M&A Advisory in Colorado

Colorado imposes a flat rate on individuals, estates, trusts, and C-corporations: 4.40% for TY 2025 (TABOR temporary reductions brought TY 2024 to 4.25%; TY 2026 projected ~4.36%). The SALT Parity Act (HB 21-1327, amended by SB 22-124) lets partnerships and S-corps elect annually via DR 1705/DR 0106 checkbox to pay Colorado tax at the entity level at the same flat rate, with a refundable owner credit — retroactive to 2018 and valuable while the federal SALT cap remains ($40,000 under OBBBA for 2025-2029). The election is annual and irrevocable once made on a timely-filed return.

Colorado taxes long-term and short-term capital gains at the same 4.40% flat rate as ordinary income — no preferential LTCG rate. The historical capital gain subtraction (C.R.S. §39-22-518) is now limited solely to taxpayers filing IRS Schedule F (farm/ranch capital gains on qualifying Colorado agricultural real property); founder-sellers of operating businesses cannot use it. HB 25-1021 creates a narrow new subtraction beginning TY 2027-2037 for qualifying gains on conversion to an employee-owned business. Installment sales under IRC §453 are conformed and useful given TABOR rate volatility.

Colorado has rolling conformity to the Internal Revenue Code, so federal §1202 QSBS exclusion flows through — if gain is excluded federally, it is generally excluded from Colorado taxable income (unlike California, New Jersey, Pennsylvania, or Mississippi). Post-OBBBA (July 4, 2025): tiered 50% at 3 years, 75% at 4 years, 100% at 5+ years; per-issuer cap raised from $10M to the greater of $15M or 10× basis (indexed from 2027); aggregate gross-asset ceiling raised from $50M to $75M. Colorado founders should segment pre- and post-OBBBA QSBS lots to maximize total exclusion.

Colorado is one of the few states with NO general occasional/casual/bulk-sale exemption for asset transactions. The tangible personal property portion of an asset sale (equipment, FF&E, rolling stock) is a retail sale subject to state (2.9%) plus local/home-rule/special-district taxes, reaching 7-9%+ in Denver (8.81%), Boulder (8.845%), Colorado Springs (8.2%), and Fort Collins. Colorado imposes successor liability under C.R.S. §39-26-117 — buyers must withhold or obtain a CDOR tax status letter (60-90 day lead time); sellers must file final returns and pay within 10 days of sale. Stock deals avoid sales tax but carry historical liabilities.

Colorado has no state estate tax and no state gift or inheritance tax — only the federal regime applies. Under OBBBA, the federal unified estate/gift/GST exemption is $15M per individual / $30M per married couple beginning January 1, 2026 (permanent, inflation-indexed), creating a significant window for pre-sale gifting of founder stock to non-grantor trusts — potentially stacking multiple QSBS $15M exclusions per trust. Assets held at death receive a federal IRC §1014 basis step-up. Colorado non-grantor trusts remain subject to the 4.4% rate, so situs planning in Nevada, South Dakota, or Wyoming is commonly paired with QSBS multiplication.

Colorado's Enterprise Zone program (16 zones) provides stacking credits including 3% Investment ITC on qualifying business personal property, 3% R&D Credit, $1,100 New Employee Credit, 12% Job Training Credit, and 25% Contribution Credit — all with 16-year carryforwards. The Advanced Industry Investment Tax Credit (AITC) delivers 25% of qualified investment (35% in rural/EZ locations) for aerospace, advanced manufacturing, bioscience, electronics, energy, infrastructure engineering, and IT. The Job Growth Incentive Tax Credit (JGITC) pays 50% of FICA for up to 8 years. EZ credits are generally non-transferable in an asset sale but can be preserved through an F-reorganization (continuing-taxpayer path) — a Colorado-specific deal-structure driver.