C.R.S. § 39-22-552 — Tax credit for expenditures made in connection with a geothermal energy project - tax preference performance statement - legislative declaration - definitions - repeal

(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 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 providing a financial incentive for the development of thermal energy networks and electricity generation from geothermal sources. (b) The general assembly and the state auditor shall measure the effectiveness of the credit in achieving the purpose specified in subsection (1)(a) of this section based on the number and value of the credits claimed. (2) Definitions. As used in this section, unless the context otherwise requires: (a) (I) Applicable amount means, except as provided in subsection (2)(a)(II) of this section, an amount of tax credit not to exceed thirty percent of a qualified expenditure by an eligible taxpayer that is allowed pursuant to this section as set by the office in accordance with subsection (4)(c) of this section. (II) The office may, on a case-by-case basis, determine that the applicable amount may be increased to an amount not to exceed fifty percent of a qualified expenditure by an eligible taxpayer if the office determines that a geothermal energy project has significant potential to result in geothermal electricity production or technological demonstration of geothermal electricity production. (b) Approved geothermal energy project means a geothermal energy project that has been approved to receive qualified expenditures by the office pursuant to the standards developed by the office in accordance with subsection (5) of this section. (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) Eligible taxpayer means any of the following people or entities that made a qualified expenditure: (I) A person engaged in a trade or business that is subject to tax pursuant to this article 22; (II) A person or political subdivision of this state that is exempt from tax pursuant to section 39-22-112 (1); or (III) A tribal government. (f) Geothermal electricity project or project means a project in the state that is intended to evaluate and develop a geothermal resource for the purpose of electricity production, that meets the standards developed pursuant to subsection (5) of this section, and that involves any of the following: (I) The exploration and development of wells; (II) Drilling exploration and confirmation wells; (III) The use of any heat extracted with produced fluids in an oil and gas operation if the heat is only utilized to reduce emissions from the operation in the same location as the well from which it was produced and would otherwise not be economically feasible as a stand-alone geothermal energy project; (IV) Drilling injection wells; (V) Flow testing; (VI) Reservoir engineering; (VII) Geothermal energy storage; (VIII) Coproduction of geothermal energy, including for industrial uses or thermal energy networks; (IX) Power generation equipment; or (X) Studies to identify and explore resources that may be suitable for geothermal electricity generation and may include hydrogen generation or utilization of direct air capture technology. (f.5) Geothermal energy project means a geothermal electricity project, thermal energy network, or a thermal energy network study. (g) Qualified expenditure means the total monetary cost approved by the office and expended on or after January 1, 2024, but before January 1, 2033, by an eligible taxpayer in connection with an approved geothermal energy project in the tax year for which the credit allowed in this section is claimed. (h) Thermal energy network has the same meaning as set forth in section 39-22-554 (2)(n). (i) Thermal energy network study means an energy and emissions scoping study, a feasibility study, an investment grade energy audit, a detailed engineering design, or a combination of these options that meets or exceeds the standards established by the office. (j) Tribal government means a federally recognized Indian tribe, including its business operations and wholly owned entities, with reservation lands within the state of Colorado or operating within the state. (3) (a) For income tax years commencing on or after January 1, 2024, but before January 1, 2033, an eligible taxpayer that makes a qualified expenditure is allowed a credit against the tax imposed under this article 22 in the applicable amount and subject to the limitations set forth in subsection (3)(b) of this section. (b) An eligible taxpayer is not allowed a tax credit pursuant to this section in an aggregate amount of more than five million dollars in tax credits for all income tax years for which the tax credit may be claimed pursuant to this section per approved geothermal energy project. (4) (a) An eligible taxpayer shall submit an application in a form and manner determined by the office for a tax credit certificate for the credit allowed in this section. The application must include: (I) Information sufficient for the office to evaluate the geothermal energy project for which the eligible taxpayer proposes making an expenditure and to approve the project if the project has not been previously approved by the office; (II) Information related to the specific costs associated with the proposed expenditure; (III) Estimated timing for the proposed expenditure to be made by the eligible taxpayer; (IV) The amount of credit requested; and (V) Any other information as specified in the standards set forth by the office. (b) (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 provided pursuant to subsection (4)(a) of this section to determine whether the application and documentation 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 and documentation are complete and in compliance with the requirements of this section and the standards established by the office, the office shall add the application to the evaluation pool for the application period. (C) If the office determines that the application or documentation, or both, are not complete or do 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 taxpayer in writing of its decision. A taxpayer may resubmit a disapproved application and documentation to be evaluated in a future application period. (c) (I) (A) For each application period, the office shall conduct a merit-based evaluation of the application