Colo. Code Regs. 39-22-121

Current through Register Vol. 47, No. 16, August 25, 2024

Rule 39-22-121 - Child Care Contribution Credit

Basis and Purpose. The bases for this rule are § 39-21-112(1) and § 39-22-121, C.R.S. The purpose of this rule is to provide clarification regarding the child care contribution credit and the conditions necessary to qualify for the credit.

(1)Computation of the Credit.

(a) Any taxpayer that makes a qualifying monetary contribution to promote child care in Colorado may claim an income tax credit of fifty percent of the total value of the qualifying contribution.

(b) No credit may be claimed for in-kind contributions made in tax years commencing on or after January 1, 2000.

(2)Limitation on Amount of Credit that May be Generated.

(a) The amount of credit generated for contributions made during any one tax year may not exceed $100,000 per taxpayer and is further subject to the limitations in this paragraph (2), and in paragraphs (3), and (8). For purposes of this rule, two taxpayers filing a joint return are considered one taxpayer.

(b) Credits for contributions made to facilities listed in paragraph 5(a)(viii) in tax years beginning on or after January 1, 2013 but before January 1, 2014 shall not be claimed until a tax year commencing on or after January 1, 2014.

(c) Qualifying contributions made in tax years 2011 and 2012 may only be used beginning in tax year 2013 and after. See paragraph (8) of this rule for information on the calculation of such credit. See § 39-22-121 (6.7)(a), C.R.S.

(3)Carryforwards. If the amount of credit generated in one tax year exceeds the amount of tax due, the excess may be carried forward for up to five tax years. A credit carryforward does not restrict additional credits from being generated in future years. Notwithstanding the suspension of the credit in tax years 2011 and 2012, no extension of the five-year carryforward is allowed by the statute.

(4)Qualifying Contributions. In order for a contribution to be a qualifying contribution, it must be one of the following:

(a) Monetary contributions made to a qualifying child care facility, as defined in paragraph (5)(a) below, to the extent that the facility utilizes the contribution for child care provided to children who are twelve years of age or younger.

(b) Monetary contributions made to a qualifying grandfathered facility or program, as defined in paragraph (7) below, and utilizes the contribution for child care provided to children eighteen years of age or under.

(5)Qualifying Child Care Facilities or Programs.

(a) Qualifying contributions to the following child care facilities or programs are eligible for the child care contribution credit. Programs and facilities specified in paragraphs (i) through (viii) qualify only if the programs or facilities are licensed by the Department of Human Services. Programs and facilities specified in paragraphs (ix) through (xiii) qualify only if the facility or program is registered with the Department of Revenue.

(i) A child care center as defined in § 26-6-102(5), C.R.S.,

(ii) A child placement agency as defined in § 26-6-102(7), C.R.S.,

(iii) A family child care home as defined in § 26-6-102(13), C.R.S.,

(iv) A foster care home as defined in § 26-6-102(14), C.R.S.,

(v) A homeless youth shelter as defined in § 26-6-102(17), C.R.S.,

(vi) A residential child care facility as defined in § 26-6-102(33), C.R.S.,

(vii) A secure residential treatment center as defined in § 26-6-102(35), C.R.S.,

(viii) Any approved facility school as such term is defined in section § 22-2-402(1), C.R.S., that is also affiliated with a licensed or certified hospital in the state and is also a nonprofit organization (see the restriction on a credit for contributions made to such facilities in paragraph 2(b) of this rule),

(ix) An unlicensed child care facility that provides child care services similar to those provided by a licensed child care center as defined in § 26-6-102(5), C.R.S. This includes child care provided for the whole or part of a day. The program must provide for the care of five or more children who are not related to the owner, operator, or manager. This does not include;

(A) facilities or programs that provide services identical or similar to day treatment centers, guest child care facilities, family child care homes, foster care homes, homeless youth shelters, medical foster care, residential care facilities, secure residential treatment centers, specialized group facilities, or therapeutic foster care,

(B) facilities or programs that qualify for the enterprise zone administrator credit, or

(C) school programs maintained during regular school hours including kindergartens;

(I) maintained in connection with a public, private, or parochial elementary school system of at least six grades, or

(II) operated as a component of a school district's preschool program operated pursuant to article 28 of title 22, C.R.S.,

(x) A grant or loan program for a parent or parents in Colorado requiring financial assistance for child care,

(xi) A training program for child care providers in Colorado,

(xii) An information dissemination program in Colorado to provide information and referral services to assist a parent or parents in obtaining child care,

(xiii) A grandfathered child care facility or program as defined in paragraph (7) below.

(6)Registration of Unlicensed Facilities or Programs.

(a) Facilities or programs that are licensed by the Department of Human Services as a child care facility or program do not need to separately register with the Department of Revenue. However, unlicensed facilities or programs must register with the Department of Revenue to be a qualified facility or program for the purposes of this credit. The application for registration must include:

(i) An explanation why they are a qualified facility or program,

(ii) An explanation why licensing with the Department of Human Services is not required,

(iii) Brochures, newspaper articles, community publications and other documentation describing the facility or program.

