An infrequently utilized tax incentive program could help Colorado landscapers lower their state income tax liability. The enterprise zone program, administered by the state’s Office of Economic Development and International Trade, allows businesses that operate in certain economically depressed zones to claim an annual tax credit.
The credits are tied to specific business activities: creating a job, providing training, offering health insurance, or purchasing equipment.
Over 4,000 Colorado businesses were certified as eligible for the program in fiscal year 2016, according to OEDIT’s annual report. The total business credits they were eligible for exceeded $72 million. However, according to program data, only between 40% and 60% of qualified businesses actually claim these credits.
OEDIT tracks certified businesses based on their NAICS code. Since tax year 2014, just two nursery or greenhouses have been certified for credits, according to Sonya Guram, deputy director of business funding and incentives for OEDIT. No landscape architects or garden centers have been certified for the program in that period.
That may be because they don’t know about the program, or because they’re opting to use the federal Section 179 benefit, which allows businesses to deduct the cost of new equipment or software, Guram said.
“Often the investment tax credit isn’t utilized because [businesses will] choose to expense those types of investments rather than capitalize them,” Guram said. “It has to be a fairly large investment for it to be worth capitalizing it rather than taking advantage of a federal favorable tax situation.”
[Related: Federal tax breaks to consider]
What is an enterprise zone?
The enterprise zone initiative was launched in the late ’80s to promote business-friendly environments in areas of the state that were struggling economically.
“It has been around for a very long time, and it’s been modified over the years by the legislature,” Guram said. “When it first began, I think there might have been only two enterprise zones allowed. At this point there are 16, and that’s the maximum allowed by statute.”
Rural areas with a population under 150,000 people, and urban areas with fewer than 115,000 people, are eligible to be designated an enterprise zone if they meet at least one of three criteria:
• Unemployment is 25% higher than the rest of the state.
• Per capita income is 75% lower than the rest of the state.
• Population is growing at a rate 25% slower than the rest of the state.
Some counties within those zones are designated “enhanced rural” enterprise zones if they have higher unemployment and slower growth than the rest of the zone.
Guram noted that different states have different enterprise zone programs. “Sometimes they’re very focused on a particular neighborhood. The Colorado program [was] developed to really cover larger areas. A lot of our rural counties are fully covered.”
Business owners can check whether their company is located in an enterprise zone by going to the program’s home page at choosecolorado.com, and entering their address.
Danielle Andrus was previously the managing editor for Colorado Builder, and is currently Editor for the Journal of Financial Planning.
