HB23-1272 BILL SUMMARY
Tax Policy That Advances Decarbonization
Concerning tax policy that advances decarbonization, and, in connection therewith, extending tax credits for the purchase or lease of electric vehicles; creating tax credits for industrial facilities to implement greenhouse gas emissions reduction improvements, for expenditures made in connection with geothermal energy projects, for production of geothermal electricity generation, for the deployment of heat pump technology, for retail sales of electric bicycles, and for construction of sustainable aviation fuel production facilities; creating a temporary specific ownership tax rate reduction on a portion of the sale of electric medium- and heavy-duty trucks; temporarily decreasing the severance tax credit for oil and gas production, requiring the revenue that is attributable to the decrease be deposited in the decarbonization tax credits administration cash fund, and creating the cash fund; and making an appropriation.
BILL SUMMARY
Section 2 of the act extends the innovative motor vehicles income tax credit for the purchase or lease of electric motor vehicles and plug-in hybrid electric motor vehicles that weigh 8,500 pounds or less through 2028 and adjusts the amount of the credit that may be claimed, including with certain allowances for additional credit amounts for vehicles purchased or leased at a location that allows the credit to be assigned and is assigned to a motor vehicle dealer or financing entity and for vehicles that have a manufacturer's suggested retail price below $35,000. The amount of the credit for the purchase or lease of a category 1 vehicle is as follows:
● $5,000 on or after July 1, 2023, but before January 1, 2025;
● $3,500 on or after January 1, 2025, but before January 1, 2026;
● $1,500 on or after January 1, 2026, but before January 1, 2027;
● $1,000 on or after January 1, 2027, but before January 1, 2028;
● $500 on or after January 1, 2028, but before January 1, 2029;
● An additional $600 may be claimed by a financing entity or motor vehicle dealer assigned the credit by the purchaser on or after January 1, 2024, but before January 1, 2026; and
● An additional $2,500 on or after January 1, 2024, but before January 1, 2029, for a category 1 motor vehicle with a manufacturer's suggested retail price below $35,000.
However, the credit cannot be claimed for vehicles that have a manufacturer's suggested retail price of $80,000 or more. Additionally, if, for any one of the state fiscal years 2025-26, 2026-27, or 2027-28, state revenues that are not excluded from state fiscal year spending are not projected to increase by at least 4% for the next fiscal year, then for any income tax year commencing in the calendar year that begins in that fiscal year, the amount of the credit is reduced by 50%, and if the amount of the reduced credit is at or below $500, then no credit is allowed for such a tax year.
Section 3 extends the income tax credit for the purchase or lease of an innovative light-duty truck through 2028, extends the income tax credit for the purchase or lease of an innovative medium-duty or heavy-duty truck through tax year 2032, and adjusts the amount of the credit that may be claimed. The amount of credit in an income tax year for the lease or purchase of a category 7 light-duty passenger motor vehicle over 8,500 pounds gross vehicle weight rating or a light-duty electric truck is as follows:
● $5,000 on or after January 1, 2024, but before January 1, 2025;
● $3,500 on or after January 1, 2025, but before January 1, 2026;
● $1,500 on or after January 1, 2026, but before January 1, 2027;
● $1,000 on or after January 1, 2027, but before January 1, 2028; and
● $500 on or after January 1, 2028, but before January 1, 2029.
The amount of the credit in an income tax year for the lease or purchase of a category 7 medium-duty electric truck is as follows:
● $12,000 on or after January 1, 2024, before January 1, 2026; and
● $4,000 on or after January 1, 2026, but before January 1, 2033.
The amount of the credit in an income tax year for the lease or purchase of a category 7 heavy-duty truck is as follows:
● $12,000 on or after January 1, 2024, but before January 1, 2026; and
● $8,000 on or after January 1, 2026, but before January 1, 2033.
However, for light-duty trucks, if, for any one of the state fiscal years 2025-26, 2026-27, or 2027-28, state revenues that are not excluded from state fiscal year spending are not projected to increase by at least 4% for the next fiscal year then for any income tax year commencing in the calendar year that begins in that fiscal year, then the amount of the credit is reduced by 50%, and if the amount of the reduced credit is at or below $500, then no credit is allowed for such a tax year.
