Tax credit for investments in fixed capital assets for a shared quantum facility - tax preference performance statement - legislative declaration - definitions - report - repeal

(a) The general legislative purposes of the tax credit allowed by this section are:

(I) To induce certain designated behavior by taxpayers; and

(II) To improve industry competitiveness;

(b) The specific legislative purpose of the tax credit allowed by this section is to induce a qualified applicant to invest in fixed capital assets to create a hub that is a shared quantum facility that accomplishes translational research and incubation, low-volume manufacturing and fabrication and rapid prototyping in a laboratory environment and to provide related services and workforce development to support the development of quantum businesses and the quantum ecosystem in the state; and

(c) The general assembly and the state auditor shall measure the effectiveness of the credit in achieving the purposes specified in subsections (1)(a) and (1)(b) of this section based on the information reported by the office pursuant to subsection (11) of this section.

(2) Definitions. As used in this section, unless the context otherwise requires:

(a) Consortium means a group of nonprofit or for-profit entities, or both, that are jointly making qualifying investments in an eligible project to create and operate a shared quantum facility. A consortium may include one or more members exempt from tax pursuant to section 39-22-112.

(b) Department means the department of revenue.

(c) Eligible project means a capital project undertaken in the state to create a shared quantum facility for which a qualified applicant makes qualifying investments and that is approved by the office in accordance with the policies, procedures, and guidelines for the implementation and administration of the tax credit allowed by this section adopted by the office pursuant to subsection (12) of this section.

(d) Office means the Colorado office of economic development created in section 24-48.5-101.

(f) (I) Qualifying fixed capital assets means:

(A) Land in this state;

(B) Buildings, fixtures, and other structural components of buildings in this state for which the qualified applicant is allowed a deduction for depreciation pursuant to section 167 of the internal revenue code, including purchasing or constructing a facility, renovating a facility, making tenant improvements, funding a capital lease, capitalized labor, construction, and installation costs;

(C) Tangible personal property acquired for use exclusively in this state for which the qualified applicant is allowed a deduction for depreciation pursuant to section 167 of the internal revenue code, including furniture, fixtures and equipment such as outfitting an office, laboratory machines, refrigeration, HVAC systems, piping, measuring, monitoring and instrumentation equipment, fabrication machines, tools and equipment, and any hardware and software developed by third parties necessary for quantum technology applications; and

(D) Computer software acquired for use exclusively in this state for which the qualified applicant is allowed a deduction for depreciation pursuant to section 167 of the internal revenue code.

(II) Qualifying fixed capital assets is limited to property acquired, constructed, reconstructed, or erected as part of a coordinated plan to create a shared quantum facility.

(III) For purposes of this subsection (2)(f), if a qualified applicant is not subject to federal income tax, the qualified applicant is deemed to be allowed a deduction for depreciation if such a deduction would have been allowed were the qualified applicant subject to federal income tax.

(IV) Qualifying fixed capital assets shall be acquired, constructed, reconstructed, or erected where possible by a certified contractor on a certified contractor list that is obtained from the Colorado department of labor and employment and that contains the information specified in section 40-3.2-105.6

(3)(a).

(g) Qualifying investment means the amount paid by a qualified applicant to acquire, construct, reconstruct, or erect qualifying fixed capital assets to the extent such amount is required to be capitalized pursuant to the internal revenue code or such amount is allowed to be deducted under section 179 of the internal revenue code. Qualifying investment includes an amount capitalized by a lessee of qualifying fixed capital assets for a lease that is treated as a sale for federal income tax purposes.

(h) Quantum business means a private for-profit trade or business or nonprofit organization that has quantum technology as a key part of its business model or organizational purpose, including but not limited to manufacturing, testing, production, research and development, or enhancement of hardware or software to perform or use quantum technology as a key input or output of its business model, and companies that produce goods or services that are key inputs for other quantum business.

(i) Shared quantum facility means a primary place in the state where an applicant performs activities and provides economic benefits related to supporting quantum businesses and the quantum ecosystem.

(3) Credit allowed. (a) Subject to the provisions of subsection (3)(c) of this section, for income tax years commencing on or after January 1, 2025, but prior to January 1, 2033, a qualified applicant is allowed a credit against the income taxes imposed by this article 22 for placing an eligible project in service in an amount specified on the credit certificate issued by the office pursuant to subsection (7) of this section.

