Do donations to a fund that grants money to licensed child care centers—rather than to a child care facility directly—qualify for Colorado's child care contribution credit?
Plain-English summary
A company runs a fund that does not provide child care itself. Instead, the fund awards grants to licensed Colorado child care centers and preschools so they can make capital improvements (kitchen upgrades, carpet and window replacement, capacity retrofits). The company keeps 15% of each contribution to cover its administrative costs and distributes the other 85% as grants. It asked whether donations to the fund qualify for Colorado's child care contribution credit under § 39-22-121.
The Department said yes — for the 85% that reaches qualifying purposes. Two key points:
- The donation doesn't have to go straight to a child care facility. The credit is for "donating money… for the establishment or operation of a child care facility." That language requires the money to be for a facility, not given directly to one. The Department reinforced this by analogy: other parts of the statute (subsections (b) and (c)) expressly bless grant/loan programs and pooled-money arrangements run by intermediaries that don't provide care themselves. So a fund that regrants money to facilities can qualify.
- The grantees and uses must check every statutory box. The fund only qualifies to the extent its grants go to: facilities licensed by the Department of Human Services (or registered/grandfathered); care for children age 12 and younger; facilities in Colorado; and uses that directly promote child care (capital improvements qualify). The fund's own grant criteria satisfied all four.
- Strip out the administrative slice. The credit is only for contributions used directly for child care purposes. The 15% the company keeps for admin is not a qualifying use. Under the allocation rule (Rule 39-22-121(10)), the reasonable split here is 85% qualifying / 15% non-qualifying — so 85% of each donation earns the credit. (The company certifies this split on Form DR 1317; if its 85/15 use changes, or a donor earmarks a gift for admin, the percentage must be adjusted.)
As a PLR, this binds the Department only for this company and these facts.
This complements the other child-care-credit rulings: [[plr-24-002-donor-qualification-for-the-child-care-contribution-credit]] (which kind of organization qualifies — a licensed child placement/adoption agency) and [[gil-23-004-child-care-contribution-credit]] (the credit's mechanics — carryforward, pre-license registration, mixed-use allocation).
What this means for you
Funds, foundations, and pooled-giving programs that support child care
You can be eligible to issue child care contribution credit certificates even if you never provide care directly — as long as you regrant the money "for the establishment or operation" of qualifying, licensed Colorado child care facilities serving kids 12 and under. But the share you retain for overhead doesn't qualify, so your donors' credit is based on the percentage that actually flows through to qualifying uses.
Donors giving to an intermediary
Your credit tracks the fund's qualifying percentage, not your full gift. If the fund passes through 85%, your creditable contribution is 85% of what you gave. Get the fund's DR 1317 certification.
Accountants and tax professionals
Two gates: (1) the money must be for the establishment or operation of a qualifying child care facility (intermediaries allowed; § 39-22-121(2)(a) plus the (b)/(c) analogy), and (2) only the portion used directly for child care qualifies — admin costs are carved out via the Rule 39-22-121(10) allocation. The rule prohibits arbitrarily spinning up a separate "admin-only" fund to dodge the allocation.
Common questions
Q: Can I claim the child care contribution credit if I donate to a fund instead of directly to a daycare?
A: Yes, to the extent the fund uses the money for the establishment or operation of qualifying, licensed Colorado child care facilities. The statute requires the gift to be for a facility, not given directly to one.
Q: Do I get credit for my whole donation?
A: Only for the portion that reaches qualifying child care purposes. Here the fund kept 15% for administration, so 85% of each donation qualified.
Q: What makes a grantee qualify?
A: It must be a Colorado child care facility licensed (or registered/grandfathered), serving children age 12 and younger, using the funds directly to promote child care — capital improvements count.
Q: Can my organization rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied upon by anyone else.
