable but may be carried forward for a period of up to five years.

For tax years beginning on or after January 1, 2003, an additional $2,000 credit for each new business facility employee is available to businesses located in an enhanced rural enterprise zone. The enhanced portion of the new business facility employee credit not used to offset tax can be carried forward for a period of up to seven years.

THE EMPLOYER SPONSORED HEALTH INSURANCE CREDIT

For the first two full income tax years while located in an enterprise zone, taxpayers are allowed a credit of $200 for each new business facility employee insured under a health insurance plan or program at least 50% of the cost of which is paid by the taxpayer. Such plan or program may be any health insurance, health maintenance organization or pre-paid health plan that is approved by the State Insurance Commissioner for sale in Colorado or it may be a selfinsurance program. The program must be reduced to writing and it must be legally enforceable against the taxpayer.

WHAT QUALIFIES AS A NEW BUSINESS FACILITY?

A new business facility is a newly acquired, constructed or leased facility used by the taxpayer to operate a revenue-producing enterprise. This includes any factory, mill, plant, refinery, warehouse, feedlot, building or complex of buildings, including land, buildings, machinery and equipment located at the facility and used in connection with the operation of the facility.

Purchase of an existing business facility

If a business that is not yet qualified as a new business facility is purchased or leased and the business continues the same or substantially identical revenue producing enterprise at such facility, then there is no "new business facility" as there is no "new business." However, if a business is closed for reasons other than the sale of the business and a new owner revives the business, it may qualify as a new business facility as there is not a continuation of the old business.

In general, once a business facility qualifies as a "new business facility" it never loses that classification.

HOW AN EXISTING BUSINESS FACILITY CAN BECOME A NEW BUSINESS FACILITY

Qualified Replacement Facility

A “qualified replacement facility” is a replacement business facility located in an enterprise zone in which the taxpayer's investment exceeds $3 million or, if less, 300% of the investment in the old facility.

Expansion by investment.

If a facility, which is not a new business facility is expanded by the taxpayer, the expansion shall be a new business facility if the expansion otherwise meets the definition of a new business facility and the taxpayer's investment in the expansion exceeds $1,000,000 or, if less, 100% of its investment in the original facility prior to expansion. The investment in the original facility shall be the total investment in the facility not reduced by depreciation, and not including inventory, as of the close of business of the day preceding the designation of the enterprise zone. The investment in the expansion shall be the total investment in the expansion not reduced by depreciation, and not including inventory, beginning with the date of designation of the enterprise zone.

Expansion by number of employees.

An expansion facility can be created by the employment of ten or more new business facility employees over and above the average number of employees employed in the enterprise zone by the taxpayer during the twelve months immediately prior to the expansion.

It's crucial to know whether your workers are employees or independent contractors. Big dollars may be at stake in the form of federal and state assessed penalties resulting from misclassification. The validity of your company's pension plan may also be at stake.

A periodic review of the status of your workers to see if they are properly classified is critical, but the process isn't easy due to the complexity of the issue. To determine whether there is an employer – employee relationship or a business relationship, there are some factors to consider: the behavioral and financial control over the worker, ownership of the tools, the permanency of the relationship (is there a contract?), work location and work hours. There is no litmus test for exactly how many factors must be satisfied, nor are the factors uniformly applied.

If you'd like to discuss these complex rules with us and see how they apply to your business in order to make sure that none of your workers are misclassified, please call our office to arrange for an appointment.

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There are situations when certain types of income are only partially taxed or not taxed at all. Some examples of non-taxable Income are:

• Adoption expense reimbursements for qualifying expenses
  
• Child support payments
• Gifts, bequests and inheritances
• Non cash employer gifts (holiday turkey)
• Non cash employer gifts (holiday turkey)
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Economic recovery payments
• Cash rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds which were paid to you because of the insured person’s death are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.