Industrial clean energy tax credit - tax preference performance statement - definitions - report - repeal
1 rule
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(1) (a) In accordance with section 39-21-304 (1), which requires each bill that creates a new tax expenditure to include a tax preference performance statement as part of a statutory legislative declaration, the general assembly finds and declares that the purpose of the tax credit provided for in this section is to induce certain designated behavior by taxpayers and to provide a reduction in income tax liability for certain businesses or individuals by allowing an owner of an industrial facility to receive a credit against income tax for the costs associated with conducting industrial studies or for implementing a plan to put into service greenhouse gas emissions reduction improvements.
(b) The general assembly and the state auditor shall measure the effectiveness of the credit in achieving the purposes specified in subsection (1)(a) of this section based on the information required and reported by the office pursuant to subsection (10)(b) of this section, and based on the number and value of the credits claimed.
(2) Definitions. As used in this section, unless the context otherwise requires:
(a) Applicable percentage means thirty percent, except as provided in subsection (3)(b)(II) of this section.
(b) Certified greenhouse gas emissions reduction improvements means greenhouse gas emissions reduction improvements to a qualified industrial facility that have been certified by the office as meeting the standards of the office.
(c) Colorado energy office or office means the Colorado energy office created in section 24-38.5-101.
(d) Department means the department of revenue.
(e) Greenhouse gas emissions reduction improvements means improvements that help to measurably reduce greenhouse gas emissions. Greenhouse gas emissions reduction improvements may include one or more of the following equipment purchases, improvements, retrofits, or investments:
(I) Replacing fossil-fuel-powered off-road equipment such as forklifts and construction equipment with electric equipment;
(II) Replacing fossil-fuel-fired equipment for space or water heating or industrial process heating with high-efficiency electric equipment;
(III) Replacing fossil-fuel-fired or compressed air-driven industrial process equipment with high-efficiency electric equipment;
(IV) Placing in service advanced refrigeration systems that reduce greenhouse gas emissions;
(V) Placing in service electric charging infrastructure for electric vehicles at an industrial facility;
(VI) Placing in service waste heat recovery technology;
(VII) Upgrading or implementing energy monitoring systems;
(VIII) Installing high efficiency electric pumps, motors, compressors, and lighting;
(IX) Installing variable volume or load efficiency equipment;
(X) Installing carbon capture equipment which provides supporting information that demonstrates a net reduction in greenhouse gas emissions when accounting for energy-related emissions released to operate the carbon capture equipment and provides a permanent durable carbon storage plan; except that the captured carbon may not be used for enhanced oil recovery;
(XI) Installing equipment used for collection of biomethane;
(XII) Replacing fossil-fuel-fired equipment with hydrogen fueled equipment;
(XIII) Installing hydrogen fueling stations for fuel cell vehicles at industrial facilities;
(XIV) Converting fossil-fuel-powered pumps, compressors, and controllers to compressed air-driven or electric-driven pumps, compressors, and controllers;
(XV) Installing onsite energy storage;
(XVI) Installing or upgrading to utility service feed equipment to directly support the implementation of any of the electrification improvements set forth in this subsection (2)(e);
(XVII) Placing in service carbon management systems including direct air capture and other forms of carbon dioxide removal;
(XVIII) Material substitutions within industrial processes to reduce industrial process greenhouse gas emissions by a minimum of fifteen percent when compared to existing production practices;
(XVIII.5) For income tax years commencing on or after January 1, 2026, embodied carbon investments, which are investments in the production of eligible materials, as defined in section 24-92-118 (2)(b), that result in the reduction of the eligible materials' cradle-to-gate embodied emissions, as established in policies created by the Colorado energy office, created in section 24-38.5-101, and in consultation with the office of the state architect. To qualify as an embodied carbon investment, an investment must result in a fifteen percent or greater reduction in cradle-to-gate embodied emissions of the eligible materials when compared to the eligible materials' cradle-to-gate baseline as established in standards and guidelines created by the Colorado energy office and in consultation with the office of the state architect. A cradle-to-gate measurement or baseline considers the life cycle stages for a product including, but not limited to, the raw material extraction and processing related to the product, and the transport to the manufacturer and manufacturing of the product.
(XIX) Other similar purchases and improvements identified and set forth in the standards developed by the office pursuant to subsection (4) of this section that result in at least a twenty percent reduction in greenhouse gas emissions when compared to current technology, equipment, or production processes being deployed by the owner.
(f) Greenhouse gas emissions reduction plan or plan means project implementation plans or specifications for the proposed greenhouse gas emissions reduction improvements to a qualified industrial facility that are sufficiently detailed to enable the office to evaluate whether the improvements are in compliance with the standards developed under this section and whether the plan will measurably reduce greenhouse gas emissions at a qualified industrial facility. The plan must include, but is not limited to, a property address, legal description, or other specific location of the industrial facility, and must include information on the estimated costs for the proposed greenhouse gas emissions reduction improvements.