Citations and references
Statutes, rules, and forms:
- § 39-22-121, C.R.S. (child care contribution credit); (1.5), (2)(a) ("promote child care")
- § 39-22-121(1.7), C.R.S. (children age 12 and younger)
- § 39-22-121(2)(B), (3), (4), C.R.S. (eligible facilities; direct use; for-profit acquisition/improvement)
- § 39-22-121(6.5), C.R.S. (definition of "child care facility"); § 26-6-102(1.5), C.R.S. (preschools are "child care centers")
- 1 CCR 201-2, Rule 39-22-121(10), (12) (allocation; account withdrawals); Form DR 1317 (certification)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
Source
- Landing page: https://tax.colorado.gov/all-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-16-012.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR-16-012
April 18, 2016
XXXXXXXXXXXX
Attn: XXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
Re: Child Care Contribution Tax Credit Certification
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXX ("Company") and with respect to the
XXXXXXXXXXXXXXXXXXX ("Fund") a request for a private letter ruling to the Colorado
Department of Revenue ("Department") pursuant to Department Rule 1 CCR 201-1, 2435-103.5. This letter is the Department's private letter ruling. This ruling is binding on the
Department to the extent set forth in Department Rule 1 CCR 201-1, 24-35-103. 5. It
cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issue
Are contributions made to Company to benefit the Fund eligible for the child care
contribution credit authorized by§ 39-22-121, C.R.S.?
Conclusion
Contributions made to the Fund are eligible for the child care contribution credit. In
calculating the allowable credit, 85% of any contribution will be allocated to qualifying
purposes and 15% will be allocated to non-qualifying purposes.
Background
Company is not licensed by the Colorado Department of Human Services and does not
directly provide child care services to children, but rather engages in multiple activities that
indirectly support child care in Colorado. One of these activities is the administration of the
Fund. The Fund awards grants to eligible nonprofit child care programs in Colorado to
enable them to make capital improvements tied to providing quality indoor and outdoor
physical environments for children, families, and staff. Examples of these projects include
kitchen upgrades, carpet and window replacement, and retrofits that enable programs to
increase their capacity to serve more children in child care settings. Grantees also receive
intensive technical assistance regarding the preparation of both financial statements and
successful grant proposals.
DR 4010A (06/11/14)
Grant applications must meet several criteria in order to qualify for awards from the Fund.
Grantees must have a current license in good standing with the Colorado Division of Early
Care and Learning {within the Department of Human Services) as a child care center or
preschool. Grantees must serve children ages birth to five years old and may serve
children up to age 12, but not children older than 12 years old. Grantees may only apply
for grants and must use any awarded funds to make permanent facility improvements to
child care facilities in Colorado. Eighty-five percent of contributions made to the Fund are
distributed to grantees. The remaining fifteen percent is retained by Company to cover
administrative costs, including the technical assistance provided to grantees (regarding
financial statements and grant proposals), grant distribution, and the review of applications
and final reports.
Company has separately applied to the Department for registration as a unlicensed child
care program for the training program it administers for child care providers and the
Department has approved this application. This program operates independently from and
is unrelated to the Fund that is the subject of this ruling.
Structure of Analysis
To determine whether contributions made to the Fund qualify for the child care contribution
credit, the Department will examine the following questions:
1) Can contributions made to an organization that does not directly provide child care
"promote child care" under the provisions of§§ 39-22-121(1.5) and (2)(a), C.R.S.?
2) Do Fund grantees and their activities satisfy the various requirements for the credit
under§ 39-22-121(1.7), (2)(a), and (3), C.R.S.?
3) Are contributions made to the Fund used directly and exclusively for eligible purposes
and functions under§ 39-22-121(2) and (3), C.R.S.?
Discussion
The child care contribution credit is allowed for contributions made "to promote child care
in the state."1 The following purposes or functions "promote child care" and are eligible for
the credit under the terms of the statute2:
"(a) Donating money...for the establishment or operation of a child care facility
that uses the donation to provide child care, a child care program that is not a
child care facility but provides child care services...or any other program that
received donations for which a credit was allowed to the donor...for any income
tax year that ended before January 1, 2004, in the state3;
1
2
3
2
§ 39-22-121(1.5), C.R.S.
§ 39-22-121(2), C.R.S.
Prior to 2004, the statute did not define child care facilities that were eligible for the credit, nor
did it limit the credit to the provision of child care for children age 12 and younger. House Bill
04-1119 identified the types of facilities that would be eligible to receive contributions and
limited the credit to contributions made for the benefit of children age 12 and younger, but also
included a grandfathering provision that would allow organizations that qualified prior to 2004 to
continue accepting contributions, even if they no longer met the qualifications. See Department
Rule 1 CCR 201-2, 39-22-121(7)(a).
