What happens to excess child care contribution credit, how can an unlicensed organization accept qualifying contributions to build a child care facility, and what if a facility is used partly for other purposes?
Plain-English summary
Colorado's child care contribution credit gives donors an income tax credit worth 50% of a qualifying monetary contribution to promote child care, up to $100,000 per taxpayer per year. To claim it, the donor must get a signed statement from the recipient (form DR 1317) and file it with their return. This letter answers three practical questions about how the credit works.
1. What happens if the credit exceeds my tax bill? The credit is nonrefundable — any excess over your Colorado income tax liability is not refunded. But you may carry the excess forward for up to five tax years, applying it to the earliest years first. Anything still unused after the five-year carryforward is lost (not refunded, not usable).
2. Can an organization accept qualifying contributions to build a facility it isn't licensed to operate yet? Yes — contributions can fund the establishment of a child care facility, including its construction, even before licensing. But first the organization must register with the Department on form DR 1318, demonstrating that it will use the contributions to establish and operate a child care facility providing "child care" (care for children age 12 and under), that it will get the required CDHS or CDEC license when required, and backing that up with documentation (fundraising/informational brochures, bylaws or board minutes, construction proposal requests). Once licensed, it should tell the Department to remove it from the unlicensed-programs list.
3. What if the facility is used partly for non-child-care purposes? Contributions to an organization engaged in both qualifying and nonqualifying activities can still earn the credit, but only for the qualifying portion. The contributions must be allocated between qualifying and nonqualifying purposes in a reasonable manner based on the facts (the rule even contemplates partial qualification, e.g., a community-center project where the child care facility is only part). Organizations can ask the Department in writing to use an alternative allocation method.
What this means for you
Donors
Plan for the credit being nonrefundable: if your gift generates more credit than your tax bill, you won't get cash back, but you can spread it over up to five future years. Keep your DR 1317 statement from the recipient — you must file it with your return.
Child care nonprofits and facility builders
If you're raising money to build a child care facility before you're licensed, register on DR 1318 first and assemble the supporting documentation; that's the gate to letting your donors claim the credit. If your facility has mixed uses, set up a reasonable allocation so only the child-care portion is credited — and consider requesting Department approval for an alternative method if the default doesn't fit.
Accountants and tax professionals
Section 39-22-121 plus Rule 39-22-121 govern. Key mechanics: 50% rate, $100,000 cap (§ (5)), nonrefundable with 5-year carryforward applied earliest-first (§ (6)), DR 1317 statement (Rule ¶(11)), DR 1318 pre-license registration (Rule ¶(6)), and reasonable allocation for mixed-use organizations (Rule ¶(10)).
Common questions
Q: Is the child care contribution credit refundable?
A: No. Excess credit isn't refunded, but it carries forward up to five years (earliest years first); unused credit after that is lost.
Q: Can we accept credit-eligible donations to construct a facility before we're licensed?
A: Yes, after registering with the Department on form DR 1318 and showing you'll establish and operate a child care facility and obtain the required license.
Q: What if our building isn't used only for child care?
A: Contributions are allocated between qualifying and nonqualifying purposes in a reasonable manner; only the qualifying portion earns the credit.
Q: Can we rely on this letter?
A: No. It's a General Information Letter — general guidance only, not binding on the Department. A binding answer requires a private letter ruling.
Citations and references
Statutes and rules:
- § 39-22-121, C.R.S. (child care contribution credit); (1.5) (50% credit); (5) ($100,000 cap); (6) (nonrefundable; 5-year carryforward, earliest first)
- § 39-22-121(2.5), (2)(a) (establishment/operation, including construction); (6.5)(a), (1.7) (definitions of "child care facility" and "child care")
- 1 CCR 201-2, Rule 39-22-121, ¶¶(6) (DR 1318 pre-license registration), (10) (allocation of mixed-use contributions), (11) (DR 1317 statement)
Related Colorado child care contribution credit ruling: [[plr-24-002-donor-qualification-for-the-child-care-contribution-credit]].
Source
- Landing page: Colorado Letter Rulings
- Original PDF: GIL-23-004.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL 23-004
November 28, 2023
XXXXXXXXXX
XXXXXXXXXX
Via Electronic Mail: XXXXXXXXXX
Re: Child Care Contribution Credit
Dear XXXXXXXXXX:
You submitted a request for a general information letter regarding the child care contribution
credit allowed by section 39-22-121, C.R.S. The Colorado Department of Revenue
(“Department”) issues general information letters and private letter rulings. A general information
letter provides a general overview of the relevant tax issues but is not binding on the
Department. A private letter ruling provides a specific determination for a specific set of facts, is
binding on the Department, and requires payment of a fee. For more information about general
information letters and private letter rulings, please see 1 CCR 201-1, Rule 24-35-103.5.
