Tax Incentives for Employee-Owned Businesses
The legislation also extends existing tax credits for conversion costs related to transitioning businesses to employee ownership, extending availability through 2037. Under the new provisions, the maximum credit available increases from 50% to 75% of qualifying conversion costs. The aggregate credits for the years specified are capped at $3 million for some years and $4 million for others, reflecting a progressive approach to incentivizing employee ownership in Colorado. Moreover, nonprofit organizations that assist qualified businesses in converting or expanding to employee ownership are also eligible for these credits.
House Bill 1021 is designed to provide tax incentives for businesses that transition to employee-owned structures. Specifically, the bill introduces two income tax subtractions for tax years starting from January 1, 2027, up until January 1, 2038. The first subtraction allows for an amount equal to state capital gains realized during the conversion of a qualified business to an employee-owned business, provided the conversion is at least 20% of ownership. The second subtraction is aimed at worker-owned cooperatives, allowing them to subtract their federal taxable income, limited to $1 million per year.
While the support for HB 1021 primarily comes from advocates of small businesses and worker cooperatives, concerns exist regarding the fiscal implications of these tax incentives on state revenues. Critics have voiced worries about potential overreach in subsidizing specific business structures at the expense of broader economic equity. The effectiveness of these incentives will be measured based on their claimed usage in tax years, necessitating ongoing evaluation to ensure that they fulfill their intended purpose without undermining essential state funding resources.