2023 Colorado Revised Statutes › Title 39 - TAXATION (§§ 39-1-101 — 39-37-301) › SPECIFIC TAXES (§§ 39-20-101 — 39-37-301) › INCOME TAX (§§ 39-22-101 — 39-22-5508) › Article 22 - Income Tax (§§ 39-22-101 — 39-22-5508) › Part 5 - SPECIAL RULES (§§ 39-22-501 — 39-22-570) › Section 39-22-554 - [Repealed Effective 12/31/2038] Heat pump technology and thermal energy network tax credit - tax preference performance statement - definitions - repeal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 installation of heat pump technology and the use of heat pump technology and thermal energy networks.
(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)
"Air-source heat pump system" means a system that:
(A)
Is certified pursuant to the federal environmental protection agency's energy star program;
(B)
[Repealed]
(C)
Is listed in the Air-conditioning, Heating, and Refrigeration Institute directory of certified product performance as a matched system;
(D)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications; and
(E)
Is installed in accordance with the manufacturer's specifications.
(II)
"Air-source heat pump system" may include 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; and
(B)
The system is capable of distributing produced heat to all conditioned areas of the building.
(III)
[Repealed]
(b)
"Applicable percentage" means a percentage annually established by the office as specified in subsection (4) of this section.
(c)
(I)
"Campus" means a collection of two or more buildings that are owned and operated by the same person, that have a shared purpose and function as a single property, that do not lease space to tenants, and that do not provide energy or heat services for a fee.
(II)
"Campus" includes two or more of the buildings that comprise the capitol complex, as defined in section
24-82-101 (3)(f)
.
(c.5)
"Cold-climate heat pump" means a type of air-source heat pump system that:
(I)
Meets the qualification criteria of the federal environmental protection agency's Energy Star program's cold-climate heat pump designation or meets the highest tier of the Consortium for Energy Efficiency's northern air-source heat pump specifications, not including an advanced tier;
(II)
Is installed with controls that set a crossover temperature specified by guidelines established by the office pursuant to subsection (7) of this section;
(III)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(IV)
Is installed in accordance with the manufacturer's specifications; and
(V)
Is listed in the Air-conditioning, heating, and Refrigeration Institute directory of certified product performance as a matched system.
(d)
"Colorado energy office" or "office" means the Colorado energy office created in section
24-38.5-101
.
(d.5)
"Crossover temperature" means the point that a heat-pump-based hvac system switches either partially or fully from the heat pump to a supplementary heating source.
(e)
"Department" means the department of revenue.
(f)
"Eligible taxpayer" means a taxpayer that meets the requirements for and is included on the list of eligible taxpayers described in subsection (5) of this section.
(g)
(I)
"Ground-source heat pump system" means a system that:
(A)
Is certified pursuant to the federal environmental protection agency's energy star program;
(B)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(C)
Has blowers that are high-efficiency motors that meet or exceed efficiency levels listed in the National Electrical Manufacturers Association MG 1-1993 publication;
(D)
Complies with all state and local drinking water guidelines and regulations and public water system requirements; and
(E)
Is installed in accordance with the manufacturer's specifications.
(II)
"Ground-source heat pump system" may include supplemental heat 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; and
(B)
The system is capable of distributing produced heat to all conditioned areas of the building.
(III)
[Repealed]
(IV)
[Repealed]
(h)
"Heat pump technology" means an air-source heat pump system, ground-source heat pump system, water-source heat pump system, variable refrigerant flow heat pump system, any combination of these systems, or a heat pump water heater.
(i)
(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.
(i.5)
"Heat pump" means an electrically powered mechanical device that uses the refrigeration cycle to transfer thermal energy from one location to another.
(j)
"List" means the list of eligible taxpayers created by the office as specified in subsection (5) of this section.
(k)
"Multifamily property" means a building with multiple separate housing units for residential inhabitants including a residential building that is a duplex, triplex, or multi-structure of four or more units.
(l)
"Taxpayer" means a person subject to tax pursuant to this article 22 or a person or political subdivision of this state that is exempt from tax pursuant to section
39-22-112 (1)
.
(m)
(I)
"Thermal energy" means piped, noncombustible fluids used for adding or removing heat from buildings for the purpose of efficient building temperature control and domestic hot water, including space heating and cooling and refrigeration.
(II)
"Thermal energy" includes methods of exchanging the piped, noncombustible fluids through the ground, wastewater treatment facilities, or other sources that achieve desired fluid temperatures; except that any source of thermal energy for this purpose must:
(A)
Not cause incremental greenhouse gas emissions or rely on increased, long-term combustion of fossil fuels; and
(B)
Be evaluated by the office to protect against increased emissions of harmful co-pollutants, negative impacts to communities including to disproportionately impacted communities, as defined in section
24-4-109 (2)(b)(II)
, and the risk of stranded assets, if the thermal energy is from any industrial source including a system for which the primary purpose is to generate electricity, including any process involving engine-driven generation.
