December 3, 2010

Kid tax credit only in timeout

A state tax credit for donations to promote child care is likely to be on hold for 2011, leaving some nonprofit organizations looking to expand their donor base next year.

The Colorado Child Care Contribution Credit is one of six tax credits that the state will probably delay based on the state revenue forecast for 2011.

The forecast isn’t due out until Dec. 20, but based on projections over the past six months, revenue isn’t expected to grow enough to allow for the tax credits, said Ron Kirk, an economist for the Colorado Legislative Council, which puts together the revenue forecasts.

That leaves organizations like the Boys and Girls Club of Larimer County looking for a bigger base of donors. Everyone who donates to the club is eligible for the credit since the organization’s sole purpose is to offer child care. It offers after-school programming for kids and all-day programs when school is not in session.

“It will probably lower some people’s investment in the club,´ said Kathi Wright, executive director of the club. “But for others it won’t matter whether they get the credit or not.”

Economic trigger

Established in 1999, the credit allows taxpayers who make donations to promote child care in Colorado to claim a state income tax credit of up to 50 percent of the contribution. The credit is limited to donations of $200,000 a year, capping the annual credit at $100,000 per taxpayer.

Donations qualify if they go to care provided for children 12 years old and younger, including licensed child care centers, family child care homes, homeless youth shelters, foster care homes, child placement agencies and residential treatment centers.    

For fiscal year 2009-10, donations to promote child care in Colorado were estimated at $38 million, according to research by the Mile High United Way. For the first 10 months of that fiscal year, the revenue impact from the tax credit on the General Fund was about $12 million, according to the Colorado Department of Revenue. 

During the recession of the early 2000s when state revenue plummeted, the state legislature decided to put a “trigger” on several tax credits that had been enacted in the late 1990s. That trigger is that the state’s General Fund must be projected to grow by 6 percent over the previous year for the credits to be in place.

“The Legislature put this trigger in place so that if the economy ever tanked again, they wanted to protect the state’s revenues,” Kirk said.

This is the first year the trigger has actually been pulled, so to speak. Other income tax credits affected include those for water rights donations, for preservation of historic properties and for taxpayers who hire developmentally disabled people. Two sales tax exemptions also have the trigger – a sales tax refund for clean technology and medical device firms and an exemption for any infrastructure required to create a clean room in a manufacturing facility.

Kirk said he has spent the past few months addressing concerns and misconceptions about the likely delay of the child care credit. One misconception is that the credit is going away for good. But it’s authorized by state statute through 2019.

“I’ve also been asked many times the likelihood of this credit being unavailable for multiple years in a row,” he said. “That’s not likely to happen.”

The credit is still available for 2010, so donations made before Dec. 31 still qualify. Some child care organizations are urging donors to make donations before the end of the year to guarantee the tax credit. Donations made next year could be claimed for a tax credit in 2012, provided the credit is back in place that year.

Looking for more donors

Organizations like the United Way of Larimer County have been trying to educate their donors about what’s happening with the credit.

“We’re hoping it won’t have a huge impact,´ said Keely Aggers, vice president of resource development for the United Way of Larimer County. “A lot of people do give to get the tax credit, but a lot of donors care more about the mission and not so much about the tax credit.”

After having to cut its budget last year, the Boys and Girls Club of Larimer County is prepared to spend time and energy trying to expand its donor base next year.

“One of our strategies is to increase the number of individuals who give,´ said Wright, who has been with the club for 20 years, 11 as its executive director. “Right now we have a lot of the same people giving. Our programs keep kids from being home alone and getting into trouble. It’s really an investment in our community.”

A state tax credit for donations to promote child care is likely to be on hold for 2011, leaving some nonprofit organizations looking to expand their donor base next year.

The Colorado Child Care Contribution Credit is one of six tax credits that the state will probably delay based on the state revenue forecast for 2011.

The forecast isn’t due out until Dec. 20, but based on projections over the past six months, revenue isn’t expected to grow enough to allow for the tax credits, said Ron Kirk, an economist for the Colorado Legislative Council, which puts…

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