Additionally, under current law, the innovative motor vehicles tax credit and the innovative trucks tax credit may be assigned by a purchaser to the entity that finances the purchase or lease of the vehicle. Section 2 and 3 expand the purchaser's ability to assign the credits to a motor vehicle dealer in addition to a financing entity. For income tax years commencing on or after January 1, 2024, sections 2 and 3 also allow a tax exempt person or political subdivision of the state to claim or assign the tax credit.
Section 4 terminates an existing heat pump tax credit so that it is allowed only for income tax years beginning on and after January 1, 2023, but before January 1, 2024.
Section 5 creates a refundable income tax credit allowable in tax years commencing on or after January 1, 2024, but before January 1, 2033, for the owner of an industrial facility that undertakes a industrial study (study) or puts greenhouse gas emissions reduction improvements (improvements) into service. The credit is administered by the Colorado energy office (office). The amount of credit that can be claimed for an industrial study is 30% of the costs paid for completing the study up to $1 million. The amount of credit that can be claimed for improvements is 30% of the capital costs paid by the owner, not including the cost for design; except that:
● The credit must be claimed in an amount of at least $75,000 and no more than $5,000,000; and
● For certain improvements that have the potential to significantly reduce greenhouse gas emissions but are not yet commercially available, the office may approve a higher percentage to be claimed of up to 50%.
Owners must apply for the credit to the office during semi-annual cycles and the office conducts a merit-based review of the applications to grant reservations for credits. Upon completion of a study or upon putting the improvements into service, the office issues the owner a tax credit certificate to claim the credit in the amount reserved to the owner. The availability of the credit is subject to an aggregate cap each application period, and the office may reserve to the owner a credit amount that is less than the statutory amount that can be claimed. If the aggregate maximum amount is not claimed in a tax year, the aggregate maximum amount in the next income tax year is increased by an amount equal to the excess amount. If in the 3-year period following the improvements being put into service, the improvements are not, notwithstanding circumstances evaluated and determined by the office to be justified, in use at the location previously identified and approved or owned by the owner, the tax credit the owner received for the improvements is subject to recapture.
Section 6 creates a refundable tax credit allowable in tax years commencing on or after January 1, 2024, but before January 1, 2033, for an expenditure that an eligible taxpayer makes in connection with a geothermal energy project, which is a project in the state that is intended to evaluate and develop a geothermal resource for the purpose of electricity production. Eligible taxpayers must apply for the credit to the office during semi-annual cycles. The office is required to approve geothermal energy projects that can receive a qualified expenditure made by an eligible taxpayer. The office sets the amount of credit an eligible taxpayer may receive and reserves the amount of credit for the income tax year in which the eligible taxpayer anticipates making the expenditure; except that an eligible taxpayer cannot receive a tax credit in an aggregate amount of more than $5 million for all income tax years in which the credit can be claimed per approved geothermal energy project. Subject to specified limits on the maximum amount of credits that the office may approve and that an eligible taxpayer may receive, the office issues a tax credit certificate in the reserved amount of tax credit after an eligible taxpayer submits a cost certification of the qualified expenditure.
Section 7 creates a refundable tax credit for income tax years beginning on or after January 1, 2024, but before January 1, 2033, that is administered by the office and is available to a person subject to income tax or a person or political subdivision of the state exempt from income tax that produces geothermal electricity for sale or for the person or political subdivision's own use. The credit amount is equal to $0.003 per kilowatt hour of geothermal electricity that is produced in the state in the tax year, up to a maximum amount of $1 million.