(b) To claim the credit allowed pursuant to this section, the qualified applicant must submit an application for a tax credit reservation as specified in subsection (5) of this section, place the eligible project in service prior to January 1, 2031, obtain a tax credit certificate from the office as specified in subsection (7) of this section, and, once issued by the office, file the tax credit certificate with the qualified applicant's income tax return as specified in subsection (8) of this section.

(c) The tax credit created in this section is not allowed to any qualified applicant unless a Colorado-based entity receives a multimillion dollar federal grant from the economic development administration for the regional technology and innovation program or a comparable federal grant program. The office shall notify the department if a grant specified in this subsection (3)(c) is received.

(4) Consortium as qualified applicant - tax matters representative. If a qualified applicant is a consortium:

(a) The basis of the credit allowed by this section includes the aggregate qualifying investment by all the members of the consortium as described in subsection (7)(a)(II) of this section.

(b) Whether the applicant performs the activities and provides the economic benefits related to quantum business is based upon the activities performed by and the benefits provided by all the members of the consortium.

(c) The members of the consortium shall designate one member to be the tax matters representative. The tax matters representative shall disclose to the office that it is the tax matters representative acting on behalf of the consortium. The tax matters representative shall also disclose to the office the name and taxpayer identification number of each member of the consortium.

(d) The tax matters representative is responsible for representing and binding the consortium with respect to all issues affecting the credit, including submitting the application for a tax credit reservation, representing the consortium before the office with respect to the application, notifying the office that the eligible project has been placed in service, submitting proof of compliance, submitting ongoing compliance reports, submitting any other report or document required by the office or the department, adjudicating any disputes, and taking any other action required of a qualified applicant by this section. The acts of the tax matters representative are binding upon all members of the consortium.

(e) The office shall issue a tax credit certificate to, and in the name of, the tax matters representative. The tax matters representative shall file the return and claim the full amount of the tax credit pursuant to subsection (8) of this section. The department shall pay any amount refunded pursuant to subsection (9) of this section to the tax matters representative.

(f) If the credit allowed by this section is recaptured pursuant to subsection

(10) of this section, the tax matters representative shall add the recaptured credit, plus any applicable penalties and interest, to its return. Nevertheless, every member of the consortium is jointly and severally liable for any resulting deficiency.

(5) Application submission and review for tax credit reservation. (a) An applicant may submit an application for a tax credit reservation to the office on or after January 1, 2024, but no later than December 31, 2025; except that, if the federal government has not announced the grant recipient described in subsection

(3)(c) of this section by June 30, 2025, the office may extend the application deadline to no more than six months after an announcement that a Colorado-based entity has received the grant described in subsection (3)(c) of this section. The application shall include a project plan for a shared quantum facility.

(b) The office shall review all submitted applications for a tax credit reservation to:

(I) Determine whether the applicant is a qualified applicant;

(II) Determine whether the application for a tax credit reservation is complete and includes a plan to make investments in qualifying fixed capital assets for the creation of a shared quantum facility;

(III) Make a preliminary determination whether the project plan for a shared quantum facility is for an eligible project based on the policies and procedures developed by the office pursuant to subsection (12) of this section; and

(IV) Determine whether the eligible project is entitled to a tax credit reservation as specified in subsection (6) of this section.

(c) The office shall make the determinations specified in subsection (5)(b) of this section within ninety days of the date the office receives the complete application for a tax credit reservation.

(d) If the office determines that an application for a tax credit reservation is incomplete or that it is unable to make the determination specified in subsection

(5)(b) of this section, the office shall notify the applicant in writing of the office's decision and may remove the application for a tax credit reservation from the review process.

(e) As part of the application review process required pursuant to subsection

(5)(b) of this section, the office may request clarifications and modifications to the application.

(f) The office may include performance requirements and criteria that a qualified applicant is required to satisfy before the office will issue a tax credit reservation pursuant to subsection (6) of this section or a tax credit certificate pursuant to subsection (7) of this section. The office must document in writing any requirements created pursuant to this subsection (5)(f).

(6) Tax credit reservation. (a) Based on the factors specified in subsection

(6)(d) of this section, the office may determine that a qualified applicant is entitled to a tax credit reservation in accordance with the provisions of this section. The office shall issue tax credit reservations subject to the limitations set forth in this subsection (6) and in accordance with the policies and procedures established pursuant to subsection (12) of this section.

