Employee Ownership Tax Credit to Strengthen and to Thrive

Business type: Newly-established employee-owned businesses, defined as being employee-owned for 7 years or less from the application date.

Timeframe: Tax credits are available for income tax years 2025 to 2029.

Employee ownership structure age: To be eligible for tax credit certification, the employee ownership structure must have been in place for a maximum of seven years. The seven-year period is measured from the implementation date specified in the application materials, and as indicated in a stock purchase agreement, corporate resolution, or similar. Only eligible costs incurred up until the last day of the seventh year from the employee ownership structure's implementation date are eligible for certification.

Eligible structures: 

• Employee Stock Ownership Plan (ESOP), Worker-Owned Cooperative, Employee Ownership Trust (EOT), and;
• Alternative Equity Structures
  • Including but not limited to: LLC membership, phantom stock, profit interest, restricted stock, stock appreciation rights, stock options, synthetic equity, or “other” alternative equity structure. For Alternative Equity Structure eligibility criteria, please find information in the following sections.

Eligibility criteria for employee stock ownership plan (ESOP), worker-owned cooperative, employee ownership trust (EOT) applicants:

• Employee ownership plan offers at least 20% equity in the business to employees (excluding founders).
• Business has at least 3 full-time employees (or 3 members, if it is a cooperative) included in the eligible employee ownership plan or structure.

Eligibility criteria for all applicants:

• Business is headquartered in Colorado for the entirety of the tax year in which you are applying. For “corporate headquarters” definition, please find information in the sections below.
• Business is operational in Colorado for the entirety of the tax year in which you are applying.
• Business must be in good standing with the Secretary of State.
• Business must not have applied for this program more than once in a tax year.

House Bill 24-1157, which established the tax credit, defines an “employee-owned business” as:

• A taxpayer that is subject to tax under article 22, including but not limited to a C corporation, S corporation, limited liability company, partnership, limited liability partnership, sole proprietorship, or other similar pass-through entity, that:
  • Is owned in whole or in part by an employee ownership trust. "Employee ownership trust" means an indirect form of employee ownership in which a trust holds a controlling stake in a business and benefits all employees on an equal basis and otherwise meets the definition of an alternate equity structure.
  • Has an employee stock ownership plan, as set forth in section 4975 (e)(7) of the internal revenue code, as amended.
  • Is beneficially owned in whole or in part by a worker-owned cooperative, as set forth in section 1042 (c)(2) of the internal revenue code, as amended.
• Or has an alternate equity structure;
  • "Alternate equity structure" is a mechanism under which an employer grants employees a form of employee ownership, including but not limited to an employee stock purchase plan, llc membership, phantom stock, profit interest, restricted stock, stock appreciation right, stock option, or synthetic equity. 
  • An alternate equity structure must at a minimum:
    • Grant rights to or be offered to at least 20% of an employer's eligible workers, or grant rights to or be offered to at least 20% of eligible workers of an employer that is owned by or operated for the benefit of eligible workers in a broad-based employee ownership transition. 
      • "Eligible workers" means all full-time employees, regular employees, non-seasonal employees, non-managerial employees, and contract labor.
    • Have the participation of at least 20% of an employer's eligible workers;
    • Allocate at least 20% of the fully diluted securities or rights to a synthetic interest in securities to participating eligible workers, or allocate 20% of net profit from operations to participating eligible workers; and
    • Grant to participating eligible workers informational rights, decision-making rights, and non-financial rights that are equal to or greater than the rights that are granted to holders of the employer's common stock or holders of the employer's residual membership interest.
• And has its corporate headquarters located in this state.
  • "Corporate headquarters" means the sole location within a regional or national area where the taxpayer's staff members or employees are domiciled and employed, and where the majority of the taxpayer's financial, personnel, legal, planning, or other business functions are conducted on a regional or national basis.

