Colorado is making significant strides in promoting employee ownership with a new bill that introduces substantial tax benefits and expands existing programs. Starting in 2027 and running through 2037, the legislation offers two key income tax subtractions:
- Capital Gains Subtraction: Taxpayers who convert at least 20% of their qualified business to employee ownership can subtract the state capital gains realized from this conversion.
- Worker-Owned Cooperative Subtraction: Worker-owned cooperatives can subtract their federal taxable income, up to $1 million.
Furthermore, the bill extends and enhances the existing tax credit for employee business ownership conversion costs. Key changes include:
- Extending the credit through 2037.
- Increasing the credit percentage from 50% to 75% starting in 2026.
- Adjusting the annual aggregate credit limits to $3 million (2026-2031) and $4 million (2032-2037).
- Expanding eligibility by revising definitions and allowing qualified support entities (nonprofits aiding conversions) to claim the credit.
These changes aim to incentivize business owners to transition to employee ownership, empower workers, and strengthen local economies by fostering a more equitable business landscape.