Section 8 creates a new refundable income tax credit for the installation of heat pump technology or a thermal energy network for income tax years commencing on or after January 1, 2024, but before January 1, 2033. The office is responsible for maintaining a list of eligible taxpayers who meet certain industry criteria and who are allowed the credit for the installation of heat pump technology or a thermal energy network if the eligible taxpayer provides a discount from the amount charged for installation, unless the eligible taxpayer installs their own heat pump technology or thermal energy network. The amount of the tax credit is calculated based on the applicable percentage, set annually by the office, of a flat dollar amount which depends on the type of heat pump technology installed and the year the credit is claimed. The calculation of the amount of allowable credit may be modified depending on whether the heat pump technology is installed at a multifamily property, at a nonresidential building, or for a thermal energy network or campus. However, for heat pump technology that is installed in an existing residential building or nonresidential building, if, for any one of the state fiscal years 2025-26 through 2032-33, state revenues that are not excluded from state fiscal year spending are not projected to increase by at least 4% for the next fiscal year, then for any income tax year commencing in the calendar year that begins in that fiscal year, the amount of the credit is reduced by 50%, and if the amount of the reduced credit is at or below $250, then no credit is allowed for such a tax year.
Section 9 creates a refundable income tax credit for income tax years commencing on or after January 1, 2024, but before January 1, 2033, for the sale of new qualified electric bicycles in the state; except that for the income tax year commencing on January 1, 2024, the credit is only allowed for retail sales made on or after April 1, 2024, but on or before December 31, 2024. The credit is allowed in the amount of $500 to a qualified retailer who sells a qualified electric bicycle to a resident of the state who has not purchased a discounted qualified electric bicycle in the same income tax year for which a tax credit was claimed by a qualified retailer and offers a discount equal to the lesser of $450 or the purchase price. The qualified retailer may retain from the credit an administrative fee not to exceed $50. If, for any one of the state fiscal years 2025-26 through 2032-33, state revenues that are not excluded from state fiscal year spending are not projected to increase by at least 4% for the next fiscal year, then for any income tax year commencing in the calendar year that begins in that fiscal year, the amount of the credit, the required discount amount, and the allowable administrative fee are each reduced by 50%.
Section 10 creates a refundable income tax credit for income tax years commencing on or after January 1, 2024, but before January 1, 2033, for a percentage of the actual costs incurred to construct, reconstruct, or erect a sustainable aviation fuel production facility in the state. The credit can be claimed by an aviation business, a sustainable aviation fuel producer, or an airport for the income tax year in which the production facility is put in service and is subject to the following aggregate caps for each income tax year for which the credit can be claimed.
● For the 2024 income tax year, the aggregate amount of all tax credit certificates issued to taxpayers must not exceed $1 million;
● For the 2025 and 2026 income tax years, the aggregate amount of all tax credit certificates issued to taxpayers must not exceed $2 million for each year; and
● For the 2027 through 2032 income tax years, the aggregate amount of all tax credit certificates issued to taxpayers must not exceed $3 million for each year.
Additionally, the credit is subject to recapture if the sustainable aviation fuel production of a facility comprises less than 60% of the total fuel production of the facility in any of the 3 taxable years immediately following the taxable year that the facility was placed in service.
Section 11 creates a mechanism to allow for advance payment of income tax credits to a motor vehicle dealer or financing entity that has been assigned the innovative motor vehicle tax credit or innovative truck tax credit, or to a qualified retailer for the electric bicycle tax credit.
Section 12 terminates an existing sales and use tax exemption for heat pump systems and heat pump water heaters used in commercial or residential buildings so that it is allowed only for income tax year beginning on or after January 1, 2023, but before January 1, 2024.
Section 13 reduces the severance tax credit allowed for oil and gas production. Under current law, the amount of credit allowed is calculated by applying rate of 87.5% of all ad valorem taxes assessed during the taxable year for accrual basis taxpayers or paid during the taxable year by cash basis taxpayers upon oil and gas, oil and gas leaseholds and leasehold interests, and oil and gas royalties and royalty interests. The act reduces the rate to 75% for 2024 and 2025. For the tax year beginning on January 1, 2026, the act modifies the calculation for the oil and gas tax that otherwise would have been implemented in tax year 2025 by making a parallel downward adjustment so that the amount of credit is derived by multiplying 65.625% of the gross income of the well by the mill levy fixed in the prior calendar year. For tax years beginning on or after January 1, 2027, the act provides that the amount of credit is derived as it otherwise would be under existing law, by multiplying 76.56% of the gross income of the well by the mill levy fixed in the prior calendar year.
