2023 Colorado Revised Statutes › Title 39 - TAXATION (§§ 39-1-101 — 39-37-301) › SPECIFIC TAXES (§§ 39-20-101 — 39-37-301) › SALES AND USE TAX (§§ 39-26-101 — 39-26.1-101) › Article 26 - Sales and Use Tax (§§ 39-26-101 — 39-26-901) › Part 7 - SALES AND USE TAX EXEMPTIONS (§§ 39-26-701 — 39-26-734) › Section 39-26-732 - Heat pump systems - 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 commercial and 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 commercial and residential buildings by installing heat pump systems and heat pump water heaters, which reduce net greenhouse gas emissions;
(IV)
Providing a sales and use tax exemption 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 exemption in achieving the purposes specified in subsection (1)(b) of this section based on the number of heat pump systems and 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)
(I)
"Air-source heat pump system" means a system that:
(A)
Is certified pursuant to the federal environmental protection agency's energy star program;
(B)
Has a variable speed compressor;
(C)
Is listed in the air-conditioning, heating, and refrigeration institute directory of certified product performance as a matched system; and
(D)
Is installed by a licensed contractor, plumber, or employee of a gas utility in accordance with the national electrical code and the manufacturer's specifications.
(II)
"Air-source heat pump system" may include an electric resistance heating element or a dual fuel system for supplemental heat so long as:
(A)
The air-source heat pump is used as the primary source of a building's heat and is designed to supply at least eighty percent of total annual heating for the building;
(B)
The system is capable of distributing produced heat to all conditioned areas of the building;
(C)
The dual fuel system has a furnace with an annual fuel utilization efficiency rating of ninety percent or higher;
(D)
All piping for a split system is installed by technicians certified to the NITC R78 brazing procedure; and
(E)
The system is installed by technicians that are trained on the safe handling of flammable refrigerants.
(III)
"Air-source heat pump system" includes mechanical and electrical equipment central to the operation of an air-source heat pump, including an upgraded electrical panel if necessary.
(b)
(I)
"Ground-source heat pump system" means a system that:
(A)
Is certified to the international organization for standardization's latest standards;
(B)
Is installed by a licensed contractor, plumber, or employee of a gas utility in accordance with the national electric code and manufacturer's specifications;
(C)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(D)
Has blowers that are variable speed, high-efficiency motors that meet or exceed efficiency levels listed in the national electrical manufacturers association MG1-1993 publication; and
(E)
Complies with all state and local drinking water guidelines and regulations and public water system requirements.
(II)
"Ground-source heat pump system" may include a dual fuel system so long as:
(A)
The ground-source heat pump is used as the primary source of a building's heat and is designed to supply at least eighty percent of total annual heating for the building;
(B)
The system is capable of distributing produced heat to all conditioned areas of the building;
(C)
The furnace has an annual fuel utilization efficiency rating of ninety percent or higher;
(D)
All piping for a split system is installed by technicians certified to the NITC R78 brazing procedure; and
(E)
The system is installed by technicians that are trained on the safe handling of flammable refrigerants.
(III)
"Ground-source heat pump system" includes mechanical and electrical equipment central to the operation of a ground-source heat pump, including an upgraded electrical panel if necessary.
(IV)
"Ground-source heat pump system" may include a heat exchanger for water heating.
(c)
"Heat pump system" means an air-source heat pump system, ground-source heat pump system, water-source heat pump system, combined water-source and air-source heat pump system, or variable refrigerant flow heat pump system.
(d)
(I)
"Heat pump water heater" means an electric water heater that uses heat pump technology to transfer heat from the surrounding air to water in a tank and that is certified pursuant to the federal environmental protection agency's energy star program.
(II)
"Heat pump water heater" may include:
(A)
An electric resistance heating element; and
(B)
Mechanical and electrical equipment central to the operation of a heat pump water heater, including an upgraded electrical panel if necessary.
(e)
(I)
"Water-source heat pump system" means a system that:
(A)
Is certified to the international organization for standardization's latest standards;
(B)
Is installed by a licensed contractor, plumber, or employee of a gas or wastewater utility in accordance with the national electric code and manufacturer's specifications;
(C)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(D)
Has blowers that are variable speed, high-efficiency motors that meet or exceed efficiency levels listed in the national electrical manufacturers association MG1-1993 publication; and
(E)
Complies with all state and local drinking water guidelines and regulations and public water system and wastewater system requirements.
(II)
"Water-source heat pump system" may include a dual fuel system so long as:
(A)
The water-source heat pump is used as the primary source of a building's heat and is designed to supply at least eighty percent of the total annual heating for the building;
(B)
The system is capable of distributing produced heat to all conditioned areas of the building;
(C)
The furnace has an annual fuel utilization efficiency rating of ninety percent or higher;
(D)
All piping for a split system is installed by technicians certified to the NITC R78 brazing procedure; and
(E)
The system is installed by technicians who are trained in the safe handling of flammable refrigerants.
(III)
"Water-source heat pump system" includes mechanical and electrical equipment central to the operation of a water-source heat pump.
(f)
(I)
"Variable refrigerant flow heat pump system" means a system that:
(A)
Is certified to the international organization for standardization's latest standards;
(B)
Is installed by a licensed contractor, plumber, or employee of a gas or wastewater utility in accordance with the national electric code and manufacturer's specifications;
(C)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(D)
Has blowers that are variable speed, high-efficiency motors that meet or exceed efficiency levels listed in the national electrical manufacturers association MGI-1993 publication; and
(E)
Complies with all state and local drinking water guidelines and regulations and public water system and wastewater system requirements.
(II)
"Variable refrigerant flow system" may include a dual fuel system so long as:
(A)
The variable refrigerant flow system is used as the primary source of a building's heat and is designed to supply at least eighty percent of the total annual heating for the building;
(B)
The system is capable of distributing produced heat to all conditioned areas of the building;
(C)
The furnace has an annual fuel utilization efficiency rating of ninety percent or higher;
(D)
All piping for a split system is installed by technicians certified to the NITC R78 brazing procedure; and
(E)
The system is installed by technicians who are trained in the safe handling of flammable refrigerants.
(III)
"Variable refrigerant flow system" includes mechanical and electrical equipment central to the operation of a variable refrigerant flow system.
(3)
On and after January 1, 2023, but before January 1, 2024, subject to the provisions of subsection (4) of this section, all sales, storage, and use of heat pump systems and heat pump water heaters that are used in commercial or residential buildings are exempt from taxation under parts 1 and 2 of this article 26.
(4)
(a)
(I)
To be eligible for the sales and use tax exemption pursuant to this section, the purchaser of a heat pump system or heat pump water heater 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 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 will be installed in accordance with the provisions of subsection (4)(a) of this section, if applicable.
(5)
This section is repealed, effective January 1, 2027.
Amended by 2023 Ch. 167,§ 12, eff. 5/11/2023.
Added by 2022 Ch. 333, § 4, eff. 8/10/2022.
2022 Ch. 333, was passed without a safety clause. See Colo. Const. art. V, § 1(3).