The Colorado Office of State Planning and Budgeting recently proposed a number of revisions to Colorado tax exemptions and credits, in an attempt to close a projected fiscal shortfall. Among the proposals are elimination of exemptions or credits, either temporary or permanent, that would affect:

* direct mail advertising
* energy use in industrial and manufacturing sectors
* non-essential contaners for food services
* candy and soft drinks
* agricultural compounds
* pestisides
* enterprise zone investment tax credit
* alternative fuel vehicles
* gross conservation easement credit
* alternative minimum tax and alternative minimum tax credit
* software sales tax exemption
* sales taxes for online purchases
* net operating loss limitations

Regarding the software sales tax exemption, it is expected that the definition of software would be expanded. Currently, software is defined as taxable only if 1) it is packaged for repeated sale, 2) it is subject to a non-negotiable, tear open license agreement, and 3) it is delivered on a tangible medium. By definition, this would exclude software sold over the Internet or by “load and leave”. Presumably, these types of software purchases would be taxable under the proposed changes.

It is expected that the corporation net operating loss limitation provisions would be revised to limit the amount of net operating losses that could be utilized to offset income for the next three years, beginning January 1, 2010, to $250,000.

These changes, if enacted, would have a significant impact on how businesses operate in Colorado.

On November 5, 2009, an unemployment insurance extension bill was approved by the House of Representatives that allows businesses with net operating losses (NOLs) for 2008 or 2009 to carry those losses back for up to five years. The bill also extends and modifies the first-time homebuyer credit that was established by the American Recovery and Reinvestment Act of 2009. The Senate earlier this week approved The Worker, Homeownership, and Business Assistance Act of 2009, and the bill now heads to the White House; President Obama is expected to sign it into law. The bill includes revenue offsets including a delay in the effective date of the worldwide interest allocation election, an increase in the corporate estimated tax payments for certain large taxpayers, and an increase in the penalty for failure to file a partnership or S corporation return, among other provisions.