DR 4010A (06/11/14)
(b) Donating money to establish a grant or loan program for a parent or parents
in the state requiring financial assistance for child care;
(c) Pooling moneys of several businesses and donating such moneys for the
establishment of a child care facility in the state;
(d) Donating money for the training of child care providers in the state; and
(e) Donating money, services, or equipment for the establishment of an
information dissemination program in the state to provide information and
referral services to assist a parent or parents in obtaining child care."§39-22121(2), C.R.S.
It is clear the Fund does not perform the purposes or functions identified in paragraphs (b)
through (e). Company suggests instead that the Fund is eligible for the credit under
paragraph (a), "donating money...for the establishment or operation of a child care
facility... " However, Company is not itself a child care facility or an organization that
directly provides child care services.
As a result, the first critical question is whether contributions must be made directly to a
child care facility or provider to qualify for the credit under this provision, or if qualifying
contributions may be made to an intermediate organization that then awards grants to
eligible child care facilities. Notably, the statutory language in paragraph (a) above does
not require contributions to be made to a child care facility, but rather that they be made
for the establishment or operation of child care facility in order to qualify under this
provision. Contributions made to the Fund (and subsequently granted to child care
facilities for capital improvements) are indeed made for the operation of child care
facilities, despite not being made directly to child care facilities.
In determining whether organizations that do not directly provide child care may qualify
under paragraph (a), we can additionally consider by analogy the other purposes and
functions authorized by paragraphs (b) through (e) above. Each of these paragraphs
authorize credits for contributions made to organizations that do not directly provide child
care services. In particular, paragraph (b) and (c) authorize credits for "donating money to
establish a grant or loan program for a parent or parents...requiring financial assistance for
child care" and for "[p]ooling moneys of several businesses and donating such moneys for
the establishment of a child care facility," respectively. These two provisions demonstrate
not only the legislature's contemplation of both the aggregation of funds by intermediate
organizations that do not directly provide child care and grant programs that distribute
contributions to multiple ultimate recipients, but also their authorization of credits for such
programs so long as they meet the statutory requirements.
Based upon the statutory language of paragraph (a) and the analogy offered by the other
authorized purposes and functions, we find that contributions made to organizations that
do not directly provide child care may qualify under paragraph (a), provided that such
contributions are ultimately "for the establishment or operation of a child care facility that
uses the donation to provide child care."
The second critical question then is whether or not contributions made to the Fund are
ultimately "for the establishment or operation of a child care facility that uses the donation
3
DR 4010A {06/11114)
to provide child care." This question hinges on whether the Fund's grantees qualify as
child care facilities under the law, provide eligible child care, and use amounts awarded to
them in for authorized purposes and functions. The Fund only qualifies for the credit if and
to the extent that it awards grants for purposes or functions that meet the qualifications for
the credit.
For the Fund to qualify for the credit, grants made from the Fund must satisfy four
statutory requirements.
1) The Fund must award grants for the establishment or operation of child care facilities
licensed by the Department of Human Services, registered with the Department of
Revenue, or grandfathered under the law as it existed prior to 2004.4 Company
awards grants from the Fund only to child care centers and preschools licensed by
the Colorado Division of Early Care and Leaming, a division of the Department of
Human Services.5
2) Additionally, the credit is only allowed for child care provided to children age twelve
and younger.6 Applicants must serve children age five and younger and be child care
programs licensed to provide care to children no older than twelve to be considered
for a grant from the Fund.
3) The credit is also allowed exclusively for contributions used to promote child care in
Colorado.7 Company awards grants from the Fund exclusively to child care facilities
in Colorado.
4) Finally, credits are only allowed for contributions used directly for the promotion of child
care.8 The Fund awards grants solely for capital improvements to child care facilities,
which qualify as the promotion of child care under the law.9
The Fund's own qualifying criteria (child care facility licensure, serving children no older
than twelve years old, located in Colorado, and utilizing grants exclusively for capital
improvements) ensures that the grants it awards are for purposes and functions that
qualify for the credit.