Eligible costs are those directly incurred as a result of operating as a newly-established employee-owned business and are essential to the ongoing success and sustainability of the employee ownership structure. Eligible costs are not associated with normal business operations. Costs must be clearly tied to the intent of the program, which is to support the development and growth of employee-owned businesses in Colorado. To be considered eligible, costs must: 

• Directly support the creation, maintenance, or enhancement of the employee ownership structure. 
• Be necessary for the ongoing operation of the employee-owned business. 
• Be reasonable and documented.

While the text below provides a comprehensive list of common eligible costs, this information is not exhaustive. If the business has incurred costs that are not explicitly listed but align with the program's intent, they may still qualify for reimbursement. For this reason, it is suggested that the business submits all possible eligible costs from the tax year to maximize the amount of their tax credit certificate. This will ensure the maximum tax credit certificate issuance, in the event a portion of the costs submitted by the applicant are determined to be ineligible.

The following list provides details on cost eligibility by category:

Accounting

Eligible Costs:

• Repurchase Obligations Plan Development: costs associated with engaging with a service provider to develop a repurchase obligations plan.
  • Example: engaging a consultant to develop the repurchase obligation plan.
• Capitalization Table Management: costs associated with onboarding, subscription, ongoing updates, maintenance, or similar, of a capitalization table software, product, or subscription.
  • Example: Subscribe to Carta or Cake for capitalization table management, complete onboarding, and pay for their services on an annual basis. 

Ineligible costs:

• Employee Wages: costs associated with wages, fringe benefits, bonuses, or similar.
  • Example: any cost directly tied to compensation, for example, wages, fringe benefits, bonuses, or similar.

Legal

Eligible Costs:

• Annual Business Valuation for Employee Ownership Purposes: costs associated with completing a required annual business valuation as part of being employee owned.
  • Example: ESOP pays firm to complete valuation for employee ownership purpose. 
• Ongoing Legal Fees: costs associated with the company being in regular contact with corporate counsel when issuing or making any changes to an employee ownership plan.
  • Example: company engages legal counsel for administration of the employee ownership plan, analysis of any securities filings, strategy and planning, or similar.
• Ongoing Corporate Governance: costs associated with the company issuing more options/units under an employee ownership plan.
  • Example: company engages legal counsel for support with Board Consents, Stockholder Consents, Grant documentation, or similar.
• Corporate Transparency Act/BOI: costs associated with remaining compliant with the Corporate Transparency Act as they relate to your employee ownership structure or plan.
  • Example: engaging a consultant to update your filing as more owners were added to your company due to your employee ownership plan. 

Ineligible Costs:

• Regulatory Compliance for Employee Ownership Plan Maintenance: costs associated with remaining compliant in a regulatory context for your employee-owned company. These are normal and expected costs that apply to each and every employee-owned company and were likely anticipated during the feasibility phase of your conversion to employee ownership. These costs are expected, easily forecasted, and somewhat rote or scheduled in how they are applied to applicant companies.
  • Example: 409P, K1's, or similar.

Business Advisory

Eligible Costs:

