HB25-1021, a bipartisan bill introduced in the Colorado House of Representatives, would expand the incentives under Colorado law to encourage employee ownership. The state already provides significant tax credits for companies to adopt ESOPs, worker cooperatives, employee ownership trusts, or other structures that provide employees with at least 20% of the company's equity.
Effective 2027, the proposed legislation would provide a capital gains tax exclusion for sellers to any of the plans named above. It also would provide a deduction for federal income tax paid by a worker cooperative of up to $1 million per year. The bill would also expand the existing tax credit program for converting to an employee-owned company.
Colorado law currently provides a refundable tax credit for up to $50,000 of the costs of setting up an ESOP and 50% of the costs, up to a maximum credit of $25,000, for other plans. Effective 2026, the proposed law would increase this percentage to 75%. Current law also provides a tax credit of 50% of the costs, up to a maximum credit of $25,000, for a qualified employee-owned business expanding its employee ownership stake by at least 20%. This proposed law would expand this to 75%. The proposed law would also allow 501(c)(3) nonprofits headquartered in Colorado to claim a refundable tax credit for up to 75% of their costs, up to a maximum of $167,000, in assisting one business per year in adopting an employee ownership plan. If the amount of the credit exceeds the income tax due on the applicable entity, the amount not used to offset income taxes is to be refunded to the entity.