The final critical question pertains to the use and allocation of contributions made to the
Fund. The credit is only allowed for contributions used directly for the enumerated child
care purposes and functions.10 This requirement is expressed in various provisions of
statute and regulation. For example, contributions made to for-profit businesses must be
4
5
§ 39-22-121(2)(8), C.R.S.
For the purpose of the credit, "child care facility" is defined as any of a non-exhaustive list of
child care providers, including child care centers, requiring licensure by the Department of
Human Services.§ 39-22-121(6.5), C.R.S. The statutory definition of "child care center"
includes preschools. § 26-6-102(1.5), C.R.S.
6
§ 39-22-121(1.7), C.R.S.
7
§§§ 39-22-121(1.5), (2), and (3), C.R.S.
8
§ 39-22-121(3), C.R.S.
9
Statute does not explicitly define what expenditures qualify as the promotion of child care."
However, in the discussion of for-profit child care facilities, statute makes clear that the use of
contributions "for the acquisition or improvement of facilities" qualifies for the credit. § 39-22121(4), C.R.S.
10
§ 39-22-121(3), C.R.S.
4
DR 4010A (06/11/14)
"directly invested... for the acquisition or improvement of facilities, equipment, or services,
including the improvement of staff salaries, staff training, or the quality of child care" and
not used to cover extraneous administrative costs or to generate profit.11 Additionally,
while qualifying contributions may be invested in an account that provides future
payments, the interest and principal withdrawn from the account must be used exclusively
for the authorized child care purposes.12
Company, with respect to the administration of the Fund 13, is neither a qualifying child care
facility or program under Department Rule 1 CCR 201-2, 39-22-121(5), nor does it directly
provide child care or perform any other function eligible for the credit under§ 39-22121(2), C.R.S. Consequently, those portions of contributions made to the Fund that are
expended to cover Company's administrative costs do not qualify for the credit.
Department Rule 1 CCR 201-2, 39-22-121(10) discusses the calculation of the credit for
contributions that are split between qualified and nonqualified purposes. The rule provides
various options for allocating contributions between qualifying and non-qualifying
purposes, but prohibits the arbitrary establishment of a separate fund to cover nonqualifying expenses.14 Given the existing operation of the Fund, by which 85% of total
contributions are distributed to grantees and 15% are used to cover Company's
administrative costs, the most reasonable allocation for any contribution in determining the
credit is 85% to qualifying purposes and 15% for non-qualifying purposes. The Child Care
Contribution Tax Credit Certification (Form DR 1317) allows for allocating qualifying
contributions in such a manner in certifying the credit.
Therefore, to the extent contributions made to the Fund are distributed to qualifying child
care facilities and programs to finance eligible child care purposes and functions, such
contributions qualify for the child care contribution credit. However, because only 85% of
total contributions made to the Fund are distributed to qualifying child care facilities and
programs, 85% of each contribution made to the Fund will 9ualify for the credit and 15% of
each contribution will be considered ineligible for the credit. 5
Miscellaneous
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company's representations. The ruling is null and void if any such
representation is incorrect and has a material bearing on the conclusions reached in this
ruling and is subject to modification or revocation in accordance to Department Regulation
24-35-103.5.
11
12
13
§ 39-22-121(4), C.R.S.
Dept. Rule 1 CCR 201-2, 39-22-121(12)
Company has applied to the Department of Revenue and received approval as unlicensed child
care organization eligible to accept qualifying contributions. However, this application and
approval has been made exclusively with respect to Company's child care providers training
program under§ 39-22-121(2)(c), C.R.S.
14
Dept. Rule 1 CCR 201-2, 39-22-121(10)(c)
15
The allocation of contributions prescribed here for the purpose of calculating the credit, 85% to
qualifying child care purposes and 15% to non-qualifying administrative costs, is based upon
Company's current use and allocation of contributions made to the Fund. If Company's use and
allocation of such contributions changes. or if Company receives contributions that donors
specifically designate for administrative costs, appropriate adjustments should be made in
determining the percentage of each contributions that qualifies for the credit.
5
DR 4010A (06/11/14)
This ruling is binding on the Department to the extent set forth in Department Regulation
24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the
ruling is made.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling will be made public within 60 days of the date of this letter.
Please let me know in writing within that 60 day period whether you have any suggestions
or concerns about this redacted version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.
6
DR 4010A (06/11/14)