Colorado has become a
center of growth and innovation within the United States. Over
the past five years, Colorado’s economic growth rate ranks
fourth in the nation according to US News. The state’s
standout sectors include cannabis, manufacturing, aerospace,
craft beer & wine, and technology & startups.
This article discusses some of Colorado’s
most innovative industries/firms and the attendant R&D tax
The Research & Development Tax
Enacted in 1981, the now permanent Federal
Research and Development (R&D) Tax Credit allows a credit
that typically ranges from 4%-7% of eligible spending for new
and improved products and processes. Qualified research must
meet the following four criteria:
Must be technological in nature
Must be a component of the taxpayers
Must represent R&D in the
experimental sense and generally includes all such costs
related to the development or improvement of a product or
Must eliminate uncertainty through a
process of experimentation that considers one or more
Eligible costs include U.S. employee wages,
cost of supplies consumed in the R&D process, cost of
pre-production testing, U.S. contract research expenses, and
certain costs associated with developing a patent.
On December 18, 2015, President Obama
signed the PATH Act, making the R&D Tax Credit permanent.
Beginning in 2016, the R&D credit can be used to offset
Alternative Minimum tax for companies with revenue below $50MM
and for the first time, pre-profitable and pre-revenue startup
businesses can obtain up to $250,000 per year in payroll taxes
and cash rebates.
Colorado State Tax Incentives
The state of Colorado also offers a
research and development income tax credit for companies
located in designated locations, known as enterprise zones
(EZs). 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.
Colorado’s Main Industries
The following sections provide an overview
of Colorado’s most innovative industries:
Colorado continues to dominate the national
cannabis1 landscape. The
state set sales records in both 2019 and 2020, despite the
pandemic. Sales now exceed a whopping $2 billion.
Sector innovation ranges from genetics to
growing methods. The use of LED lighting2
that mimics the sun has been particularly helpful for indoor
growing facilities. In addition to consuming less electricity,
this technology produces less heat than traditional grow
lamps, reducing refrigeration3
Another trend among Colorado’s marijuana
farmers is moving out of warehouses and into greenhouses. This
requires process innovation4
to provide the necessary light diffusion and the most
favorable grow settings.
Bioscience research also offers great
promise to the marijuana business. For example, the University
of Colorado at Boulder’s Cannabis Genomic Research Initiative
is engaged in sampling DNA5
from multiple cannabis species.
Since patchwork marijuana laws (and taxes)
can affect profitability, firms have a strong incentive to
innovative efficient operations and to take advantage of
R&D tax opportunities.
Colorado is at the forefront of advanced
manufacturing’s U.S. resurgence6.
The state’s most innovative firms use advanced processes to
serve diverse sectors, from electronics and consumer products
to clean energy7 systems,
aerospace vehicles, and medical devices8.
The industry is geographically distributed,
with over 5,900 manufacturing firms, more than 120,000
employees, and $16.3 billion in annual economic output across
The state is home to more than 300
manufacturers and distributors9
of electronics products, components, and services.
Headquartered in Inverness, Arrow Electronics is a Fortune 500
firm and Colorado’s largest revenue-generating company.
The Colorado Robotics Association comprises
nearly 30 companies that offer highly innovative automation
solutions10. Two examples
are About Packaging Robotics, the Thornton-based manufacturer
of robotic package handling systems, and Carbide Robotics, the
Denver-based startup which creates advanced spherical robots
for the assessment of dangerous situations.
Especially when deployed as a manufacturing
process improvement, the adoption of robotics creates major
R&D tax credit opportunities.
Colorado’s thriving private sector
aerospace sector is second in the nation in employment. That
achievement is partly due to four in-state military commands
(Air Force Space Command, Army Space Command, NORAD, and
USNORTHCOMM) and three space-related Air Force bases. These
bases, along with NASA and Colorado’s university system, have
generated significant aerospace research.
Over 400 consulting, engineering,
manufacturing, and supplier companies provide
aerospace-related products and services in Colorado, including
major contractors Ball Aerospace, Boeing11,
ITT Exelis, Lockheed Martin12,
Northrop Grumman, Raytheon13,
Sierra Nevada Corporation, and United Launch Alliance.
Even so, an estimated 84% of state
aerospace firms are small businesses and startups that may be
less familiar with R&D tax credit opportunities. Important
areas of innovation include fuel efficiency and 3D printing.
Colorado is also home to a thriving
bioscience industry, which includes the biotechnology, medical
device, agricultural-bioscience, diagnostic14,
pharmaceutical, and health care sectors. Examples of major
employers in the state include Medtronic15,
Covidien, Hach Company, Baxa Corporation, Roche, Clovis
Oncology, ArcherDX (diagnostics), and Tolmar Pharmaceuticals.
