Colorado Provides Guidance on CHIPS Refundable Tax Credit Program and CHIPS Zone Program

by Tyna Mikulec

The Colorado Office of Economic Development & International Trade has released guidance on income tax incentives that were recently enacted for the purpose of maximizing investments in semiconductor and advanced manufacturing (see State Tax Update, 05/25/2023). In order to leverage potential funding provided and inspired by the federal Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) (P.L. 117-167), two programs were created: the CHIPS refundable tax credit program and the CHIPS Zone Program. (CHIPS Refundable Tax Credit Program, Colo. Office of Economic Development & International Trade, 10/01/2023; CHIPS Zones Program, Colo. Office of Economic Development & International Trade, 10/01/2023.)

CHIPS refundable tax credit program.

Taxpayers engaged in semiconductor or advanced manufacturing industries may apply, through the Office, to the Economic Development Commission (EDC), who is authorized to grant conditional refundable tax credits in a precertification process. The income tax credit types that may be the basis for such a refund are: (1) enterprise zone credits for business personal property investments, commercial vehicles, job training, business facility employees, and expenditures for research and experimental activities; and (2) the Colorado job growth incentive tax credit. Applicants that have applied, are applying, or will apply for federal funds under the federal CHIPS Act must demonstrate that they are engaged or will engage in a project eligible for one of these income tax credits. All projects approved for a refund certificate must commence within two years of EDC approval. “Project commencement” means any one of the following: (1) the company begins hiring new jobs; (2) the company begins spending capital, which must be explained, and examples include filing building plans and permits; (3) the company signs a lease; (4) the company purchases real estate; and/or (5) an explanation of any other milestone date indicating the project has commenced. Businesses must separately and additionally apply for any CHIPS refundable tax credits whether they are located in an enterprise zone or a CHIPS zone. Applicants must reach out to the Semiconductor Industry Manager to determine eligibility and to obtain an application, which is accepted on a rolling basis. Contact information for the manager is provided.

CHIPS Zone Program:

Zone designation: Municipalities, counties, and groups of the two may apply, through the Office, to the EDC to designate a geographical area within its governance as a CHIPS zone. Applying entities must provide the boundaries of the area to be designated, along with estimated benefits, and an economic justification of the zone. The preference for CHIP zone applications is for project based proposals that are delimited by a specific parcel of land or a building. Larger areas are considered based on the strategic advantages as explained by the applicant. Specific examples are provided for the minimum application elements. Local governments seeking CHIPS zone designation must reach out to the Semiconductor Industry Manager to obtain an application, which is accepted on a rolling basis.

Tax credits available: Once the zones are approved, taxpayers engaged in semiconductor manufacturing in the CHIPS zone can access the following state income tax credits from the enterprise zone program: (1) qualified investment tax credit (the job training credit and the commercial vehicle investment tax credit); (2) business facility new employee tax credit; and (3) research and development tax credit. A company must have a precertification that is submitted and approved by the CHIPS Zone administrator before any credits may be earned. If a business is already located in an enterprise zone, they do not need to be incorporated into a CHIPS zone and should follow the guidelines to receive EZ tax credits.