New Colorado tax credit includes boon for game developers

Colorado's tax policies are now a little bit friendly for game developers. In June, governor Jared Polis signed House Bill 23-1309, which updates the state's tax credit options for the film, television, and video game industries.

That bill reshapes the state's 20 percent cash rebate policy for approved productions into a tax credit, and increased the state's maximum rebate pool from $750,000 to $5 million.

The bill is designed to support Colorado-based developers, but also includes options for studios not headquartered in the state. If half of a studio's workforce is based in Colorado, and production costs exceed $250,000, that studio can apply for the credit.

The bill caps the total value of credits approved by the state government at $5 million. That cap is not divided between the film, television, and game development industries, which does mean credit requests from companies in all three fields will be tallied under the same $5 million cap.

It's still a notable increase. Under the previous rebate program, that cap sometimes went as low as $750,000.

Zhenghua “Z” Yang, CEO of Colorado-based developer and publisher Serenity Forge, was one of the industry experts who consulted with legislatures on drafting the bill. In an email interview with Game Developer, he explained that he went out of his way to attend hearings and participate in the legislative process to "contribute to the industry's growth" in Colorado.

"States like New Mexico, Georgia, and countries like Canada have been offering robust and attractive programs to attract game developers, putting Colorado at a disadvantage," he explained. "By offering more competitive programs, we are providing an additional incentive for developers to choose Colorado as their base of operations."

Why would game developers headquarter in Colorado?

Colorado is already home to a number of notable video game studios, including Serenity Forge, Deck Nine Studios, Leviathan Games, and Dire Wolf Digital.

It's a modest but relatively light roster, one that Yang hopes will expand under the auspices of this credit. The state's 20 percent credit is comparable to North Carolina's, which offers 15 percent on wage and compensation expenditures.

Studios setting up shop in Colorado may benefit from another of other factors. The state has been a notable destination for residents of high-cost-of-living states like California. (Though the state itself is also grappling with a housing shortage and increase in cost-of-living). Its geographic location may prove alluring to employees currently based in California or Texas.

Yang (a native of Colorado) praised the state's natural beauty and thriving arts culture as reasons for game developers to pick the state.

What organizations participated in the writing of the bill?

The topic of tax credits for the video game industry is surprisingly not one we come across often at Game Developer. More often, we're writing about how various governments are scrutinizing the industry's practices, from loot boxes to major acquisitions.

When asked if organizations like the International Game Developers Association or Entertainment Software Association participated in the writing of this tax credit, Yang replied with a simple "no." Representatives for both organizations confirmed that they had not sought to consult with the legislator.

Deck Nine Games brought Colorado to life in Life is Strange: True Colors.

A spokesperson for the IGDA seemed to indicate that the organization hadn't been aware of the legislature's plan to update the incentive program. They did however say that the organization is "working to increase developer engagement with policymakers and legislative bodies through our emerging Global Policy Special Interest Group."

The ESA praised Colorado's decision to expand the tax credit, but declined to discuss its interest in supporting or opposing the bill. "Establishing state-level incentive programs to grow the video game industry strengthens local economies and leads to more American jobs, increased competition and innovation," the organization said in a statement to Game Developer. "As the fastest growing form of entertainment in the world, now is the right time for Colorado and other states to support the video game industry through attractive tax incentive programs."

Tax incentives for video game studios can be tricky topics. It's generally accepted that Canada's strong incentives have strengthened the country's video game industry, but tax credits that don't bring in correlating revenue through growth and employee spending risk draining funds from social programs for the benefit of corporate owners.

We obviously don't know the full impact of Colorado's new program, but the government is keeping a watchful eye on its impact. The bill mandates that the Colorado Office of Film Television & Media monitor if the credit is more effective than the previous cash rebate program.