(g) (I) Industrial facility means any real property in the state, and the machinery or equipment on the real property, where the principal trade or business activity is the mechanical or chemical transformation of organic or inorganic substances into new products, characteristically using power-driven machines and materials handling equipment.
(II) Industrial facility does not include a landfill, an electric utility subject to regulation by the public utilities commission, or an upstream or mid-stream oil and gas operation.
(h) Industrial process greenhouse gas emissions means greenhouse gas emissions that occur as a result of the chemical or physical transformation of process input materials.
(i) Industrial study means an energy and emissions audit, a feasibility study, a pre-front-end or a front-end engineering design study that meets or exceeds the standards established by the office, or any other industrial studies as outlined in program standards adopted by the office.
(j) Owner means a person or developer of a project to be implemented at a qualified industrial facility subject to tax under this article 22 who applies for and claims the credit allowed by this section.
(3) Availability of credit and amount. (a) For income tax years commencing on or after January 1, 2024, but prior to January 1, 2033, there shall be allowed a credit with respect to the income taxes imposed pursuant to this article 22 to the owner of a qualified industrial facility in an amount equal to:
(I) The applicable percentage of the costs paid and approved by the office for completing an industrial study during the tax year in which the credit is claimed; except that the credit cannot be claimed in an amount exceeding one million dollars; or
(II) The applicable percentage of the capital costs paid by the owner, not including the cost for design, and approved by the office for certified greenhouse gas emissions reduction improvements that are placed in service during the tax year in which the credit is claimed; except that the credit must be claimed in an amount that is not less than seventy-five thousand dollars and does not exceed eight million dollars.
(b) (I) If the office approves the owner's industrial study or greenhouse gas emissions reduction plan and reserves credits under subsection (6) of this section, the office shall apply the applicable percentage of the costs paid for completing an industrial study or the capital costs paid for greenhouse gas emissions reduction improvements to calculate the amount of the credit that the owner will receive for the tax year in which the industrial study is completed or the greenhouse gas emissions reduction improvements are placed in service.
(II) The office may on a case by case basis determine that the applicable percentage may be increased to an amount not to exceed fifty percent upon request by an owner for greenhouse gas emissions reduction improvements that have significant potential to significantly advance reductions in greenhouse gas emissions but may not be in the commercial stage of development. In evaluating such a request, the office may use United States department of energy technology readiness level criteria, scientific literature detailing potential decarbonization impacts of proposed technology, or subsequent literature on technology results to date to determine whether the requested increase of the applicable percentage sufficiently satisfies the office's criteria to justify the increase.
(c) An owner that claims the credit allowed by this section cannot, for the same greenhouse gas emission reduction improvements:
(I) Claim the credit allowed by section 39-30-104; or
(II) Receive grant money under the industrial and manufacturing operations clean air grant program created in section 24-38.5-116 (3)(a).
(4) Office to develop standards. (a) The office shall develop standards for the approval of industrial facilities as qualified industrial facilities for which a tax credit under this section is allowed to an owner.
(b) The office shall develop standards for the approval of industrial studies, for the approval of an industrial facility owner's greenhouse gas emissions reduction plan, for certifying greenhouse gas emissions reduction improvements, including verification of reduction in greenhouse gas emissions, and for reviewing the cost certifications for the costs of the industrial study and the costs related to the implementation of a greenhouse gas emissions reduction improvements plan. The standards that are adopted pursuant to this subsection (4)(b), must provide that a plan propose greenhouse gas emissions reduction improvements that lead to direct reductions through project implementation.
(c) Any standards developed by the office under this subsection (4) must be posted on the office's website.
(d) The office may annually review and update as necessary standards adopted pursuant to this subsection (4).
(5) Application and industrial study or plan submission. (a) An owner that intends to claim a credit pursuant to subsection (3)(a)(I) of this section shall submit to the office an application on a form prescribed by the office and any documentation that the office requires to demonstrate the anticipated completion of an industrial study in the current or in a future tax year, including the cost of the industrial study and the amount of credit requested.
(b) An owner that intends to claim a tax credit pursuant to subsection
(3)(a)(II) of this section shall submit to the office an application and plan as set forth in the standards developed by the office. The office shall prescribe a form for the application, which must include a place for owners to provide the following information:
(I) Detailed estimates of the capital costs for the proposed greenhouse gas emissions reduction improvements;
(II) Estimates of expected energy consumption avoided by the use of the greenhouse gas emissions reduction improvements;
(III) Estimated timing for the greenhouse gas emissions reduction improvements to be placed into service;
(IV) For carbon management projects, net reductions in greenhouse gas emissions;
(V) Estimated dollar savings;
(VI) Estimated dollars leveraged, including any private investment, state grant funding, and federal grants or tax credits;
(VII) The type and age of equipment being replaced, if applicable;
(VIII) The type and estimated life span of new equipment, if applicable;
(IX) The amount of credit requested; and
(X) Any other information as specified in the standards set forth by the office.
