Employee Ownership Tax Credit Expansion

Under the law, a qualified business is allowed a tax credit in the amount of 50% of the costs to convert the qualified business to a form of employee ownership. The tax credit has been capped at $25,000 for converting a qualified business to a worker-owned cooperative or employee ownership trust and $100,000 for converting a qualified business to an employee stock ownership plan.

The act:

• Increases the caps for converting a qualified business to a worker-owned cooperative or employee ownership trust from $25,000 to $40,000, and for converting a qualified business to an employee stock ownership plan from $100,000 to $150,000;
• Expands the tax credit to include 50% of the costs of a qualified employee-owned business expanding its employee ownership by at least 20%, not to exceed $25,000;
• Expands the tax credit to include 50% of the costs of a qualified business converting to or expanding an alternate equity structure, not to exceed $25,000. An alternate equity structure is a mechanism under which an employer grants to employees a form of employee ownership, including an employee stock ownership plan, LLC membership, phantom stock, profit interest, restricted stock, stock appreciation right, stock option, or synthetic equity.
• Establishes certain minimum requirements for an alternate equity structure and requires the Colorado office of economic development in the office of the governor to develop guidelines for the types of employee ownership grants that qualify as an alternate equity structure; and
• Specifies that a qualified business or qualified employee-owned business may apply for and claim only one credit for the conversion or expansion costs per tax year.

APPROVED by Governor May 23, 2023

EFFECTIVE August 7, 2023

NOTE: This act was passed without a safety clause and takes effect 90 days after sine die.
(Note: This summary applies to this bill as enacted.)