Ranked as the nation’s fastest growing
economy by a recent Business Insider report , Colorado noted a
3.8 percent growth in state gross domestic product last year.
With a much diversified economy, the state stands out for its
strong aerospace sector and its growing energy and
Outpacing expectations for 2014, Colorado has attracted
significant investment and relocations. The present article
will discuss Colorado’s most innovative industries and present
the federal and state R&D tax credits available to support
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
• New or
improved products, processes, or software
• Technological in nature
• Elimination of uncertainty
• Process of experimentation
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs associated
with developing a patent. On January 2, 2013, President
Obama signed the bill extending the R&D Tax Credit for
2012 and 2013 tax years.
Colorado State Tax
In an effort to encourage job creation and
capital investment in economically distressed areas, the state
of Colorado offers a research and development income tax
credit for companies located in designated locations, known as
enterprise zones (EZs). Expenditures on research and
experimental activities in an EZ can qualify for a tax credit
that corresponds to 3 percent of the difference between the
qualified research expenses (QREs) incurred during the tax
period and the average QREs from the previous two income tax
The total amount of the credit must be spread equally over
four years, which means that the taxpayer can claim 25 percent
of the credit in the year the expenditure is made and the
remaining 75 percent of it during the following three years.
Research expenses may include wages, supplies, payments to the
right to use computers, and payments for research done by a
third-party for the benefit of the contracting firm, as long
as it is performed within an EZ.
precertification by the zone administrator is required prior
to any business activity that would generate R&D credits.
Both the precertification and the final certification for the
tax credits can be made via an online process.
The state also provides biotechnology sales and use tax
refunds for the biotechnology industries. Qualified taxpayers
can claim a refund for previously paid tax expenses on
equipment and supplies used for research and development. The
incentive concerns purchases of tangible personal property
used directly in R&D activities, such as microscopes,
chemical reagents, and software.
Among the ten best places for STEM
graduates, Colorado is number three in the country for the
number of adults with a bachelor’s or higher degree.
This smart and active workforce has attracted entrepreneurs
and corporate headquarters.
According to the startup accelerator Built in Denver, Colorado
launched 122 startups and saw 20 successful exits in 2012.
Overall they raised more than $502 million, most of which went
to software companies (45 percent) and B2B web firms (33
The state’s capital, Denver, was named the second best city in
the country to launch a startup in 2014. A growing
number of millennials between 25 and 34 years old are choosing
to migrate to Denver, drawn by its lifestyle, access to
education, and unique urban environment.
Colorado is home to a growing number of
engineering and R&D intensive companies serving a variety
of advanced industries, such as advanced manufacturing,
aerospace, bioscience, electronics, energy and natural
resources, infrastructure engineering, and technology and
Colorado’s Office of Economic Development and International
Trade (OEDIT) estimates the economic impact of these
industries at nearly 30 percent of the state’s wage earnings,
nearly 30 percent of the total sales revenues across all
industries within the state, and nearly 35 percent of the
state’s total exports.
The following sections provide an
overview of Colorado’s most innovative industries.
Manufacturing and Electronics
Colorado is at the forefront of bringing advanced
manufacturing back to the U.S. The state’s manufacturers are
highly innovative and use advanced processes to serve diverse
sectors, from electronics and consumer products to clean
energy systems, aerospace vehicles, and medical devices.
Colorado’s advanced manufacturing industry is diverse and
geographically distributed across the state, with over 5,900
manufacturing firms, more than 120,000 employees, and $16.3
billion in annual economic output.
The state is home to more than 300 manufacturers and
distributors of electronics products, components, and
services. Headquartered in Inverness, Arrow Electronics is a
fortune 500 company and Colorado’s largest revenue generating
The Colorado Robotics Association congregates nearly 30
companies that offer highly innovative automation solutions.
Thornton-based manufacturer of robotic package handling
systems, About Packaging Robotics, and Denver-based startup
Carbide Robotics, which creates advanced spherical robots for
the assessment of dangerous situations, are two examples.
The widespread adoption of robots throughout the U.S. economy
promises to create major R&D tax credit opportunities and
to favor the growth of Colorado’s robotics industry.
Colorado is the second state in the nation for private sector
aerospace employment. It is home to four military commands
(Air Force Space Command, Army Space Command, NORAD, and
USNORTHCOMM) and three space-related Air Force bases. Along
with the Department of Defense and NASA, Colorado’s
universities have developed significant aerospace research.