(n)
"Thermal energy network":
(I)
Means all real estate, fixtures, and personal property that are operated, owned, used, or intended to be used for, in connection with or to facilitate, a distribution infrastructure project that supplies thermal energy to two or more buildings that are not a campus and that assists in reducing greenhouse gas emissions in the state;
(II)
Consists of pipe loops between multiple buildings and energy sources carrying piped, noncombustible fluids at the desired thermal temperature;
(III)
Includes a network that can be used for heating, cooling, and other building services; and
(IV)
May also be known as a geothermal exchange district, networked geothermal system, geoexchange system, geogrid system, community geothermal heating and cooling district, or geothermal heating district.
(o)
"Thermal energy system" includes a geothermal system or other method of exchanging the piped, noncombustible fluids through the ground, wastewater treatment facilities, or other sources of thermal energy that achieve desired fluid temperatures.
(p)
(I)
"Variable refrigerant flow heat pump system" means a system that:
(A)
Is certified pursuant to the federal environmental protection agency's energy star program;
(B)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(C)
Has blowers that are high-efficiency motors that meet or exceed efficiency levels listed in the National Electrical Manufacturers Association MG 1-1993 publication;
(D)
Complies with all state and local drinking water guidelines and regulations and public water system and wastewater system requirements; and
(E)
Is installed in accordance with the manufacturer's specifications.
(II)
"Variable refrigerant flow system" may include supplemental heat 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; and
(B)
The system is capable of distributing produced heat to all conditioned areas of the building.
(III)
"Variable refrigerant flow system" includes mechanical and electrical equipment central to the operation of a variable refrigerant flow system.
(q)
(I)
"Water-source heat pump system" means a system that:
(A)
Is certified pursuant to the federal environmental protection agency's energy star program;
(B)
Conforms to all applicable municipal, state, and federal codes, standards, regulations, and certifications;
(C)
Has blowers that are high-efficiency motors that meet or exceed efficiency levels listed in the National Electrical Manufacturers Association MG 1-1993 publication;
(D)
Complies with all state and local drinking water guidelines and regulations and public water system and wastewater system requirements; and
(E)
Is installed in accordance with the manufacturer's specifications.
(II)
"Water-source heat pump system" may include supplemental heat 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; and
(B)
The system is capable of distributing produced heat to all conditioned areas of the building.
(III)
[Repealed]
(3)
(a)
For income tax years commencing on or after January 1, 2024, but before January 1, 2033, an eligible taxpayer that installs heat pump technology in a building in the state, on a campus in the state, or develops, through purchase and installation of necessary equipment, a thermal energy network in the state is allowed a credit against the tax imposed under this article 22 in an amount set forth in subsection (3)(c) of this section in the tax year that the heat pump technology or thermal energy network is placed into service.
(b)
In order to qualify for the tax credit allowed under this section the eligible taxpayer shall provide a discount from the amount charged for the installation of heat pump technology or a thermal energy network in an amount equal to the amount of the credit set forth in subsection (3)(c) of this section minus the applicable percentage of the credit, and shall show the discount as a separate item on the receipt or invoice; except that the requirement in this subsection (3)(b) does not apply to an eligible taxpayer who installs their own heat pump technology or thermal energy network.
(c)
Subject to the modifications set forth in subsection (3)(d) of this section and the annual review required pursuant to subsection (3)(e) of this section and except as otherwise provided in subsection (3)(f) of this section, the amount of the credit allowed pursuant to this section is calculated as follows:
(I)
For the installation of an air-source heat pump system or for a variable refrigerant flow heat pump system: :
(A)
For tax years commencing on or after January 1, 2024, but before January 1, 2026, one thousand five hundred dollars;
(B)
For tax years commencing on or after January 1, 2026, but before January 1, 2029, one thousand dollars; and
(C)
For tax years commencing on or after January 1, 2029, but before January 1, 2033, five hundred dollars;
(II)
For the installation of a ground-source heat pump system, water-source heat pump system, a combined air-source and ground-source heat pump system, a combined water-source and ground-source heat pump system, a combined variable refrigerant flow and ground-source heat pump system, or a combined variable refrigerant flow and water-source heat pump system:
(A)
For tax years commencing on or after January 1, 2024, but before January 1, 2026, three thousand dollars;
(B)
For tax years commencing on or after January 1, 2026, but before January 1, 2029, two thousand dollars; and
(C)
For tax years commencing on or after January 1, 2029, but before January 1, 2033, one thousand dollars; and
(III)
For the installation of a heat pump water heater:
(A)
For tax years commencing on or after January 1,2024, but before January 1, 2026, five hundred dollars; and
(B)
For tax years commencing on or after January 1, 2026, but before January 1, 2033, two hundred fifty dollars.
(d)
Notwithstanding the amounts set forth in subsection (3)(c) of this section, the amount of the credit allowed by this section may be modified as follows:
(I)
For heat pump technology installed at a multifamily property, unless the heat pump technology is installed for an individual unit by the eligible taxpayer for use by the occupant of the individual unit, the amount of the credit is the amount of the credit permitted pursuant to subsection (3)(c) of this section multiplied by the number of units in the multifamily property that will utilize the heat pump technology;
(II)
For a nonresidential building, the amount of the credit is the amount of the credit permitted pursuant to subsection (3)(c) of this section multiplied by the number of increments of four tons of heating capacity; and
(III)
For a thermal energy network or for a campus, the amount of the credit is the amount of the credit permitted pursuant to subsection (3)(c) of this section multiplied by the total number of residential buildings and multifamily property units networked in a single system, plus the credit determined for each nonresidential building networked in the system pursuant to subsection (3)(d)(II) of this section.
