C.R.S. § 39-22-545 — Credit against tax - heat pump systems - heat pump water heaters - tax preference performance statement - legislative declaration - definitions - repeal

(1) (a) The general assembly hereby finds and declares that: (I) The general assembly has committed to reduce greenhouse gases through numerous policy and regulatory measures to meet the goals established in 2019; (II) Great quantities of emissions are released in the traditional process of heating and cooling private sector residential buildings; (III) There is great potential for businesses and individuals in the state to reduce greenhouse gas emissions generated in the heating and cooling of residential buildings by installing heat pump systems or heat pump water heaters, which reduce net greenhouse gas emissions; (IV) Providing an income tax credit for heat pump systems and heat pump water heaters will encourage businesses and individuals to purchase and use heat pump systems and heat pump water heaters rather than traditional heating and cooling methods; and (V) The purchase and use of heat pump systems and heat pump water heaters will benefit public health in the heating and cooling of homes and businesses and take advantage of latent heat sources and available renewable power during low demand periods. (b) 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 hereby finds and declares that the purposes of the tax expenditure created in subsection (3) of this section are to: (I) Induce certain designated behavior by taxpayers, specifically the purchase and use of heat pump systems and heat pump water heaters; and (II) Contribute to the state's effort to achieve its climate goals. (c) The general assembly and the state auditor shall measure the effectiveness of the tax credits in achieving the purposes specified in subsection (1)(b) of this section based on the number of heat pump systems and the number of heat pump water heaters sold and used in the state. The Colorado energy office shall provide the state auditor with any available information that would assist the state auditor's measurement. (2) As used in this section, unless the context otherwise requires: (a) Air-source heat pump system has the same meaning set forth in section 39-26-732 (2)(a). (b) Ground-source heat pump system has the same meaning set forth in section 39-26-732 (2)(b). (c) Heat pump system means an air-source heat pump system, ground-source heat pump system, water-source heat pump system, or variable refrigerant flow heat pump system. (d) Heat pump water heater has the same meaning set forth in section 39-26-732 (2)(d). (e) Purchase price means the amount actually paid by the purchaser for the tangible personal property installed, including charges for sales tax and freight, but not including any charges for assembly, installation, or other construction services, or permit fees. (f) Purchaser means a taxpayer who is the buyer of a heat pump system or heat pump water heater. (g) Seller means the entity that sells a heat pump system or heat pump water heater to a purchaser. (h) Taxpayer means a person subject to tax under this article 22, or a person or political subdivision of this state who is exempt from tax under section 39-22-112 (1), but does not include insurance companies subject to the tax imposed on gross premiums by section 10-3-209. For purposes of this section, a person or political subdivision of this state who is exempt from tax under section 39-22-112 (1) is a taxpayer even if the person or political subdivision has no unrelated business income. (i) Variable refrigerant flow heat pump system has the same meaning set forth in section 39-26-732 (2)(f). (j) Water-source heat pump system has the same meaning set forth in section 39-26-732 (2)(e). (3) (a) Subject to the provisions of subsection (4) of this section, for income tax years commencing on or after January 1, 2023, but before January 1, 2024, any purchaser that installs a residential or commercial heat pump system into real property in this state or that installs a residential or commercial heat pump water heater into real property in this state is allowed a credit against the tax imposed by this article 22 in an amount equal to ten percent of the purchase price paid by the purchaser for the heat pump system or heat pump water heater. (b) The credit allowed pursuant to this section is for the income tax year in which the heat pump system or heat pump water heater is purchased. (4) (a) (I) To be eligible to claim a tax credit pursuant to this section, the purchaser shall certify, as specified in subsection (4)(b) of this section, that all necessary mechanical, plumbing, and electrical work performed in connection with the installation of a heat pump system or heat pump water heater in a new or existing industrial, commercial, or multifamily residential building containing twenty thousand square feet or more of conditioned floor space was or will be performed by a contractor on the certified contractor list created pursuant to section 40-3.2-105.6 (3)(a), or by employees of a utility, subject to state licensing requirements and all applicable state and local rules, codes, and standards. (II) The requirements of this subsection (4)(a) do not apply to the installation of a heat pump system or heat pump water heater that is limited to in-unit work in a multifamily building or unit and that is initiated by the owner or tenant of the multifamily building or unit. (b) The purchaser shall certify, in a form and manner to be determined by the department of revenue, that the heat pump system or heat pump water heater was or will be installed in accordance with the provisions of subsection (4)(a) of this section, if applicable. The seller shall provide the certification to the purchaser for the purposes of subsection (5) of this section. (5) (a) A purchaser may assign the tax credit allowed in this section to the purchaser's seller as follows: (I) The assignment to the seller must be completed at the time of purchase of a new heat pump system or heat pump water heater by entering into an agreement as set forth in subsection (5)(c) of this section; (II) The purchaser must certify in writing that the purchaser will comply with the provisions regarding installation of the heat pump system or heat pump water heater specified in subsection (4) of this section, if applicable; (III) The purchaser must assign the tax credit to the seller and forfeit the right to claim the tax credit on the purchaser's tax return in exchange for good and valuable consideration; and (IV) The seller must compensate the purchaser for the full nominal value of the tax credit. The compensation paid to the purchaser is considered a refund of state taxes and is not state taxable income. (b) Notwithstanding section 39-21-108 (3), if a purchaser assigns the tax credit to a seller pursuant to this subsection (5), the seller receives the full amount of the tax credit that the purchaser is allowed in this section. Any unpaid balance or unpaid debt of the purchaser may not be credited from the amount of the tax credit allowed in this section. (c) To complete the tax credit assignment, the purchaser and the seller must enter into an agreement that: (I) Includes the purchaser's written certification to comply with the provisions regarding installation of the heat pump system or heat pump water heater specified in subsection (4) of this section, if applicable; and (II) Affirms that the requirements specified in subsection (5)(a) of this section were met. (d) The seller may authorize an agent or a designee to sign the agreement on its behalf. (e) The seller shall electronically submit a report containing the information required in the agreement described in subsection (5)(c) of this section to the department of revenue within thirty days of the purchase of a heat pump system or heat pump water heater in a form and manner to be determined by the department. (f) The seller shall also file the agreement described in subsection (5)(c) of this section with the original tax return for the taxable year in which the heat pump system or heat pump water heater is purchased. (g) The department of revenue, in consultation with the Colorado energy office, shall develop a model report and agreement no later than December 1, 2022. (6) If a credit authorized in this section exceeds the income tax due on the income of the seller for the taxable year, the excess credit may not be carried forward and shall be refundable to the seller. (7) Making a purchaser aware of the income tax credit allowed in this section or helping a purchaser assign the income tax credit to a seller as allowed in this section does not rise to the level of providing the purchaser with unauthorized tax advice. (8) This section is repealed, effective January 1, 2028. Source: L. 2022: Entire section added, (SB 22-051), ch. 333, p. 2346, § 2, effective August 10. L. 2023: (3)(a) amended, (HB 23-1272), ch. 167, p. 775, § 4, effective May 11. Cross references: For the legislative declaration in HB 23-1272, see section 1 of chapter 167, Session Laws of Colorado 2023.