Modification of Certain Tax Expenditures

The act adjusts several state tax expenditures as follows:Requires the state treasurer to transfer $45.6 million from the general fund to the state highway fund on July 1, 2026, and $96.4 million on each July 1 from July 1, 2027, through July 1, 2031;Prohibits certain local use tax ordinances, resolutions, or proposals from applying to construction and building materials used by a common rail carrier pursuant to a contract with the state, a political subdivision of the state, or a special district allowing the contracting government to use the carrier's property or tracks for the provision of public passenger rail service;For income tax years commencing on and after January 1, 2027, requires a taxpayer to add to the taxpayer's federal taxable income the excess of any gain excluded from federal gross income pursuant to section 1400Z-2 (a)(1)(A) of the internal revenue code over the gain invested by the taxpayer in a Colorado-qualified opportunity fund in a manner that qualifies for exclusion from federal gross income pursuant to the same section of the internal revenue code;For income tax years commencing on or after January 1, 2027, allows a combined group to elect to make a water's-edge filing election and describes what should be taken into account in such a filing;For income tax years commencing on and after January 1, 2027, requires a corporation to add to the corporation's federal taxable income the excess of any gain excluded from federal gross income pursuant to section 1400Z-2 (a)(1)(A) of the internal revenue code over the amount of that gain invested in a Colorado qualified opportunity fund and the amount of any gain excluded from federal gross income as a result of an election made pursuant to section 1400Z-2(c) of the internal revenue code for amounts invested in a qualified opportunity fund that is not a Colorado qualified opportunity fund; allows a corporation to subtract from federal taxable income the amount of gain included in federal gross income pursuant to section 1400Z-2(b) of the internal revenue code to the extent that the gain was added to federal taxable income pursuant to the opportunity fund add-backs for a prior tax year; changes the definition of federal taxable income for a C corporation that is in a combined group; repeals the state corporate income tax deduction for wages or salaries paid that are not allowed to be deducted at the federal level pursuant to section 280C of the internal revenue code; and eliminates the ability of corporations to deduct from their income tax liability any amount included in federal taxable income pursuant to sections 951 (a) or 951A (a) of the internal revenue code with respect to a controlled foreign corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance;Eliminates a potential reduction in the amount available for the heat pump technology and thermal energy network tax credit, for years following 2025 based on an economic forecast by the office of state planning and budgeting or legislative council staff;Increases the innovative motor vehicle tax credit from $1,000 to $2,000 for certain vehicles sold or leased during the 2027 income tax year, and from $500 to $1,000 for certain vehicles sold or leased during the 2028 income tax year, and provides that certain vehicles with an manufacturer's suggested retail price (MSRP) below $40,000 that are sold or leased on or after January 1, 2027, but before January 1, 2029, are eligible for the additional tax credit.Clarifies that a potential 50% reduction in the innovative motor vehicle tax credit and the innovative trucks tax credit, triggered by certain state revenue forecasts, applies to the income tax year;For income tax years commencing on or after January 1, 2027, modifies the income tax credit for wildfire hazard mitigation expenses by adding a definition of 'infestation mitigation measures' that includes the thinning of woody vegetation that is at risk of mountain pine beetle or spruce beetle infestation or that has been killed by mountain pine beetles or spruce beetles, if such activities meet or exceed any state forest service standards or any other applicable state rules, and modifies the amount of the credit available to be fully refundable without being carried forward;For income tax years commencing on or after January 1, 2027, expands the income tax credit for the purchase of small food business recovery grant program equipment to be available for additional food distributors and producers, adjusts the amount of the tax credit that may be offered and claimed for the purchase of small food business recovery grant program equipment or participation in the supplemental food assistance benefit program, requires the department of agriculture to approve or disapprove an application for a credit within a reasonable time, which shall not exceed 150 days after the filing of the application, caps the amount of credits issued at $10 million for calendar years commencing before January 1, 2027, $5 million for the calendar year commencing on January 1, 2027, and a total of $5 million for calendar years commencing on or after January 1, 2028, and allows a purchaser that is not subject to income tax to be eligible for the credit.Extends the electric-powered lawn equipment tax credit until January 1, 2030, and allows a qualified retailer to elect advance payments of the credit;For income tax years commencing on or after January 1, 2027, allows an entity not subject to income tax to be eligible for an income tax credit for developing a qualified industrial facility, allows a taxpayer to claim the credit for installing equipment used for utilization of biomethane, requires the Colorado energy office (CEO) to review applications for the credit within 120, rather than 90, days, and for any semi-annual application period commencing on or after July 1, 2026, allows the CEO to adjust the limits on the aggregate amount of tax credits available to be reserved.Changes the reservation process for a tax credit made in connection with a geothermal energy project beginning on July 1, 2026;Provides that the department may disqualify a retailer of electric bicycles from the electric bicycle tax credit if the retailer requested advance payment of the credit or claimed a credit for a transaction that does not qualify for the credit, the retailer provided false information to the department of revenue or CEO, the retailer did not comply with the