(b) Applicants for registration, either pursuant to this paragraph (6) or (7) below, whose application has been denied in whole or in part, may appeal the denial by filing a request for hearing before the Executive Director pursuant to the Colorado Administrative Procedures Act (§ 24-4-104, C.R.S.) and not pursuant to § 39-21-103, C.R.S.

(7)Grandfathered Facilities or Programs.

(a) A grandfathered child care program is considered a qualifying facility or program on or after March 9, 2004 if the facility or program:

(i) Received contributions prior to January 1, 2004 for which a child care contribution credit was properly allowed and claimed,

(ii) No longer qualifies for the credit under the new rules because the program no longer meets the qualifications of the law and/or some or all children cared for in the program are age thirteen through eighteen,

(iii) Has applied for eligibility with the Department of Revenue and been approved to continue to accept contributions that qualify for the credit.

(b) The grandfather application must include:

(i) Documentation proving the program qualified for the credit under the law as it existed prior to March 9, 2004,

(ii) Documentation regarding the children age thirteen through eighteen that were assisted by contributions received in 2003 or prior, and

(iii) A list of taxpayers who claimed the credit in tax year 2003 or prior.

(8)Limitation to the Credit for Tax Years 2013 and 2014.

(a) For tax years beginning on or after January 1, 2013 but prior to January 1, 2014 (tax year 2013), the maximum credit that can be used to offset tax is limited to 50% of the total of the carryforward credits from 2012 and any credit generated by contributions made during 2013. Any unused credits must be carried forward to tax year 2014.

(b) For tax years beginning on or after January 1, 2014 but prior to January 1, 2015 (tax year 2014), the maximum credit that can be used to offset tax is limited to 75% of the total of the carryforward credits from 2013 and any credit generated by contributions made during 2014. Any unused credits must be carried forward to tax year 2015.

(c) There is no similar limitation to the percentage of the credit that can be used in tax year 2015 or later.

(9)Exceptions. Contributions will not qualify for this credit if any of the following apply:

(a) The contribution is made to a child care facility or program in which the taxpayer or a person related to the taxpayer has a financial interest.

(i) A "person related to the taxpayer" means a person connected with another person by blood or marriage. The term also includes:

(A) a corporation, partnership, limited liability company, trust or association controlled by the taxpayer;

(B) an individual, corporation, limited liability company, partnership, trust or association under the control of the taxpayer; or

(C) a corporation, limited liability company, partnership, trust, or association controlled by an individual, corporation, limited liability company, partnership, trust, or association under the control of the taxpayer.

(b) The contribution is made to a for-profit business, unless the contribution is directly used for the acquisition or improvement of facilities, equipment, or services, including the improvement of staff salaries, staff training, or the quality of child care.

(c) The contribution is not directly related to promoting child care in Colorado as defined in this rule.

(d) The contribution is made in a tax year commencing after December 31, 2024.

(e) The donor receives consideration from the donee facility or program facility or program in exchange for the contribution. If this is the case, a sale occurs rather than a contribution. However, this will not restrict a company from contributing to a child care facility and claiming a credit based on that contribution if the employees of the company receive a benefit in the form of discounted child care, assuming that the employer has no financial interest in the child care facility.

(10)Contributions Split Between Qualified and Nonqualified Purposes.

(a) Donee facilities or programs may accept contributions that are used in part for qualified child care purposes but are also used, in part, for nonqualified purposes. Examples include:

(i) A child care facility that cares for children both 12 and under and 13 and over,

(ii) A church that uses part of the contribution to fund its child care facility and part to fund other charitable functions,

(iii) Contributions to a community center construction project where a child care facility is only part of the overall project.

(b) The donee facility or program must allocate the portion of a contribution that qualifies for the child care contribution credit for the donor. This allocation must be done in a reasonable manner based on the facts of the situation. Examples of methods that can be used to allocate the contribution include:

(i) A child care facility that cares for children of various ages, some of which are 13 or older who do not qualify for the credit.

(A) The child care facility can compute the percentage of children in its care that qualify for the credit. This percentage can be used to allocate contributions that are made to the facility.

(B) The child care facility can document the expenses incurred in caring for children who are 12 and younger versus children who are 13 and older. The contribution would be allocated using this percentage. This method requires extensive supporting documentation.

(ii) A facility or program that operates several different programs, not all of which qualify for the credit.

(A) The expenses of the various programs must be accounted for and contributions can be directly allocated to the qualified programs.

(B) The contribution can be allocated on a percentage basis utilizing total expense figures for the entire facility.

(iii) The construction of a community center, which includes a child care facility.

(A) A percentage of area method can be utilized if this provides an equitable calculation of the credit (i.e. 30% of the floor space is for the child care facility so 30% of the costs are allocated to the child care facility).

