Colorado EO Office and Tax Credit Legislation

Written in partnership with the Colorado Office of Economic Development & International Trade. Originally published in the September 2021 ESOP Report. 

Colorado’s economic development organizations and government are coming together to further employee ownership across the state through new legislation.

This year, Governor Polis attended the Employee Ownership Commission meeting in February 2021 to hear suggested ideas for tax changes to benefit and advance the formation of new employee-owned businesses in Colorado.

Commissioners and Colorado Employee Ownership Office staff collaborated with the legislative sponsors of HB 21-1311 to define how the program could be structured. With testimony from commissioners and partners, the bill has been signed into law. This new law creates a tax credit for worker-owned cooperatives, employee stock ownership plans and employee ownership trusts. The bill provides the opportunity for employee-owned companies to receive a tax credit to account for some costs of their employee ownership conversion.

The Employee Ownership Office is now working to build out the parameters of the program and planning an early 2022 launch. The bill allows for $10 million to be available each year for the next five years, with the program closing January 1, 2027. Qualified businesses may reserve a tax credit of up to 50% of their conversion costs and apply through the Employee Ownership Office website. This bill and other efforts promote Colorado as a leader in the employee ownership landscape.

The Employee Ownership Office works closely with legislators on bills and other support in the employee ownership space, including hosting guests at the monthly Employee Ownership Commission meetings. U.S. Senator Hickenlooper’s staff recently attended a meeting to seek feedback on legislation that they were advancing in the employee ownership space.

In addition, the Employee Ownership Office offers resources to convert, promote and strengthen employee-owned businesses. In April 2019, Governor Polis created an executive order to establish the Employee Ownership Commission, creating opportunities to advance employee ownership across the state. The commission is tasked with:

• Creating a robust service provider network
• Educating businesses and communities on the benefits of employee ownership
• Identifying and removing barriers to employee ownership

As we see the largest transfer of business ownership in our nation’s history over the next decade, the Employee Ownership Office works to offer employee ownership as a guaranteed succession plan that allows communities to keep jobs and businesses local. The office also works with Small Business Development Centers across the state to reach small business owners and educate them on employee ownership as an option to strengthen their business.

To learn more about employee ownership in Colorado or discuss your options, please contact the Employee Ownership Office and sign up for the Employee Ownership Office monthly newsletter.

We also recommend joining the California Western States Chapter of The ESOP Association. This is the best place to learn more about employee ownership and network with successful ESOP companies.

Questions and Answers with Colorado's OEDIT

The ESOP Association (TEA) Question:

HB 21-1311 has been signed into law, and it seems like it’s a broad or extensive revamp of some Colorado tax laws. One provision of this new law is a section providing funds for the Governor’s office of economic development to promote employee ownership. Tell us a little about the new law and specifically about any debate on this provision.

CO Governor’s Office Answer:

Governor Polis attended our February Meeting of the EO Commission, where he actively solicited ideas for tax changes to benefit and advance the formation for new EO businesses in Colorado. Commissioners and OEDIT staff collaboratively worked with the bill’s legislative sponsors to define how the program could be structured. Testimony by EO Commissioners and partners was arranged by the OEDIT team.

OEDIT staff are currently building out the infrastructure to open the application on January 1, 2022.

$10 million will be available each year for the next five years.

The program will close January 1, 2027.

Qualified businesses will reserve a tax credit, based on their through the OEDIT website.

Eligible newly forming employee ownership structures include:

• Worker Owned Cooperatives
• Employee Ownership Trusts
• Employee Stock Ownership Plans

Businesses with certified applications will be issued tax credits based on up to 50% of their conversion costs for use on their state income taxes, not to exceed the amounts below by structure type:

• Cooperative = up to $25,000
• Employee Ownership Trusts = up to $25,000
• Employee Stock Ownership Plan = $100,000

TEA Q:

Colorado has a new Senator as of January 2021, and three new House Representatives since 2019. What is the CO center doing to help educate these federal lawmakers on employee ownership and its benefits?

CO Governor’s Office:

We recently had Senator Hickenlooper’s staff attend our EO Commission Meeting to give feedback on legislation that they were advancing in this space. A number of the members of our EO Commissioners are members of your organization and recently participated in your event in DC.

TEA Q:

What prompted this effort and spurred its inclusion in the bill? What has the response been so far from both inside and outside the employee ownership community? What is the broader business community saying about this legislation?

CO Governor’s Office:

The program will open at the start of 2022. We are receiving inquiries from business owners on how to time their conversions to access the program. We are also receiving numerous inquiries from EO related groups.

We recently held a session with the Colorado CPA Association to prep them for the opening of this program. We will continue to offer guidance to them and the broader business community as the program near opening.

This portion of the broader bill had strong bipartisan support.

TEA Q:

There was a recent documentary for Colorado PBS about employee ownership, and now this legislation -- so Colorado seems to be joining the movement by states to promote employee ownership. What’s prompting this broader, overall effort?

CO Governor’s Office:

Our efforts were prompted by:

• Gov. Polis Exec Order April 2019
• Had multiple businesses that all offer broad based EO to employees. He understands the importance and positive impact EO can have on the business, its employees and the communities they operate in.
• EO Commission
  • 11 members. active experts in this space, tasked with:

1. Creating a robust service provider network
2. Educate businesses and communities on the benefits of EO
3. Identify and remove barriers
4. Funding of staff at the Office of Economic Development and International Trade (3 team members)

• Part of the Small Business Support & Rural Prosperity

1. MBO
2. Rural Prosperity Office
3. SBDC Network
4. October 2020 created the Colorado EO Office
5. Ecosystem of Partners

• Collaborating to maximize access to businesses and our offer assist those interested in looking into Employee Ownership Options

TEA Q:

Over the next ten years we will see the largest transfer of business ownership in our nation’s history as Baby Boomer business owners seek to retire. In Colorado, our data suggests 61,000 businesses are facing this issue. What more can be done to reach these owners to consider an ESOP as an option for their succession planning?

CO Governor’s Office:

Our office manages the Small Business Development Center network throughout our State. We are actively training our consultants and staff within the network to educate and serve business owners that are interested in learning more about EO options.

TEA Q:

For readers in Colorado who may be considering converting to employee ownership or who want to understand more about this legislation, who can they contact?

CO Governor’s Office:

Since our staff is currently building out the program, we encourage interested Colorado businesses to register for our Employee Ownership Office newsletter.

Colorado businesses interested in starting the conversation around transitioning to an EO structure can reach out to our Small Business Navigator who can offer them access to service providers, connections to existing Colorado EO businesses, educational programming, grants, loans, etc.

TEA Q:

For our readers outside of Colorado who love this idea and maybe want to see similar action in their state, what would you recommend they do to help start or support a similar movement?

CO Governor’s Office:

Find advocates in your community and start building pathways to advance ideas in your community.