in the evaluation pool. The office shall complete its review and award reservations within ninety days after the end of the application period. (B) Based upon the totality of the factors set forth in subsection (4)(d) of this section and based on considerations required for geothermal energy projects as set forth in subsection (5) of this section, which the office may weigh equally or differently, the office shall determine an applicable amount of credit that may be reserved for the benefit of the eligible taxpayer which may be all, part, or none of the credit amount requested in the eligible taxpayer's application; except that the office shall not reserve an amount in excess of the limitations set forth in subsection (3)(b) of this section, and the aggregate amount of credits reserved for all owners must not exceed thirty-five million dollars for all taxpayers in all years the credit is allowed. (C) The office may reserve credits for the current or any future tax year based upon the anticipated timing of the expenditure; except that credits may not be reserved for an expenditure that is made prior to the end of the application period. The office shall not reserve credits for any tax year beginning on or after January 1, 2033. (II) (A) If the office reserves credits for the benefit of an eligible taxpayer pursuant to subsection (4)(c)(I) of this section, the office shall notify the owner of the reservation and the amount reserved. (B) The office shall notify any taxpayer for which it reserved no credit pursuant to subsection (4)(c)(I) of this section of its decision in writing. (C) If the office reserves less than the full amount of credit requested by the taxpayer, the taxpayer may submit a new application for the remaining balance up to the limitation of the credit set forth in subsection (3)(b) of this section. (d) In conducting the merit-based review pursuant to subsection (4)(c) of this section, the office shall consider the following factors in addition to any other factors that the office may establish in its standards: (I) The workforce development and geothermal sector growth that the expenditure in the project will promote, including supporting workforce transition; (II) Whether the project the expenditure is made in connection with demonstrates effective and unique technology and circumstances that are supported by public outreach and education; (III) Demonstration of community resilience through utilization of geothermal energy in support of building heating and cooling decarbonization or enhancement of electric grid resiliency, including for dispatchability and energy storage, especially for rural or isolated communities; and (IV) Whether the project the expenditure is made in connection with serves a disproportionately impacted community or a just transition community or is within a non-attainment area. (e) The reservation of tax credits does not entitle an eligible taxpayer to an issuance of any credits until the eligible taxpayer provides the office with any documentation required by the office and a cost certification of the expenditure made in connection with an approved geothermal energy project during the tax year in which the reservation is approved. The cost certification must be audited by a licensed public accountant that is not affiliated with the eligible taxpayer. The office shall review the cost certification to verify that it satisfies the information provided in the eligible taxpayer's application. If the office determines that the eligible taxpayer made a qualified expenditure, the office shall issue a tax credit certificate in the applicable amount. (5) The office shall develop standards for the implementation of the tax credit allowed pursuant to this section. Any standards developed by the office must be posted on the office's website. At a minimum, the standards must provide for the evaluation and approval of geothermal energy projects and require the office to consider whether the project: (a) Demonstrates technology to further the adoption of clean, firm carbon-free electricity derived from geothermal energy in the state; (b) Supports replicable, cost-effective reduction outcomes to stimulate the geothermal sector or otherwise expand geothermal energy capacity in the state; and (c) Directly, or through technological demonstration evaluated and approved by the office, will lead to measurable greenhouse gas reduction outcomes for the state. (6) (a) 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 such information, and any other information that may be needed, if available, to the state auditor as part of the state auditor's evaluation of this tax expenditure required by section 39-21-305. (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 eligible taxpayer to which the office issued a tax credit certificate for the preceding tax year that includes the following information: (I) The taxpayer's name; (II) The amount of the credit; and (III) The taxpayer's social security number or the taxpayer's Colorado account number and federal employer identification number. (7) An eligible taxpayer that claims the credit allowed by this section may not claim the credit allowed by section 39-30-104 for the same project. (8) In order to claim the credit authorized by this section, an eligible taxpayer shall file the tax credit certificate with the qualified entity's state income tax return and, if the eligible taxpayer is exempt from tax pursuant to section 39-22-112 (1), the eligible taxpayer shall file a return pursuant to section 39-22-601 (7)(b). The amount of the credit that the eligible taxpayer may claim pursuant to this section is the amount stated on the tax credit certificate. (9) If a credit authorized in this section exceeds the income tax due on the income of the eligible taxpayer for the taxable year, the excess credit may not be carried forward and must be refunded to the eligible taxpayer. (10) This section is repealed, effective December 31, 2038. Source: L. 2023: Entire section added, (HB 23-1272), ch. 167, p. 785, § 6, effective May 11. L. 2024: (1)(a), (2)(e), IP(2)(f), (2)(f)(VIII), and (2)(f)(IX) amended and (2)(f)(X), (2)(f.5), (2)(h), (2)(i), and (2)(j) added, (SB 24-214), ch. 191, p. 1101, § 16, effective May 17. Cross references: For the legislative declaration in HB 23-1272, see section 1 of chapter 167, Session Laws of Colorado 2023.