Issues
1. What happens to the excess if the child care contribution credit allowed to the donor
exceeds the amount of the donor’s Colorado income tax liability in the year that the credit is
earned and claimed?
2. What must an organization do to accept contributions that qualify for the credit if it intends to
use the contributions to construct a child care facility that will provide child care but is not yet
licensed to do so?
3. Are donations disqualified if the organization intends to use a facility for purposes other than
child care?
Discussion
Taxpayers that make a qualifying monetary contribution to promote child care in Colorado may
claim an income tax credit equal to 50% of the total qualifying contribution.1 The maximum
credit allowed for all contributions made during a tax year is $100,000.2 To claim the credit, the
1 Section 39-22-121(1.5), C.R.S.
2 Id. at (5).
GIL 23-004
November 28, 2023
Page 2
donor must obtain a signed statement from the recipient organization (currently using form DR
1317) and file it with their income tax return.3
If the credit allowed to the donor exceeds the donor’s Colorado income tax liability for the
income tax year in which the donation was made and the credit was claimed, the excess is not
refunded to the donor.4 The donor may carry the excess credit forward for up to five tax years,
but the credit must be applied to the earliest tax years possible.5 Any credit remaining after the
carryforward period is not refunded and may not be used.6
Among other things, a credit is allowed for contributions made for the establishment or operation
of a child care facility that uses the donation to provide child care.7 Child care facilities include
any facility required to be licensed by the Colorado Department of Human Services (“CDHS”)
pursuant to part 9 of article 6 of title 26 or the Colorado Department of Early Childhood
(“CDEC”) pursuant to part 3 of article 5 of title 26.5.8 “Child care” means care provided to a
child twelve years of age or younger.9
Contributions may be used for the establishment of a child care facility, which includes the
construction of the facility itself.10 If an organization intends to accept contributions for the
establishment of a child care facility before it is required to be licensed by CDHS or CDEC, the
organization must first register with the Department by filing form DR 1318.11 The organization
must demonstrate that it will use contributions to establish and operate a child care facility to
provide child care (as defined above), and explain that it will obtain a license from the
appropriate agency when it is required to do so.12 The organization must also submit
documentation that supports the registration, such as fundraising or informational brochures;
bylaws, board meeting minutes, or other organizational documents; and requests for
construction proposals.13 The documentation should demonstrate that the facility to be
established will be a child care facility that will provide child care as those terms are defined
above.
The credit is limited to contributions that will be used to promote child care in Colorado as
defined by the statute.14 The Department’s rules recognize, however, that an organization may
be engaged in and accept contributions for nonqualifying activities as well.15 In these situations,
3 1 CCR 201-2, Rule 39-22-121, paragraph (11).
4 Section 39-22-121(6), C.R.S.
5 Id.
6
Id.
7 Id. at (2.5).
An approved facility school, as such term is defined in section 22-2-402(1), C.R.S., is also a “child
care facility” for purposes of the credit. Id. at (6.5)(b).
9 Id. at (1.7).
10 Id. at (2)(a). See also 1 CCR 201-2, Rule 39-22-121, paragraph (10)(a)(iii) (describing the partial qualification of
contributions to a community center construction project where a child care facility is only part of the overall project).
11 1 CCR 201-2, Rule 39-22-121, paragraph (6). Organizations must review the applicable statutes, related rules,
and other material issued by CDHS and CDEC to determine whether and when they must apply for a license.
12 Id. at (6)(a)(i) and (ii).
13 Id. at (6)(a)(iii). Upon becoming licensed, the organization should notify the Department that it should be removed
from the list of unlicensed programs.
14 Section 39-22-121(1.5), C.R.S.
15 1 CCR 201-2, Rule 39-22-121, paragraph (10).
8 Id. at (6.5)(a).
GIL 23-004
November 28, 2023
Page 3
the rules permit contributions to be allocated among qualifying and nonqualifying purposes.16
This allocation must be done in a reasonable manner based on the facts of the situation.17
Organizations may make written requests to the Department to obtain permission to use a
method other than the methods described in the rule.18
Miscellaneous
This letter represents the good-faith opinion of Department personnel who are knowledgeable
on state taxes issues. However, the Department does not make a specific determination on any
of the issues raised and the Department is not bound by this general information letter.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
16 Id. at (10)(b).
17 Id.
18 Id. at (10)(b)(iv).