According to a recent report by the Brookings Institution ,
Colorado’s space economy employed over 66,000 workers across
the military, civil, and private domains, contributing some
$8.7 billion in value-added output in 2011 and generating 3.8
percent of Colorado’s private-sector gross domestic product.
Over 400 consulting, engineering, manufacturing, and supplier
companies provide space-related products and services in
Colorado, including some of the nation’s major aerospace
contractors such as Ball Aerospace, Boeing, ITT Exelis,
Lockheed Martin, Northrop Grumman, Raytheon, Sierra Nevada
Corporation, and United Launch Alliance. In 2010, NASA awarded
contracts totaling more than $1.5 billion to Colorado
aerospace companies, earning the state a fourth-place ranking
Colorado’s aerospace cluster is a highly innovative one.
According to the OEDIT, since 2001, 69 Colorado companies have
won technology development and commercialization grants via
NASA’s Small Business Innovation Research or/Small Business
Technology Transfer program, and over 190 companies have won
similar grants from the Department of Defense. Important areas
for aircraft innovation include fuel efficiency and 3D
Colorado is home to a thriving bioscience industry, which
includes the biotechnology, medical device,
agricultural-bioscience, diagnostic, pharmaceutical, and
health care sectors. Examples of major employers in the state
include Medtronic, Covidien, Hach Company, Baxa Corporation,
Roche, among others.
The multiplication of investments in bioscence infrastructure
signals the growing importance of this industry to the state’s
economy. Located in Aurora, the recently developed, $5.3
billion Fitzsimons Life Science District aims to become the
center of Colorado's bioscience practice and research
community. Strategically located near the University of
Colorado Anschutz Medical Campus, the district is one of the
largest bioscience real estate developments in the nation.
Similarly, the recently built BioFrontiers Institute, a
300,000 sq. ft., $300 million multi-disciplinary research
center, also serves as a catalyst for bioscience innovation.
Part of University of Colorado at Boulder’s infrastructure,
the Institute specializes in large datasets and genomics,
bioimaging, new therapeutic paradigms, and regenerative
In addition to state-of-the-art infrastructure, Colorado
offers a variety of programs to support bioscience companies.
The recently approved House Bill 1283 extended the $25 million
Bioscience Discovery Evaluation Grant Program. Recent
legislation also determined that 25 percent of the net
increase in future corporate income tax withholdings from
bioscience businesses should be used to support proof of
concept, early stage companies, and infrastructure assistance
Colorado’s oil and gas industries have experienced
unprecedented growth over the last few years. The U.S. Energy
and Information Agency’s (EIA) 2011 assessment of proved
reserves placed the state as number nine for petroleum liquids
and number seven for natural gas. According to a recent
study by the University of Colorado’s Leeds School of
Business, economic benefits from the state's upstream and
midstream oil and natural gas industry totaled $126 billion
between 2008 and 2012.
The state boasts two of the 100 largest U.S. oil fields and
proved reserves are increasing. Between 2004 and 2013, nearly
30 thousand wells were drilled with a total of approximately
53 thousand being in current production.
The increased use of horizontal drilling
and hydraulic fracturing technologies has boosted crude oil
production breaking a sixty-year record of 64 million barrels
in 2013 and contributing $6 billion to the state
economy. According to the U.S. Energy Information
Administration, Colorado currently supplies 1 in every 50
barrels of U.S. output.
Colorado is also an important producer of natural gas. Home to
9 of the country’s 100 largest natural gas fields, the state
output has doubled between 2001 and 2013. Approximately
three-fourths of households in Colorado use natural gas for
According to the TechAmerica Foundation, Colorado’s technology
industry employed over 162 thousand people in 2012, or 8.7 of
private sector workers. The state ranked 6th in the nation for
software publishers, 7th for computer and peripheral equipment
manufacturing, and 9th for engineering services.
With a strong corporate presence, Colorado is home to regional
offices of global IT players, such as DISH Network, Liberty
Interactive, Liberty Global, Oracle, Clear Channel, Century
Link, and SAP. The state also has a vibrant startup community
- according to Built in Denver’s 2012 Colorado Digital Startup
Report, 122 digital technology startups were launched in 2012,
or one startup every 72 hours.
Boulder-based Tendril is an example of Colorado’s innovative
spirit. The company has created an open, cloud-based software
platform that provides the infrastructure, analytics, and
understanding required to deliver personalized energy services
management based on Big Data. The company just rolled
out a new feature of its software that enables it to support
all 130 million homes in North America.
