EZ Investment Tax Credit Refund for Renewable Energy Projects
Note: This incentive is not available for renewable energy projects coming into service on or after January 1, 2021; a bill to extend the credit’s availability was introduced in the 2020 legislative session but did not pass.
Colorado’s Enterprise Zone (EZ) program provides tax incentives to encourage businesses to locate and expand in designated economically distressed areas of the state — those having a high unemployment rate, low per capita income, or a low population growth rate. A taxpayer may claim an EZ investment tax credit for qualified investments located in an enterprise zone. The income tax credit is equal to 3% of the investment. A taxpayer can claim up to $750,000 during any tax year for eligible renewable energy.
Refund in Lieu of a Tax Credit
A taxpayer who places a new renewable energy investment in service on or after January 1, 2015, but before January 1, 2021, may elect to receive a refund of 80% of the amount of the EZ investment tax credit (and forgo the remaining 20% as a cost of such an election). If 80% of the EZ investment tax credit is less than or equal to $750,000, the taxpayer receives the full refund in the first tax year; otherwise, the taxpayer annually receives a refund not to exceed $750,000 per tax year until 80% of the EZ investment tax credit has been refunded to the taxpayer.
The taxpayer makes an election by filing an election statement with the Colorado Department of Revenue when filing a tax return.
Eligible Renewable Energy Investments
Renewable energy investments include recycled energy, renewable energy resources, or greenhouse gas neutral electricity generated using coal mine methane or synthetic gas (conditional on a determination from the Colorado Public Utilities Commission (PUC), done on a case-by-case basis). Synthetic gas is defined as “gas fuel produced through the pyrolysis of municipal solid waste.”
Recycled energy is defined as "energy produced by a generation unit with a nameplate capacity of not more than 15 megawatts (MW) that converts the otherwise lost energy from the heat from exhaust stacks or pipes to electricity and that does not combust additional fossil fuel,” and excludes energy produced by any system whose primary purpose is the generation of electricity.
Renewable energy resources include solar, wind, geothermal, biomass (nontoxic plant matter consisting of agricultural crops or their byproducts, urban wood waste, mill residue, slash, or brush; animal wastes and products of animal wastes; and methane produced at landfills or as a by-product of the treatment of wastewater residuals), new hydroelectricity with a nameplate rating of 10 MW or less, hydroelectricity in existence on January 1, 2005, with a nameplate capacity of 30 MW or less, and fuel cells using hydrogen derived from eligible renewables.
Any excess credit allowed for a renewable energy investment made in an income tax year commencing before January 1, 2018, may be carried forward 22 income tax years following the year the credit was originally allowed.