(c) (I) The office shall accept applications through June 30, 2024, and semi-annually through each December 31 and June 30 thereafter, through June 30, 2032.
(II) (A) The office shall review applications and documentation related to industrial studies to be conducted or plans for greenhouse gas emissions reduction improvements at a qualified industrial facility to determine that the application, documentation, and plan, if applicable, are complete and in compliance with the requirements of this section and the standards established by the office.
(B) If the office determines that the application, documentation, and plan, if applicable, are complete and in compliance, the office shall add the application to an evaluation pool for the application period.
(C) If the office determines that the application is incomplete or that it does not comply with the requirements of this section or the standards established by the office, the office shall remove the application from the review process and notify the owner in writing of its decision. An owner may resubmit a disapproved application, documentation, and plan, if applicable, to be evaluated in a future application period.
(6) Merit-based review and reservation of credits. (a) (I) For each application period, the office shall conduct a merit-based evaluation of the applications that have been placed in the evaluation pool pursuant to subsection
(5)(c)(II)(B) of this section. The office shall complete its review, and award reservations, within ninety days after the end of the application period.
(II) Based upon the totality of the factors set forth in subsection (6)(c) of this section, the office may adjust the applicable percentage as provided in subsection
(3)(b)(II) of this section and reserve for the benefit of each owner all, part, or none of the credit amount requested by the owner; except that the office shall not reserve an amount in excess of the credit allowed by subsection (3)(a) of this section, and the aggregate amount of credits reserved for all owners may not exceed the reservation limits set forth in subsection (8) of this section.
(III) The office may reserve credits for the current or any future tax year based upon the anticipated completion or in service date indicated in the application; except that credits may not be reserved for an industrial study completed or for greenhouse gas emissions reduction improvements placed in service prior to the end of the application period. The office shall not reserve tax credits for any tax year beginning on or after January 1, 2033.
(b) (I) If the office reserves credits for the benefit of an owner under subsection (6)(a) of this section, the office shall notify the owner of the reservation and the amount reserved. The reservation of tax credits does not entitle the owner to an issuance of any tax credit certificates until the owner complies with all of the requirements specified in this section, or by the office, for the issuance of a tax credit certificate.
(II) The office shall notify any owner for which it reserved no credit under subsection (6)(a) of this section of its decision in writing.
(III) If the office reserves less than the full amount of credit requested by the owner, the owner may submit a new application for the remaining balance up to the amount of credit allowed by subsection (3)(a) of this section in a future application period.
(c) (I) In conducting the merit-based review pursuant to subsection (6)(a) of this section, the office shall consider the factors set forth in this subsection (6)(c) in addition to any other factors the office may establish in its guidelines. The office may weigh the factors equally or differently.
(II) The office shall:
(A) Consider additional resources leveraged by the owner to conduct the industrial study or implement the plan; and
(B) Prioritize the location of the industrial facility that is the subject of the industrial study or the plan, in particular if the location is in a disproportionately impacted community or within a non-attainment area.
(III) In addition to the factors set forth in subsection (6)(c)(II) of this section, for an application that is requesting a reservation of credit for the credit allowed pursuant to subsection (3)(a)(II) of this section, the office shall also consider:
(A) The annual greenhouse gas emissions reduction impact, considering both the total impact and the per dollar impact for the amount of credit requested to be reserved;
(B) Any co-benefits of a project that will implement the plan with prioritization given to projects that limit the amount of pollutants emitted by emerging technologies, including projects that include electrification and use of renewable electricity;
(C) The readiness of a greenhouse gas emissions reduction improvement that will be implemented by the plan; and
(D) The innovative nature of the plan and proposed greenhouse gas emissions reduction improvements.
(7) Proof of compliance - audit of cost certification - issuance of tax credit certificate. (a) Any owner receiving a reservation of tax credits under subsection
(6) of this section for credits allowed pursuant to subsection (3)(a) of this section shall complete the approved industrial study or put the approved greenhouse gas emissions reduction improvements identified in the plan in service during the tax year for which the reservation is approved. When the approved industrial study is complete or the approved greenhouse gas emissions reduction improvements are placed in service, the owner shall notify the office of the completion of the industrial study or plan and shall provide the office with a cost certification of the costs for the approved industrial study or approved greenhouse gas emissions reduction improvements. The cost certification must be audited by a licensed certified public accountant that is not affiliated with the owner. The office shall review the cost certification and verify that it satisfies the information provided in the owner's application, including, if applicable, the plan, within ninety days after receipt of the cost certification. If the office determines that the industrial study is complete or that the plan is complete and that the greenhouse gas emissions reduction improvements have been placed in service, and the office approves the cost certification, the office shall issue a tax credit certificate in the amount allowed pursuant to subsection (3) of this section.
