Weekly Policy Update: HB22-1149 Advanced Industries Investment Tax Credit Heads to First Committee
By: Colorado BioScience Association Date: 02/25/2022
CBSA is proud to lead the advocacy efforts to reauthorize the Advanced Industries Investment Tax Credit this session through HB22-1149. The bill is sponsored by Rep. Shannon Bird, Rep. Mike Lynch, and two members of the JBC, Senators Chris Hansen and Bob Rankin. The first hearing in the House Finance Committee took place on Monday, February 28. The Committee is also chaired by Rep. Bird.
Since the program’s inception in 2009, The tax credit has benefitted 24 life sciences companies in our ecosystem that were able to access over $7 million in capital. The credit not only supports our ecosystem’s critical needs for capital but also the six other advanced industries in the state which include: Information Technology, Advanced Manufacturing, Energy & Natural Resources, Electronics, Aerospace, and Infrastructure Engineering.
The credit currently allows individuals who make qualifying investments to claim an income tax credit equal to 25% of their investment or 30% (proposed increase to 35%) in a business that is located in a rural or economically distressed area, limited to $50,000 per investor.
The credit is currently capped at $750,000 annually and after conversations with the bill sponsors, OEDIT, and the Governor’s Office, the cap will be $4 million resulting in a 433% increase. The four states with a similar concentration of advanced industries as Colorado have annual credit caps ranging from $2 million to $6 million. As outlined in a report by the Office of the State Auditor, an increase of the cap would lead to greater success and usage of the program.
The Office of the State Auditor surveyed qualified small businesses receiving investments that were certified between 2015 and 2020 and determined the following economic benefits can be attributed to the usage of the program.
|Hired more staff||80%|
|Accessed New funding opportunities||73%|
|Furthered and/or sped up R&D processes||67%|
|Got products to market||60%|
|Generated more revenue||47%|
|Increased marketing capabilities||47%|
|Increased staff pay and/or benefits||33%|
|Increased production volume||20%|
|New networking opportunities||13%|
|Expanded distribution capacity||7%|
Substantive Legislative Changes to the Credit Since Enactment
The credit was initially enacted in 2009 and was reauthorized in 2014 and 2017. The legislature has made several substantive changes to the credit through prior legislative actions which extended the program.
- The minimum required investment amount decreased from $25,000 to $10,000.
- The credit cap for each investment increased from $20,000 to $50,000.
- The credit amount increased from 15% of the qualified investment to 25% or 30% of the investment.
- An investor could no longer be eligible for the credit if they and their affiliates held 50 percent or more of the total voting power in the business after making the investment.
- Limited the total amount of third-party funding that the business had received to less than $10 million; and increased the business’ maximum annual revenue allowed from $2 million to $5 million.
Comparison & Competitiveness with Other States
Twenty-one other states offer credits for investments in advanced industries or similar businesses. A 2020 report from the National Bureau of Economic Research (NBER) found that at least 50% of these investment credits have the traits outlined below. Notably, Colorado’s program does not exclude business owners and their families from credit eligibility and does not set a minimum holding period on qualified investments.
|Common Traits||Colorado||Percentage of Other States|
|Cap on total statewide tax credit allocation per year||Current: $750,000/ Future: $4,000,000||86%|
|Maximum annual tax credit per investor||25% of their investment or 35% in a business that is located in a rural or economically distressed area limited to $50,000 per investor||78%|
|Non-refundable and non-transferrable||Yes||72%|
|Cap on investor’s ownership percentage in business prior to investment||Hold fewer than 30% voting power when combined with affiliates, immediately before investment and fewer than 50% voting power when combined with affiliates, immediately after investment||64%|
|Owners and their families not eligible to receive credit||N/A||61%|
|Minimum holding period on investments||N/A||50%|