In January 2014, Colorado became the first state in the U.S.
to allow recreational marijuana sales. In spite of booming
demand, a very strict drug war-era tax code often threatens
new businesses’ profitability; all the more reason for this
emerging industry to rely on innovative technologies that
support more efficient operations.
Innovations range from genetics to growing methods. The use of
LED lighting that mimics the sun has been particularly helpful
for indoor growing facilities. In addition to consuming less
electricity, this technology puts out less heat than
traditional grow lamps, which reduces refrigeration needs.
An ongoing trend among Colorado’s marijuana farmers is moving
out of warehouses and into greenhouses. This will require
further innovation that provides the necessary light diffusion
and the most favorable settings.
Bioscience research also offers great promise to the marijuana
business. University of Colorado at Boulder’s Cannabis Genomic
Research Initiative is engaged in sampling DNA from multiple
cannabis species. The material will be analyzed, sequenced,
and mapped at an unprecedented level of detail.
Denver and Boulder
concentrate a significant portion of Colorado’s innovation.
These dynamic centers have gained increased economic relevance
both at the state and national levels.
Due to its strategic west-central location, Denver is rapidly
becoming a hub for federal, high-tech, educational,
commercial, financial, cultural, tourist, storage, and
distribution activities in the Rocky Mountain States.
Colorado’s capital is home to various large corporations in
Central America, such as Lockheed Martin, CenturyLink,
Comcast, United Airlines, DISH Network, IBM, among others.
Employment growth in Metro Denver has been consistent and
diverse. The region is on target to add 46,000 new jobs in
2014. Job growth has been particularly strong in natural
resources and construction, education and health services,
professional and business services, and leisure and
Source: U.S. Bureau of Labor Statistics
The seven-county Metro Denver area is now home to 3 million
people, with the population expanding by about 1.6 percent per
year in 2013 and 2014. The millennials are the largest
population group in Metro Denver, adding up over 833,000
people in 2014. On track to be the most educated generation in
history, they represent a valuable pool of highly skilled
Denver’s startup environment is particularly dynamic. Recent
success stories include ViaWest, a provider of collocation,
hosting, cloud computing, and managed services to businesses
nationwide. Founded in 2012, the startup owns and operates 22
enterprise-class data center facilities, serving thousands of
customers. ViaWest was recently acquired by Canadian
telecommunications company Shaw Communications for $1.2
Accuvant, a cyber security firm headquartered in Denver with
offices in 27 U.S. cities, has also been recently acquired by
investment firm Blackstone Group LP for $225 million.
Similarly, video ad platform SpotXchange recently sold a 65
percent stake to European entertainment network RTL Group for
Boulder’s diverse economy includes industries such as
aerospace, bioscience, data storage, light manufacturing,
nanotechnology, natural and organic products, photonics,
professional and scientific services, renewable energy and
energy research, software, and tourism.
growing concentration of advanced technology industries in the
city has attracted more than $19 million in venture capital
investments in the first quarter of 2014. In 2012, 36
companies located in Boulder raised over $1 million.
Boulder offers a very supportive environment for innovation
and entrepreneurship. Though small in population, the city has
extraordinary entrepreneurial activity. The Innovation Center
of the Rockies and the University of Colorado’s Technology
Transfer Office are examples of institutions working to help
early stage companies and to enable the commercialization of
Boulder is also home to CO-LABS, a coalition of federally
funded scientific laboratories, universities, businesses,
local governments, and legislators who work together to
establish Colorado as a global leader in research, technology,
and technology transfer. The initiative aims at advancing the
state’s global competitiveness, by conducting economic
analysis, encouraging technology collaboration, and providing
TechStar, a mentorship-driven seed stage investment fund and
accelerator program, and Foundry Group, a venture capital firm
focused on investing in early-stage information technology
companies, are also examples of Boulder-based organizations
that contribute to a dynamic economy.
Promising Boulder-based startups include Epic Playground, a
media analytics company and creator of the mediagauge tool
that helps companies measure the use of video across websites;
and Gnip, which has developed the innovative Historical
PowerTrack that enables developers to search, find, analyze,
and compare every Tweet ever written. Gnip has raised $6.6
million from Foundry Group, First Round Capital, SoftTech VC,
Another example is SendGrid, one of the fastest growing
startups in Boulder. Founded in 2009, it has become the
world’s largest email infrastructure as a service provider.
Its email delivery service moves 2 percent of the world's
non-spam email (over 14 billion emails/month) for more than
180,000 companies including technology leaders like Pinterest,
Spotify, and Uber. As of 2013, the company had raised more
than $27 million in total funding.