• Strategic Planning: costs associated with ensuring sustainable employee ownership operations.
  • Example: new ESOP engages a consultant to aid in building out a calendar of events for their administration team on the annual workflows associated with new fillings as part of being an ESOP.
• Employee Ownership Culture Development: costs associated with developing the company culture after the ESOP conversion.
  • Example: new ESOP engages a consultant to aid in creating an Employee Resource Group to support communicating the value and importance of the ESOP to the company.
• Employee Owner Education and Training: costs associated with educating employees about employee ownership, financial literacy, and governance.
  • Example: costs to access workshops, seminars, online training modules related to employee ownership.
• Employee Ownership Internal Communications Committees Training: costs associated with developing an internal communications committee to train new employee owners.
  • Example: access communications committees content on The ESOP Association or National Center for Employee Ownership websites, programming, event fees, or similar.
• Internal Communications Plan Development: costs associated with the development of an internal communications plan.
  • Example: access communications committees content on The ESOP Association or National Center for Employee Ownership websites, programming, event fees, or similar.
• Board Training, Education, and Development: costs associated with training, educating, and or developing a board that is directly associated with your shift into an employee-owned business structure.
  • Example: engage consultant to train new board members who are also employee owners once the company shifts to an employee-owned business structure.
• Translation and Interpretation Services: costs associated with translation of content for employee ownership purposes.
  • Example: translate a company flier associated with employee ownership, hire a third party to conduct simultaneous translation of a meeting or event associated with your employee ownership structure, or similar.
• ESOP Third Party Administrator (TPA): costs associated with engaging a ESOP Third-Party Administrator (TPA).
  • Example: ESOP hires TPA for investment services, recordkeeping, administrative services, or similar.
• ESOP Trustee: costs associated with engaging with an ESOP Trustee.
  • Example: Company pays ESOP Trustee for support with any of the following: engage the independent ESOP appraiser, establish the annual ESOP stock price, vote ESOP shares to select the board of directors, manage assets of the ESOP trust, ensure plan documents are followed, thoroughly document decision-making processes, or similar.
• Membership Fees: costs associated with joining or maintaining membership status with an employee ownership ecosystem organization that directly benefits your employee owners.
  • Example: Annual membership costs for The ESOP Association, National Center for Employee Ownership, Certified EO, or similar, or admission/registration costs to attend their events or conferences (note that travel costs are not covered, see "travel" entry.

Ineligible Costs:

• Travel: costs associated with travel.
  • Example: mileage or flights to an employee ownership membership event or conference, accommodations or food for a conference, or similar.

Similar Professional Services

Eligible Costs:

• Financial Literacy/Open Book Management: costs associated with training, subscription to product/service, or similar, for the purposes of building a stronger employee ownership culture.
  • Example: costs to access Great Game of Business, ESOPOne, or similar.
• Employee-Owner Workforce Development: costs associated with training and developing the new employee owners.
  • Example: purchasing access to a training program for new employee owners that is specifically tied to employee ownership workforce development.
• ESOP Plan Audit, Annual (100+ employees): costs associated with conducting an annual audit of requirement plans as required by The Employee Retirement Income Security Act of 1974 (ERISA).
  • Example: ESOP has over 100 employees included in the plan, which requires an annual audit.
• Virtual Data Room Subscription: costs associated with development, subscription, ongoing updates, maintenance, or similar, of virtual data room of a company's corporate and commercial documents.
  • Example: company joins Box to easily share and maintain employee ownership plan documents with legal counsel.

Ineligible Costs:

• Insurance: costs associated with any type of insurance.
  • Example: company has costs associated with directors, officers, or fiduciary, or similar, insurance plans.
• Souvenirs, Wearables, and Gifts (SWAG): costs associated with any type of purchase involving souvenirs, wearables, and gifts (SWAG).
  • Example: company buys t-shirts or decals for their new employee owners.
     

The following costs are ineligible:

• Any expenses that have been incurred in the same calendar year as the application to the program before January 1.
• Expenses that have been or will be reimbursed under any other program.
• Expenses that do not meet program intent.
• Expenses that can not be proven with a receipt paid for by the business.
• Specific ineligible costs:
  • Travel costs, including by not limited to: mileage reimbursement, airfare, lodging, or similar.
    Employee compensation, including but not limited to: wages, fringe benefits, bonuses, or similar.
  • Regulatory costs that broadly apply to all employee ownership plans for a specific employee ownership structure.
  • Lobbying costs.
  • Insurance costs, including by not limited to: insurance plans for directors, officers, fiduciary, or similar.
  • Souvenirs, Wearables, and Gifts (also known as “SWAG”).

When determining eligible costs, it's important to understand how costs are allocated, especially when expenses serve multiple purposes.

For instance, if a business incurs legal fees for both general corporate matters and employee ownership-specific issues, a reasonable allocation method might involve tracking the time spent on each type of legal work. The portion of the legal fees directly attributable to employee ownership matters would be eligible for the tax credit whereas the portion of legal fees attributed to general corporate matters would not be eligible costs for this program.