(b) Notwithstanding subsection (7)(a) of this section, the total amount of the initial tax credit certificate issued for an industrial study or certified greenhouse gas emissions reduction improvement must not exceed the amount of the tax credit reservation approved pursuant to subsection (6)(a) of this section.
(c) If the amount of certified costs incurred by the owner would result in an owner being issued an amount that exceeds the amount of tax credit reserved for the owner under subsection (6) of this section, the owner may apply to the office for the issuance of an amount of tax credits that equals the excess. The owner shall submit its application for issuance of such excess tax credits on a form prescribed by the office. The office shall review the application for an additional tax credit amount in the same manner it reviews all other applications and in accordance with subsection (6)(a) of this section. Subject to the availability of tax credits for the application period during which the owner applies for the additional credit award pursuant to this subsection (7)(c), the office may approve the application and shall issue a separate certificate.
(8) Limit on aggregate amount of tax credits available to be reserved. (a) For the application period ending June 30, 2024, and for each semi-annual application period commencing on or after July 1, 2024, but before July 1, 2028, the aggregate amount of all tax credits that may be reserved under subsection (6)(a) of this section and awarded under subsection (7)(c) of this section must not exceed eight million dollars. For application periods commencing on or after July 1, 2028, but before July 1, 2032, the aggregate amount of all tax credits that may be reserved under subsection (6)(a) of this section must not exceed twelve million dollars.
(b) Notwithstanding the provisions of subsection (8)(a) of this section, the office may increase the periodic aggregate amount of tax credits available for the application period ending June 30, 2024, and for any semi-annual application period commencing on or after July 1, 2024, but before July 1, 2028. If so increased, the office shall decrease accordingly the amount of tax credits available for the application periods commencing on or after July 1, 2028, but before July 1, 2032.
(c) Notwithstanding the provisions of subsection (8)(a) of this section, if the aggregate amount of all tax credits reserved pursuant to subsection (6)(a) of this section and awarded pursuant to subsection (7)(c) of this section for an application period is less than the amount available under subsections (8)(a) and (8)(b) of this section, then the aggregate amount of all tax credits that may be reserved and awarded in the next application period is increased by the unreserved and unawarded amount.
(9) The office shall, in a sufficiently timely manner to allow the department to process returns claiming the income tax credit allowed in this section, provide the department with an electronic report of each owner to which the office has issued a tax credit certificate, as allowed in subsection (7) of this section, for the preceding tax year that includes the following information:
(a) The taxpayer's name;
(b) The amount of the credit; and
(c) The taxpayer's social security number or the taxpayer's Colorado account number and federal employer identification number.
(10) Guidelines. (a) In addition to the standards that the office is required to establish pursuant to subsection (4) of this section, the office may establish guidelines to implement this section. All guidelines established by the office must be posted on the office's website.
(b) The office shall maintain a database of any information necessary to evaluate the effectiveness of the tax credit allowed in this section in meeting the purpose set forth in subsection (1)(a) of this section and shall provide this information and any other information requested, if available, to the state auditor as part of the state auditor's evaluation of this tax expenditure required by section 39-21-305. Information provided by the office to the state auditor may include approved industrial studies or approved plans for greenhouse gas emissions reduction improvements.
(11) In order to claim the credit authorized by this section, the owner shall file the tax credit certificate with the owner's state income tax return. The amount of the credit that the owner may claim under this section is the amount stated on the tax credit certificate.
(12) (a) An owner shall submit a report to the office by the end of the first month after the end of any income tax year in which the owner received a tax credit under this section and shall annually submit a report for three years thereafter verifying the greenhouse gas emissions reduction improvements are, notwithstanding circumstances evaluated and determined by the office to be justified, in use at the location identified in the owner's application for a tax credit certificate and remain owned by the owner.
(b) If an owner was allowed a credit under this section and fails to demonstrate the greenhouse gas emissions reduction improvements are, notwithstanding circumstances evaluated and determined by the office to be justified, in use at the location identified in the owner's application for a tax credit certificate or are owned by the owner in any of the three taxable years immediately following the taxable year in which the greenhouse gas emissions reduction improvements were placed in service, the office shall notify the department in writing that the credit allowed in this section must be disallowed for that owner. The owner shall add the amount of the disallowed credit to its return as a recaptured credit for the tax year in which the credit is disallowed pursuant to this subsection (12).
(13) If a credit authorized by this section exceeds the income tax due on the income of the owner for the taxable year, the excess credit may not be carried forward and must be refunded to the owner.
(14) This section is repealed, effective December 31, 2038.