(b) If the office reserves a tax credit for the benefit of a qualified applicant, the office shall notify the qualified applicant in writing of the reservation and the amount reserved. The reservation of a tax credit by the office for a qualified applicant does not entitle the qualified applicant to issuance of a credit certificate until the qualified applicant complies with all the other requirements specified in this section for the issuance of the tax credit. When the office approves a tax credit reservation, the office may also impose additional requirements, which a qualified applicant shall satisfy as part of completing the qualifying investment, before a tax credit certificate is issued to the qualified applicant.

(c) (I) Subject to the limitations in this subsection (6)(c), if approved, the office may issue a tax credit reservation to a qualified applicant for an eligible project in an amount equal to the qualified applicant's estimated qualifying investment.

(II) The aggregate amount of all fixed asset investment tax credit reservations that the office may issue pursuant to this section must not exceed forty-four million dollars.

(III) The office may establish policies and procedures to cap the total amount of any tax credit reservation issued to a qualified applicant pursuant to this subsection (6).

(d) In making the final determination of which project plan to issue tax reservations to pursuant to this subsection (6), the office may prioritize a project plan that:

(I) Is submitted by a qualified applicant that is a consortium that includes the following or is submitted by a qualified applicant that is not a consortium and that collaborates with the following:

(A) A nonprofit entity created by institutions of higher education of high research activity, classified as R1 universities, led by a public R1 university with a demonstrated history of quantum-related research and investment in Colorado; and

(B) A nonprofit entity that has received a substantial federal award for the purposes of cultivating and expanding a quantum-related ecosystem within Colorado;

(II) Is submitted by a qualified applicant that demonstrates an ability to meet application requirements designated by the office, including:

(A) The submission of a budget for the project plan that includes the sources of funding for the project and anticipated uses of the funding;

(B) The submission of an explanation for the ways in which the shared quantum facility will be used and how it will benefit the quantum industry in this state; and

(C) The submission of a community benefits plan developed by a nonprofit entity described in subsection (6)(d)(I)(B) of this section, through engagement with the community surrounding the shared quantum facility and labor organizations;

(III) Is submitted by a qualified applicant that:

(A) Demonstrates that the project plan is agreed upon by the entities described in subsections (6)(d)(I)(A) and (6)(d)(I)(B) of this section;

(B) Demonstrates an intent to equitably and effectively distribute the tax credits or the refund proceeds of the tax credit;

(C) Demonstrates an intent to leverage the proceeds of the refundable tax credit pursuant to this section for the purpose of creating and financing a shared quantum facility to accomplish the goals specified in subsection (1)(b) of this section;

(D) Includes a summary of any third-party resources apart from the tax credits allowed pursuant to this section that will be used to create or finance the shared quantum facility; and

(E) Includes a proposed collaboration plan that outlines the operational and governance plan for the shared quantum facility;

(IV) Proposes a suitable location for the shared quantum facility; and

(V) Is made by a qualified applicant that is a newly created nonprofit organization dedicated to the purpose of promoting the quantum ecosystem and its commercial growth.

(e) As part of the tax credit reservation process pursuant to this subsection

(6), the office may request clarifications or modifications to the application submitted pursuant to subsection (5) of this section.

(f) The applicant, at the applicant's own risk, may begin making investments in qualifying fixed capital assets before a tax credit reservation is awarded to the qualified applicant pursuant to this subsection (6). If a tax credit reservation application is approved for a qualified applicant, investments in qualifying fixed capital assets that the qualified applicant made up to twelve months before the date the tax credit reservation was submitted may be included in the calculation of qualifying fixed capital assets for the purpose of determining the amount of the tax credit certificate issued pursuant to subsection (7) of this section.

(7) Proof of compliance - audit of qualifying investments certification - issuance of tax credit certificate. (a) (I) After a qualified applicant completes a project or a phase of a project, the qualified applicant shall notify the office that the project or phase of the project has been placed in service and shall certify the types and amount of the qualifying investments and how the investments were used in an eligible project, after which the office shall make a final determination as to whether the project is an eligible project. The applicant shall include a review of the certification by a licensed certified public accountant that is not affiliated with the qualified applicant that aligns with office policies for certification of qualifying investments. The applicant shall also certify and provide documents demonstrating that the applicant satisfied any additional requirements imposed by the office pursuant to subsections (6) and (12) of this section.