Businesses may be issued a tax credit as a reimbursement that covers up to 50% of acceptable costs incurred by new employee-owned businesses, not to exceed $50,000, and is available on an annual basis. See the above section for eligible costs.

While we ask applicants to reserve anticipated total expenses before a tax credit is issued, the final tax credit will always be calculated based on actual expenses with accompanying receipts/invoices. In cases where a business has certified expenses exceeding the amount of tax credits they initially reserved in their application, OEDIT will provide additional tax credits to cover the difference up to the program limit and dependent on program eligibility criteria. This process is subject to annual limits. In cases where a business has certified expenses that are less than the tax credits they initially reserved in their application, OEDIT will calculate the tax credit based on the business’ actual and eligible expenses. This may result in the issuance of tax credit certificates that total less than the amount listed in the application to the program.

The tax credit certificates must be used in full during the tax year in which the application was made to the program. Any remaining, unutilized tax credit certificates will be reimbursed on a one-to-one basis.

Details on the application process will be available once the program is fully launched. The target launch date for the application portal to the program is 01/05/2026. This webpage will be updated with details on the application process, program launch date, or similar, in the coming months. Please check back often to stay informed, and feel free to reach out to the program manager listed below to ask any questions. If you would like to be added to an email distribution list to receive updates on this program, please complete the form here.

If you experience any issues with the application or would like to request accessibility accommodations, please contact the program please contact us.

The steps to apply for the program are listed below:

Step 1: Complete and Pass the Pre-Application

Log in or create a new account in the OEDIT application portal. To protect your personal information, we manually add users to the portal, so please allow up to several days for us to activate your account. 
If your answers to the pre-application qualify your business, you will receive an email confirmation of approval. Follow the steps outlined in the email to access the next step.
To meet initial eligibility requirements as a qualified business, you must disclose your employee ownership structure type (for example, ESOP, Worker-Owned Coop, EOT, LLC membership, phantom stock, profit interest, restricted stock, SAR, stock option, synthetic equity, or other). 

Step 2: Apply for Issuance of Tax Credit

Follow the directions outlined in the email you receive to complete your application for reservation. To access your application:

1. Go to the application portal.
2. Log in to your account.
3. Click on the Employee Ownership tile.
4. Find the Individual Application (IA file) under the “Application” heading located in the upper left side of the window and click to open it.
5. Complete all required fields and be sure to upload all required documents. Incomplete applications will cause delays in receiving the tax credit and can suspend the priority of the application until full documentation is submitted.
   1. Documentation will be required to support each cost for which you are seeking reimbursement. These may include: invoices, contracts, receipts, or similar.
6. Save your work frequently to avoid losing progress.
7. Once you have fully completed the application, press the green payment button to pay the nonrefundable $250 application fee.
   1. The application fee supports the administration of the program.
8. Your application will be reviewed and you will receive a denial or an issuance of a tax credit certificate within 90 days of your complete submission.

Step 3: Claim Your Tax Credit

The final step is to claim your Colorado income tax credit. Upon final approval, you will be issued a tax credit certificate to be submitted with your Colorado tax return. Colorado allows various refundable and nonrefundable income tax credits. Most, but not all, credits are claimed on the Individual Credit Schedule (DR 0104CR). Please consult your tax professional for assistance as necessary.

A tax credit must be used for the tax year that the eligible expenses were incurred by the business. This date will be verified by the documents provided by the applicant. A signed letter from an attorney may be required. The tax credit is not extendable and is only valid for use during the tax year that the expenses were incurred. If the tax credit exceeds the tax liability, the remainder will be refunded to the applicant. Any credit that is unused during the tax year associated with the application to the program will expire.

The statute that establishes this program provides 90 days to decline, approve, or issue tax credits measured from the time a complete application is received.

The application will open on 01/05/2026. If you would like to be added to an email distribution list to receive updates on this program, please complete the form here.

Please review the content on the Colorado Employee Ownership Office page and the Employee Ownership Resources and Educational Programming page.