Section 14 requires that for state fiscal years 2024-25 through 2026-27, the revenue collected that is equal to the amount attributable to the decreased amount of severance tax credit allowed for oil and gas production is credited to the decarbonization tax credits administration cash fund; except that on or before July 1, 2025, revenue must first be credited to the cash funds used for state fiscal years 2023-24 and 2024-25 by the office and the department of revenue (department) for the administration of the tax credits created by the act so that all administrative costs are repaid to the cash funds. Additionally, the stakeholder group that was required to convene pursuant to House Bill 22-1391, "Concerning the state severance tax on oil and gas", is required to additionally consider long-term changes for the severance tax credit for oil and gas production, and the date on which the implementation plan the stakeholder group is required to submit to the joint budget committee is extended by one year to January 15, 2025.
Section 15 creates a partial specific ownership tax exemption on or after January 1, 2024, but before January 1, 2033, for new class A or class B personal property that is a fleet vehicle and meets the definition of a category 7 truck for purposes of the innovative truck tax credit.
Section 16 requires the office to report to legislative committees of the general assembly on an annual basis the estimated greenhouse gas emissions reductions that are attributable to the tax credits created in the act and to report annually on standards that the office adopts, amends, modifies, changes, or repeals for the implementation of the tax credits created in the act that are administered by the office. If the office does not adopt, amend, modify, change, or repeal any standards in the preceding year, the office is not required to report to the legislative committees regarding its standards in that year.
Section 17 gives the office and, subject to annual appropriation, the department the authority to expend money from the industrial and manufacturing operations clean air grant program cash fund for state fiscal years 2023-24 and 2024-25 to administer and implement the industrial clean energy tax credit that is created in section 5 and the sustainable aviation fuel production facility tax credit that is created in section 10. Section 17 also prohibits industrial and manufacturing operations clean air grants from being awarded for greenhouse gas emissions reduction improvements at industrial facilities for which and industrial clean energy tax credit is received.
Section 18 gives the office and, subject to annual appropriation, the department the authority to expend money from the geothermal energy grant fund for state fiscal years 2023-24 and 2024-25 to administer and implement the tax credit that is created in section 6 for expenditures made in connection with a geothermal energy project, the geothermal electricity generation production tax credit that is created in section 7, and the heat pump technology and thermal energy network tax credit that is created in section 8.
Section 19 gives the office and, subject to annual appropriation, the department the authority to expend money from the community access to electric bicycles cash fund for state fiscal years 2023-24 and 2024-25 to administer and implement the electric bicycle tax credit created in section 9.
Section 20 gives, subject to annual appropriation, the office and the department the authority to expend money from the electrifying school buses grant program cash fund for state fiscal years 2023-24 and 2024-25 to administer and implement the changes made to the innovative motor vehicles and innovative trucks tax credits set forth in sections 2 and 3 and to administer the specific ownership tax rate reduction for electric medium-duty and heavy-duty trucks that are part of a fleet created in section 15.
Section 21 creates the decarbonization tax credits administration cash fund for use by the office and the department to implement and administer the tax credits that are extended or created in this act. Expenditures from the fund are for state fiscal years 2023-24 through 2034-35 and are subject to annual appropriation. The fund consists of money that is credited to the fund attributable to revenue collected that is equal to the amount attributable to the decreased amount of severance tax credit allowed for oil and gas production and any other money the general assembly may appropriate or transfer to the fund. On June 30, 2024, June 30, 2025, and June 30, 2026, the treasurer is required to transfer all unexpended and unencumbered money in the fund to the general fund; except that there must remain a balance of no less than $100,000 of unexpended and unencumbered money in the fund. On July 1, 2036, the state treasurer is required to transfer all money in the fund to the general fund.
Section 22 specifies that an existing enterprise zone income tax credit for investments in certain property cannot be claimed for an improvement for which the industrial clean energy tax credit created in section 5 or a project for which the geothermal energy project tax credit created in section 6 or the geothermal electricity generation production tax credit created in section 7 is claimed.
For state fiscal year 2023-24, the act makes appropriations of $149,729 to the department and $63,921 to the department of personnel for implementation of the act.
(Note: This summary applies to this bill as enacted.)