statutory requirements for the credit, or the retailer does not hold a sales tax license;Allows the executive director of the department of revenue to share taxpayer information with the CEO relating to a claim for an income tax credit for the retail sale of a qualified electric bicycle or the sale of a heat pump, which must remain confidential;Repeals the sustainable aviation fuel (SAF) production facility tax credit, effective January 1, 2027;Establishes the sustainable aviation fuel purchase income tax credit for income tax years beginning on or after January 1, 2027, and before December 31, 2032, where the amount of the credit is initially $1.50, increased by $.01 for each whole percentage of carbon intensity reduction in excess of 50%, but no greater than 100%, per gallon of SAF purchased for use in the state by the taxpayer, and the CEO may adjust that amount annually;Beginning January 1, 2028, the CEO may allow an additional credit of 50 cents for each gallon of SAF produced in the state that a qualified taxpayer purchased for use in the state during the income tax year, except as provided by the cap and reservation system, the total amount of credits issued cannot exceed $3 million per tax year, taxpayers must apply to the CEO for a tax credit certificate and CEO verifies eligibility and reports approved credits to the department of revenue, and the credit is refundable but may not be carried forward.For tax periods commencing on or after July 1, 2027, exempts from tax the storage, use, or consumption of construction and building materials by or on behalf of a common carrier by rail operating in interstate or foreign commerce when the storage, use, or consumption of the construction and building materials is pursuant to a contract with the state, a political subdivision of the state, or a special district that allows the contracting government to use the railroad's property or tracks for public passenger rail service;Extends the expiring sales and use tax exemption for wood from salvaged trees killed or infested in Colorado by mountain pine beetles or spruce beetles prior to the calendar year commencing on January 1, 2031;Repeals the sales and use tax exemption for property used in space flight, effective January 1, 2027, and reinstates the exemption beginning January 1, 2030;Change from 2% to 1.5% the allowance to cover losses in transit and in unloading gasoline or special fuel and repeals the 0.5% allowance for the costs of collecting the gasoline or special fuel excise tax and for uncollectible bad debts for tax periods beginning on or after January 1, 2027;Repeals the 3% deduction for collecting and remitting the tax on the inventory of cigarette wholesalers for tax periods beginning on or after January 1, 2027;Repeals the 0.4% discount on the face value of tax stamps affixed to packages containing cigarettes for tax periods beginning on or after January 1, 2027;Repeals the 1.6% discount for expenses in the collection and remittance of the tax on the sale, use, consumption, handling, and distribution of tobacco for tax periods beginning on or after January 1, 2027;Repeals the 1.1% discount for expenses in the collection and remittance of the nicotine product distributors tax for tax periods beginning on or after January 1, 2027;Allows an income tax credit to a taxpayer who places a new renewable energy investment in service on or after January 1, 2027, and provides a 14-year carryover of any amount of the credit not used to offset the income taxes otherwise due; except that, beginning in the tax year commencing on January 1, 2027, a taxpayer is not allowed a credit with respect to a qualified investment in a commercial truck, truck tractor, tractor, or semitrailer with a gross vehicle rating of at least 54,000 pounds that is designated as Class A personal property pursuant to statute;Provides that on or after January 1, 2027, a taxpayer with more than 50 business facility employees during an income tax year is ineligible for the new enterprise zone business employee tax credit in that same income tax year;Requires, beginning January 1, 2027, a taxpayer to make at least $150,000 in expenditures in research and experimental activities to be eligible for the enterprise zone research and experimental activities tax credit;Modifies the enterprise zone vacant building rehabilitation income tax credit so that the credit only applies to buildings that have been unoccupied for any 135 calendar days within the 180 calendar days preceding when the rehabilitation is placed in service and is available in an amount equal to 25% of the aggregate qualified expenditures per building or $200,000 per building, whichever is less;Beginning on January 1, 2028, provides that a resident individual is allowed an earned income tax credit that equals the applicable percentage, as set forth in statute, of the amount the individual would be have been allowed under the internal revenue code;Removes Liechtenstein as a jurisdiction recognized as a tax shelter by the state and requires the department of revenue to engage a contractor to study whether the countries currently listed as tax shelters should remain designated as tax shelters;Requires the state treasurer to transfer all money in the commercial vehicle enterprise tax fund to the Colorado economic development fund on July 1, 2027;Requires the state treasurer to transfer the remainder of the penalty assessed for certain traffic violations that is not transferred to local jurisdictions to the general fund on or after July 1, 2027;Extends the residential energy storage system income tax credit to December 31, 2029; andProvides that the film festival incentive tax credit begins on January 1, 2026, instead of January 1, 2027, and ends on December 31, 2035, instead of December 31, 2036. For the 2026-27 state fiscal year, the act makes the following appropriation adjustments to the department of health care policy and financing:$52,560 decrease from the general fund and a $52,560 increase from cash funds for medical and long-term care services for Medicaid eligible individuals;$21,024 increase from the primary care fund for the primary care fund program; and$332 decrease from the general fund and a $332 increase from the children's basic health plan trust fund for children's basic health plan medical and dental costs. $38,432 is appropriated from the general fund to the department of revenue for tax administration system support and personal services.