(B) If construction costs vary greatly between the child care area of the building and other areas, a more equitable allocation of the contribution would be achieved by determining the difference between the cost of the facility with and without the child care facility. That difference can be used to determine the percentage of costs to allocate to the child care facility.

(C) If construction costs are reasonably allocated using the method in paragraph (1), above, but the costs of equipping the child care facility varies significantly from other areas of the building, a hybrid method of allocating contributions can be used. Construction costs can be allocated using a percentage of area method with equipment costs directly allocated. These factors could then be combined into one overall percentage to be used in allocating the contributions.

(iv) If the methods above do not equitably allocate the contribution to the child care facility or program, a written request to the Department of Revenue may be made to obtain permission to use an alternate method of allocation.

(c) If contributions are accepted as earmarked for only the child care facility despite the existence of nonqualified programs, the full contribution will qualify for the 50% credit. The facility must have accounting procedures in place to verify that those contributions are indeed utilized 100% for the child care function and no funds are utilized for nonqualified purposes. Any excess funds left over at the end of the year must be carried forward for eligible expenses in the next year. Accounting procedures must be in place to track and document this allocation process. A separate fund cannot be arbitrarily set up to accept contributions for the child care facility while funds from other sources (such as federal or state funds, charitable organizations, nonresident donors) are used to pay other expenses that would not qualify for the credit.

(11)Documentation. Any contribution must be supported by a signed statement from the donee child care facility or program and furnished to the donor.

(a) The statement must state the amount of the monetary contribution.

(b) The statement must list the name and Department of Human Service's license number, if applicable, of the eligible facility or program, or the name and Department of Revenue registration number of a pre-registered facility or program that qualifies for the credit.

(c) The statement must include a detailed description of the eligible purpose(s) for which the contribution will be used and that the contribution will be utilized one-hundred percent for purposes directly related to promoting child care.

(d) If the contribution is not being utilized one-hundred percent for purposes directly related to promoting child care, the statement must clearly state the portion of the contribution that qualifies for the credit computation. It will be the responsibility of the donee facility or program to prove that the percentage of the contribution reported as utilized for purposes directly related to promoting child care is accurate and no portion has been expended on any other expense or purpose. Example: A contribution of $1,000 is made to a qualifying child care facility. Seventy percent of the contribution is expended on qualifying purposes and the other thirty percent is expended on unrelated overhead expenses of the organization. The statement must clearly state that only $700 of the contribution is eligible for calculating the fifty percent credit.

(e) The donor must provide the statement to the Department of Revenue with an income tax return filed on a paper form. In the case of an income tax return filed electronically, the certification must be provided to the Department of Revenue upon request with all information specified by the Department provided.

(12)Investment Funds. Money donated to a qualified facility or program may be invested by that facility or program in an account that provides future payments to the facility or program. The interest and the principal, when removed from the account in any future year, must be utilized 100% for qualifying child care purposes in order for the original contribution to qualify for the credit.

39-22-121

Colorado Register, Vol 37, No. 14. July 25, 2014, effective 8/14/2014

37 CR 18, September 25, 2014, effective 10/15/2014

37 CR 19, October 10,2014, effective 10/30/2014

37 CR 22, November 25, 2014, effective 12/16/2014

38 CR 04, February 25, 2015, effective 3/17/2015

38 CR 07, April 10, 2015, effective 4/30/2015

38 CR 11, June 10, 2015, effective 6/30/2015

38 CR 22, November 25, 2015, effective 12/15/2015

38 CR 24, December 25, 2015, effective 1/14/2016

38 CR 24, December 25, 2015, effective 1/19/2016

39 CR 01, January 10, 2016, effective 1/30/2016

39 CR 16, August 25, 2016, effective 9/14/2016

40 CR 08, April 25, 2017, effective 5/15/2017

40 CR 12, June 25, 2017, effective 7/15/2017

40 CR 16, August 25, 2017, effective 9/14/2017

40 CR 23, December 10, 2017, effective 1/1/2018

41 CR 14, July 25, 2018, effective 8/14/2018

41 CR 20, October 25, 2018, effective 11/14/2018

42 CR 02, January 25, 2019, effective 12/18/2018

42 CR 02, January 25, 2019, effective 12/18/2018, expires 4/17/2019

42 CR 06, March 25, 2019, effective 4/14/2019

43 CR 04, February 25, 2020, effective 3/16/2020

43 CR 13, July 10, 2020, effective 6/2/2020

43 CR 17, September 10, 2020, effective 9/30/2020

44 CR 03, February 10, 2021, effective 3/2/2021

44 CR 07, April 10, 2021, effective 4/30/2021

44 CR 08, April 25, 2021, effective 5/15/2021

45 CR 01, January 10, 2022, effective 1/30/2022

45 CR 04, February 25, 2022, effective 3/17/2022

45 CR 05, March 10, 2022, effective 3/30/2022

46 CR 11, June 10, 2023, effective 5/2/2023

46 CR 09, May 10, 2023, effective 5/30/2023