Some Colorado firms operate within
bioscience innovation communities. Located in Aurora and
resting on 125 acres of land, the $5.3 billion Fitzsimmons
Life Science District is one such example. Similarly, the
BioFrontiers Institute, a 300,000-square-foot, $300 million
multi-disciplinary research center, serves as a catalyst for
bioscience innovation, specializing in genomics16,
bioimaging, new therapeutic paradigms, and regenerative
Craft Beer & Wine
Examples of microbrewery innovation include
process efficiency, refinement, and waste reduction. Many
craft beer18 makers also use
sophisticated data management to further refine their
Colorado’s breweries include Avery,
Renegade, New Belgium, Strange Brewing, and Dry Dock. Denver’s
eight breweries make it Colorado’s beer epicenter and a
national leader: According to a recent CNN report, Denver
ranks fourth in craft beer cities in the United States.
Colorado’s beverage scene also includes a
growing list of wineries. Like microbreweries, wineries19 innovate through process
refinement. For example, some western U.S. wineries use
techniques to eliminate smoke taint, and others deploy
automated grape punch-down technologies to enhance
In-state wineries include Two Rivers Winery
and Chateau in Grand Junction and Bookcliff Vineyards in
Colorado’s burgeoning startup20 scene began to accelerate in
the mid-2000s. The state then reached a tipping point in 2010
that established Colorado as a national startup focal point.
Today, Colorado’s “techiest” cities include Denver, Boulder,
Fort Collins, and Colorado Springs.
Today, tech giants Google, Facebook, and
Salesforce all have opened offices in-state, as have upstarts
Gusto and Robinhood. In another notable development, Palantir
Technologies, the data analytics company, moved its
headquarters from San Francisco to Denver in 2020.
One new firm, Hyperia, produces speech
recognition software that transcribes business meetings.
Another, Boulder AI, makes smart cameras connected to deep
learning that provides real-time traffic and other data to
Other home-grown tech startups, including
SendGrid, an email delivery service recently acquired by
Twilio for $3 billion. Boulder-based Uplight is another
example; the company has created an open, cloud-based software
platform for personalized energy services management based on
In addition to private sector innovation,
Colorado is home to leading research universities23 that are known for their
engineering and applied sciences programs. These institutions
have contributed to the creation of a dynamic economic
environment and serve as their own innovation hubs.
Colorado at Boulder
Founded in 1876, CU-Boulder is the only
university in the Rocky Mountain Region to be part of the
Association of American Universities, an elite group of 62
CU-Boulder is dedicated to helping
businesses generate new products and technologies. Examples
include a dental restorative material unveiled by 3M; and
NASA’s $671 million MAVEN mission to Mars, for which the
university served as project lead.
Under its Flagship 2030 strategic plan,
CU-Boulder has established five research initiatives, namely:
Aerospace Ventures, which combines
cutting-edge aerospace engineering and science research;
The BioFrontiers Institute, which
transforms scientific discoveries into real-world health
The Computational Sciences and
Engineering Initiative, focusing on aerospace,
manufacturing and engineering design; bioinformatics and
biology; material sciences; renewable energy;
computational chemistry, molecular dynamics; and fusion
The Energy Initiative, focusing on
energy efficiency, energy storage, and clean tech;
The Geosciences Initiative,
focusing on environmental sustainability.
Located in Fort Collins, CSU is a leading
research university, with world-class initiatives in
infectious disease, atmospheric science, clean energy
technologies, environmental science, and biomedical
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 proprietary extended-surface area photobioreactor panels.
Dedicated to bringing CSU’s innovations and
technologies into the marketplace, CSU Ventures has generated
more than 550 inventions and the filing of 710 patent
University of Denver
The oldest independent university in the
Rocky Mountain Region, DU is a premier private university. The
university recently completed a new 110,000-square-foot STEM
building and plans to expand its engineering and computer
science student and faculty capacity by 30 percent.
DU’s STEM research has focused on cyber
security, software engineering, sustainable energy
distribution and mechatronics24.
The Knoebel Center focuses on STEM aspects of aging-related
subjects, such as the development of orthopedic biomechanics.
With an increasingly dynamic and
diversified economy, Colorado is home to a growing number of
established firms, innovative startups, and highly qualified
workers. R&D is at the heart of these developments.
Colorado-based companies should take advantage of federal and
state R&D tax credits to support their innovative efforts