(II) Qualifying investment expenditures that are eligible for the tax credit allowed pursuant to this section may be made by the applicant, members of a consortium, if applicable, or other entities contracted to make the expenditures on behalf of the applicant or members of a consortium as part of a coordinated plan to create the shared quantum facility. The source of money for the qualifying investment expenditures that are eligible for the tax credit can be from any source of money that the applicant or members of a consortium or other entities have available for making the investments.

(III) Within ninety days after receipt of the complete documentation required in subsection (7)(a)(I) of this section from the qualified applicant, the office shall review the qualified applicant's documentation of certified qualifying investments, determine whether the documentation satisfies the project plan and other requirements, and, if the office determines that the documentation satisfies the project plan and other requirements, the office shall issue a tax credit certificate for the lesser of the amount specified in the tax credit reservation issued to the qualified applicant pursuant to subsection (6) of this section or the amount of the qualifying investment.

(b) If there are any unreserved amounts of tax credits available under subsection (6) of this section, and if the amount of certified qualifying investments incurred by the qualified applicant would have resulted in the qualified applicant being issued a tax credit certificate that exceeds the amount of the tax credit reservation issued to the qualified applicant, the qualified applicant may apply to the office for the issuance of an additional tax credit certificate in an amount equal to the difference between the amount that would have been issued as a result of the certified qualifying investments if that amount was not limited to the amount of the tax credit reservation pursuant to subsection (7)(a)(III) of this section and the amount of the tax credit reservation by submitting an application in a form and manner determined by the office. The office shall review the application as specified in subsection (5) of this section and, if approved, shall issue a separate tax credit certificate awarding the qualified applicant the additional credit.

(c) The first application for tax credit issuance may include qualifying investments for the entire eligible project or just the initial phase and must be submitted by the qualified applicant no later than December 31, 2028.

(d) A qualified applicant may submit additional applications for tax credit issuance pursuant to this subsection (7) as the qualified applicant completes additional phases of the project that are placed in service. The qualified applicant may submit such applications through December 31, 2030, and up to the amount of tax credits reserved by the applicant.

(8) Filing tax credit certificate with income tax return. (a) To claim the credit authorized by this section, a qualified applicant shall file the tax credit certificate issued by the office pursuant to subsection (7) of this section with the qualified applicant's state income tax return. If the qualified applicant is exempt from tax pursuant to section 39-22-112 (1), the qualified applicant shall file a return pursuant to section 39-22-601 (7)(b). The amount of the tax credit that a qualified applicant may claim pursuant to this section is the amount stated on the tax credit certificate.

(b) A qualified applicant may not use a tax credit certificate issued pursuant to this subsection (8) before the income tax year that begins on or after January 1, 2026, but must use the tax credit certificate before the last income tax year that commences before January 1, 2033.

(c) A tax credit certificate issued to a partnership, a limited liability company taxed as a partnership, or multiple owners of a property must be passed through to the partners, members, or owners, including any nonprofit entity that is a partner, member, or owner, respectively, on a pro rata basis or pursuant to an executed agreement among the partners, members, or owners documenting an alternate distribution method.

(9) Refundability. (a) Except as otherwise provided in subsection (9)(b) of this section, not more than the aggregate of twenty-four million dollars of credits to be issued to all qualified applicants pursuant to this section may be claimed by the qualified applicants in the taxable year in which the eligible project is placed in service. If the qualified applicants are issued more than an aggregate of twenty-four million dollars in credits pursuant to this section, not more than twenty million dollars of the total amount of credits to be issued may be claimed in any single future taxable year; except that credits may not be claimed for any income tax year that begins on or after January 1, 2033.

(b) If the amount of the credit allowed to be claimed in the applicable taxable year pursuant to this section exceeds the amount of income taxes otherwise due on the income of the qualified applicant in the income tax year for which the credit is being claimed, or the qualified applicant is a person who is exempt from taxation pursuant to section 39-22-112 (1), one hundred percent of the amount of the credit that is allowed to be claimed for the applicable tax year that is not used as an offset against income taxes in the income tax year is refunded to the qualified applicant.