Colorado is home to large research universities
that are known for their engineering and applied sciences
programs. These institutions have contributed to the creation
of a dynamic and innovative economic environment.
of Colorado at Boulder
Founded in 1876, CU-Boulder has a total undergraduate
enrollment of over 25 thousand. It is the only school in the
Rocky Mountain Region to make it into the Association of
American Universities, an elite group of 62 research
universities. Under its Flagship 2030 strategic plan,
CU-Boulder has established five research initiatives , namely:
Ventures, which combines cutting-edge aerospace engineering
and science research to enable
innovations such as the
development of unmanned aircraft systems for challenging
satellite systems for observing Earth, and new sensors for
Earth and space environments.
b) The BioFrontiers
Institute, which focuses on transforming scientific
discoveries into real-world
improve human health and well-being, particularly in areas
such as large datasets and
genomics, bioimaging, new
therapeutic paradigms, and regenerative biology.
c) The Computational
Sciences and Engineering Initiative, which applies computing
power, algorithm speed
and reliability, and complex
visualization software tools to fields such as aerospace,
bioinformatics and biology; material sciences; renewable
chemistry and molecular
dynamics; and fusion energy science.
d) The Energy Initiative,
which comprehends various research efforts ranging from
construction to energy storage,
from solar and wind energy to hydrogen production.
e) The Geosciences
Initiative, which combines natural sciences with social
sciences, humanities, and
research, focusing on environmental sustainability.
With a long history of partnering both with the government and
the private sector, CU-Boulder is dedicated to helping
businesses generate new products and technologies. Recent
examples include a new dental restorative material, based on
technology developed by a team of CU-Boulder engineers, which
was unveiled by the 3M Company on October 1, 2014; and NASA’s
$671 million MAVEN mission to Mars, to which the university
has provided the project lead, science operations, two of the
science instruments, and leading education and public
Colorado State University
Located in Fort Collins, CSU is among the nation’s leading
research universities. With world-class initiatives in
infectious disease, atmospheric science, clean energy
technologies, environmental science, and biomedical technology
the university attracted more than $300 million in research
funding in FY ‘13.
CSU’s Infectious Disease Research Center (IDRC) performs
cutting-edge research on infectious diseases that impact
humans, animals and food supply. It is home to a state of the
art biocontainment facility that is 1 of 13 NIH funded
Regional Biocontainment Labs (RBL) in the country. The
university’s Biopharmaceutical Manufacturing and Academic
Resource Center has recently been awarded a $2 million
Department of Defense contract for working on an Ebola
The university’s Flint Animal Cancer Center (ACC) is the
largest of its kind in the world. It has worked on the
prevention, diagnosis, and treatment of cancer in pet
animals. Through a new model of public-private
partnering, CSU has established a cancer research supercluster
focused on developing product-driven strategies within the
academic research community and advancing emerging
products by partnering with private and public sector
The university is also engaged in world-class research for the
creation and dissemination of market-driven clean energy
solutions. CSU’s clean energy research supercluster has been
responsible for the establishment of various innovative
companies, such as Solix BioSystems, Inc., the creator of a
robust algal growth system (AGS®) that is based on its
proprietary extended-surface area photobioreactor panels.
Dedicated to bringing CSU’s innovations and technologies into
the marketplace, CSU Ventures has enabled the disclosure of
more than 550 inventions and the filling of 710 patent
applications, 56 of which were issued. It also contributed to
the creation of 21 new startup companies and to the generation
of $7.12 million in licensing income over the last five years.
University of Denver
The oldest independent university in the Rocky Mountain
Region, DU is also among the country’s premier private
Among its several research efforts is an interdisciplinary
science, technology, engineering, and mathematics (STEM)
program. The university is currently building a new
110,000-square-foot building and plans to expand its
engineering and computer science student and faculty capacity
by 30 percent.
STEM research has focused on cyber security , software
engineering, sustainable energy distribution and mechatronics.
The Knoebel Center focuses on STEM aspects of aging-related
subjects, such as the development of orthopedic biomechanics,
including the refinement of artificial limbs, valves, and
With an increasingly dynamic and
diversified economy, Colorado has attracted a growing number
of companies as well as highly qualified workers. Innovation
is at the heart of recent positive developments, such as the
blooming of aerospace, advanced manufacturing, and IT
industries. Colorado-based companies should take advantage of
federal and state R&D tax credits to support their