(e)
The office shall annually review and evaluate the effectiveness of the tax credits and may, for the subsequent tax year:
(I)
Modify the amounts set forth in subsection (3)(c) of this section; and
(II)
Establish, modify, or remove limits on the credits calculated pursuant to subsection (3)(d) of this section.
(f)
If the June 2025 revenue forecast, and each June revenue forecast through the June 2031 revenue forecast as prepared by either legislative council staff or the office of state planning and budgeting, projects that state revenues, as defined in section
24-77-103.6 (6)(c)
, will not increase by at least four percent for the next fiscal year, the amount of the credit allowed pursuant to subsection (3)(c)(I)(B), (3)(c)(I)(C), (3)(c)(II)(B), (3)(c)(II)(C), or (3)(c)(III)(B) of this section, as may be modified by subsections (3)(d) and (3)(e) of this section, for any tax year commencing in the calendar year that begins during said next fiscal year is reduced by fifty percent if the heat pump technology is installed at an existing residential or nonresidential building; except that if the amount of the reduced credit is equal to or less than two hundred fifty dollars, then no credit is available for such a tax year.
(4)
An eligible taxpayer may retain an applicable percentage of the amount of the tax credit allowed under subsection (3)(c) of this section to support the industry-wide adoption and deployment of heat pump technologies in the state. The office shall annually determine the applicable percentage, which must be the same for each eligible taxpayer, pursuant to guidelines established by the office. The office shall maintain the current applicable percentage on its website and shall provide the applicable percentage in writing to the department no later than December 31, 2023, and each December 31 thereafter through December 31, 2031.
(5)
(a)
The office shall create, and update at least annually, a list containing the names and contact information of eligible taxpayers. To become an eligible taxpayer, and be included on the list described in this subsection (5), a taxpayer shall demonstrate to the office that the taxpayer and any of its employees who will be installing heat pump technology or thermal energy networks:
(I)
Are licensed as required by the state;
(II)
Are knowledgeable of and agree to follow the relevant system requirements set forth in subsections (2)(a), (2)(c.5), (2)(g), (2)(h), (2)(i), (2)(m), (2)(n), (2)(p), and (2)(q) of this section;
(III)
(III.5)
Have received training pursuant to the guidelines issued by the office pursuant to subsection (7) of this section;
(IV)
Will, where applicable, ensure that all piping for a split system is installed by technicians certified to the NITC R78 brazing procedure and trained in the safe handling of flammable refrigerants; and
(V)
Will meet any additional standards established by the office in its guidelines, including, if applicable, the 2021 international energy conservation code.
(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, annually provide a secure electronic copy of the list described in subsection (5)(a) of this section to the department that includes the social security number or Colorado account number and federal employer identification number of each eligible taxpayer.
(c)
The office shall maintain a current copy of the list on its website.
(d)
(I)
Every eligible taxpayer shall keep and maintain for a period of four years such books and records as may be necessary to determine that:
(A)
It is an eligible taxpayer;
(B)
It and any of its employees who will be installing heat pump technology or thermal energy networks meet the requirements described in subsection (5)(a) of this section;
(C)
The credit it claimed pursuant to this section was for the installation of heat pump technology or thermal energy networks in this state; and
(D)
The amount of the credit was properly calculated under subsection (3) of this section.
(II)
(A)
The office shall periodically examine a sample of the eligible taxpayers on the list described in this subsection (5) to substantiate that the eligible taxpayers are meeting the office's standards and properly claiming the credit allowed by this section. Every eligible taxpayer shall produce the books and records described in subsection (5)(d)(I) of this section for examination at any time by the office.
(B)
If the office determines that an eligible taxpayer is no longer meeting the standards, the office shall notify the taxpayer in writing that they are no longer eligible, remove the ineligible taxpayer from the list, update the list on its website, and promptly notify the department in writing of its decision.
(C)
If the office determines that a taxpayer was not eligible for all or part of the credit claimed, the office shall notify the department in writing of its decision. The department shall issue the taxpayer a notice of deficiency for the unpaid tax owed, together with applicable penalties and interest, and proceed to collect the deficiency in the same manner as other tax deficiencies.
(6)
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, to the state auditor as part of the state auditor's evaluation of this tax expenditure pursuant to section
39-21-305
.
(7)
The office may establish guidelines to implement this section. All guidelines established by the office must be posted on the office's website.
(8)
If a credit authorized by 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 or the installer.
(9)
This section is repealed, effective December 31, 2038.
Amended by 2024 Ch. 191,§ 18, eff. 5/17/2024.
Added by 2023 Ch. 167,§ 8, eff. 5/11/2023.