(10) Compliance monitoring and recapture. (a) Except as provided in subsection (10)(b) of this section, if, during the compliance period, the qualified applicant sells, transfers, abandons, or repurposes a substantial portion of the qualifying fixed capital assets for which the qualified applicant was allowed a credit pursuant to this section, or otherwise ceases to operate the shared quantum facility in this state, the office shall notify the qualified applicant and the department that the credit allowed in this section is disallowed. The qualified applicant shall add the full amount of the credit that was actually used to offset the qualified applicant's income tax or refunded to the qualified applicant to its return as a recaptured credit for the taxable year in which the credit is disallowed pursuant to this subsection (10).

(b) The potential increase in tax required pursuant to subsection (10)(a) of this section does not apply if:

(I) All or part of the shared quantum facility experiences a casualty loss and if the qualifying fixed capital assets lost are restored within a reasonable period established by the office;

(II) Solely by reason of the disposition of land, a building, a structure, or a facility, or an interest therein, the shared quantum facility is relocated within this state to a property approved by the office; or

(III) A qualifying fixed capital asset is replaced or upgraded in the normal course of its use.

(c) (I) The office shall establish reporting requirements to monitor compliance with this subsection (10), including requirements regarding the reporting of a disposition of a building, structure, or facility by the qualified applicant.

(II) If a dispute arises about whether a building, structure, or facility is a shared quantum facility, the office shall adjudicate the dispute and notify the department of the resolution.

(III) Notwithstanding section 39-21-107 (2), if a building, structure, or facility, or an interest therein, is disposed of during any taxable year during the compliance period, and thereafter the building, structure, or facility or any replacement for the building, structure, or facility is not a shared quantum facility, then:

(A) The qualified applicant shall add the full amount of the credit to its return as a recaptured credit for the taxable year in which the credit is disallowed pursuant to this subsection (10) notwithstanding the disposition of the building, structure, or facility;

(B) The statutory period for the assessment of any deficiency with respect to the disallowed credit must not expire before the expiration of three years from the date the office is notified, in such a manner as the office determines, that the project is not an eligible project; and

(C) The department shall assess any deficiency before the expiration of such three-year period together with any applicable interest and penalty imposed pursuant to this article 22.

(d) As used in this subsection (10), unless the context otherwise requires, compliance period means the period of fifteen years following the taxable year in which the qualified applicant placed the eligible project or the initial phase of the eligible project in service.

(11) Reporting. (a) No later than December 31, 2027, and, notwithstanding the requirement in section 24-1-136 (11)(a)(I), no later than December 31 of each two years thereafter through 2033, the office shall provide a written report to the general assembly and shall further make the report available to the public. In connection with tax credits issued pursuant to this section, the report must include:

(I) A description of each eligible project placed in service;

(II) A description of the use or uses of the eligible project;

(III) The number and quality of jobs supported in the quantum industry as a result of the eligible project;

(IV) The number of quantum businesses that have been supported through the eligible project;

(V) An overview of the types of intellectual property that have been advanced through the eligible project; and

(VI) The amount of federal money that has been awarded to the eligible facility.

(b) 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 qualified applicant to which the office issues a tax credit certificate for the preceding tax year that includes the following information:

(I) The qualified applicant's name;

(II) The amount of the credit; and

(III) The qualified applicant's social security number or the qualified applicant's Colorado account number and federal employer identification number.

(12) Policies and procedures. (a) The office may create and modify policies, procedures, and guidelines as necessary to further implement the tax credits to be claimed for the completion of eligible projects pursuant to this section and shall solicit advice from the department and quantum industry participants in creating and modifying such policies, procedures, and guidelines.

(b) With respect to making the preliminary determination as to whether a project plan is a plan for an eligible project pursuant to subsection (5)(b)(III) of this section, the office shall develop standards that include, but are not limited to:

(I) Performance standards and guidelines for a shared quantum facility;

(II) A detailed cost estimate for the project plan;

(III) Evidence of site control of the site where the project will occur; and

(IV) The financing or funding that is available for the project plan.

(c) With respect to making the preliminary determination as to whether a project plan is a plan for an eligible project pursuant to subsection (5)(b)(III) of this section, the office shall consider job quality standards and guidelines for the shared quantum facility that adhere to the Good Jobs Principles established by the United States department of labor and United States department of commerce.

(13) Repeal. This section is repealed, effective December 31, 2050.