First Regular Session Seventieth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 15-0915.01 Bob Lackner x4350 HOUSE BILL 15-1380 HOUSE SPONSORSHIP Becker K. and Vigil, Hullinghorst, Coram SENATE SPONSORSHIP Crowder, House Committees Senate Committees Agriculture, Livestock, & Natural Resources A BILL FOR AN ACT Concerning state financial incentives to encourage watershed health, and, in connection therewith, creating a credit against the state income tax to encourage watershed health projects and creating a state grant program administered by the Colorado water conservation board to encourage watershed health projects. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Subject to the bill's requirements, for any income tax year commencing on or after January 1, 2015, but prior to January 1, 2018, section 1 of the bill allows a taxpayer a state income tax credit in an amount determined by the Colorado water conservation board (board) for qualified expenditures the taxpayer has made for one or more watershed health projects during the income tax year for which the taxpayer claims the credit. Section 1 also: Gives the board exclusive authority to determine the amount of the credit allowed and imposes additional requirements on the board with respect to the amount of the credits it allows and the definition of qualified expenditure; Places an aggregate annual limit on the amount of tax credits the board may issue; Requires the board to submit a yearly report to specified committees of the general assembly that describes the status of any watershed health projects and any tax credit certificates it has issued; If a taxpayer receiving a credit is a pass-through entity, allows the taxpayer to allocate the credit among its partners, shareholders, members, or other constituent taxpayers; Prohibits the taxpayer from carrying forward a credit that exceeds the income tax due on the income of the taxpayer for the taxable year and requires the amount of the excess credit to be refunded to the taxpayer; and Requires the board to provide to the department of revenue by electronic means on an annual basis a report that identifies each of the taxpayers that received a credit for the particular year and specifies required contents of the report. The bill also allows a taxpayer to transfer all or any portion of a tax credit granted to another taxpayer for the other taxpayer, as transferee, to apply as a state income tax credit subject to certain requirements specified in the bill. The tax credit is repealed, effective July 1, 2021. Section 2 of the bill creates a new grant program under which the board may award grant moneys to specified public entities and nonprofit entities that do not pay state income taxes to enable them to make qualified expenditures for watershed health projects. The board will administer the grant program. The bill specifies procedures governing the awarding of grant moneys by the board. The grant program is repealed, effective July 1, 2021. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add 39-22-538 as follows: 39-22-538. Watershed health project tax credit - rules - legislative declaration - definitions - repeal. (1) The general assembly finds, determines, and declares that the purpose of this section is to create and implement incentives in the form of a credit against the state income tax that will encourage the restoration and long-term preservation of watersheds, forests, grasslands, riparian zones, streams, lakes, and reservoirs and encourage ecological, economic, and social sustainability across the state. (2) As used in this section, unless the context otherwise requires: (a) "Board" means the Colorado water conservation board created in section 37-60-102, C.R.S. (b) "Credit certificate" means a statement issued by the board certifying that a given expenditure for a watershed health project qualifies for the credit authorized in this section and specifying the amount of the credit allowed. (c) "Department" means the department of revenue. (d) "Person" means any individual, firm, corporation, partnership, limited liability company, joint venture, estate, trust, or group or combination acting as a unit. (e) "Taxpayer" means a person filing an income tax return under this article who makes qualified expenditures for one or more watershed health projects during the income tax year for which the taxpayer claims a credit pursuant to this section. For the purposes of this section, "taxpayer" includes a private nonprofit entity. (f) "Watershed health project" means collaborative, science-based ecosystem restoration of watersheds, forests, grasslands, riparian zones, streams, lakes, or reservoirs that: (I) Encourages ecological, economic, and social sustainability; (II) Leverages local resources with national and private resources; (III) Facilitates the reduction of wildfire management costs through reestablishing natural fire regimes and reducing the risk of uncharacteristic wildfire; (IV) Demonstrates the degree to which various ecological restoration techniques achieve ecological and watershed health objectives; (V) Makes use of any woody material generated by the project, including traditional forest products and biomass energy products; or (VI) Improves watershed, forest, grassland, riparian zone, stream, lake, or reservoir health. (3) (a) Subject to paragraph (b) of this subsection (3), for any income tax year commencing on or after January 1, 2015, but prior to January 1, 2018, a taxpayer is allowed a credit against the income taxes imposed by this article in an amount determined by the board pursuant to paragraph (b) of this subsection (3). (b) The board has the exclusive authority to approve the amount of any tax credit a taxpayer is allowed under this section. (c) The board shall determine the amount of a credit authorized by this section subject to the following requirements: (I) Each credit must be in an amount equal to or less than one-half of the amount of qualified expenditures for a watershed health project made by the taxpayer during the taxable year; and (II) In consultation with the department of natural resources created in section 24-33-101 (1), C.R.S., the department of agriculture created in section 35-1-103, C.R.S., and the water quality control division in the department of public health and environment authorized in section 25-8-301, C.R.S., the board shall define by rule in accordance with article 4 of title 24, C.R.S., qualified expenditures for a watershed health project for purposes of this section. In developing a definition of qualified expenditures, the board: (A) Shall include any investment the taxpayer makes as the owner of real property on private lands for defensible fire space or post-flood restoration; (B) Shall include any contributions the taxpayer makes to a state agency for one or more watershed health projects during the taxable year; and (C) Shall not include any investment the taxpayer makes on public lands where the taxpayer is also a holder of a special use permit. (d) For any one calendar year, the board shall not issue an aggregate amount of credit certificates that exceed one million five hundred thousand dollars. (e) No later than January 31, 2016, and no later than January 31 each year thereafter through and including January 31, 2019, the board shall submit a report to the finance committees of the senate and house of representatives, the agriculture and natural resources committee of the senate, and the agriculture, livestock, and natural resources committee of the house of representatives, or any successor committees, that describes, with respect to the preceding calendar year, the status of any watershed health projects and any tax credit certificates it has issued. (4) If a taxpayer receiving a credit authorized by this section is a partnership, limited liability company, S corporation, or similar pass-through entity, the taxpayer may allocate the credit among its partners, shareholders, members, or other constituent taxpayers in any manner agreed to by such persons. The taxpayer receiving the credit shall certify to the board and the department the amount of credit allocated to each constituent taxpayer, and the board shall issue credit certificates in the appropriate amounts to each partner, shareholder, member, or other constituent taxpayer. Each constituent taxpayer is allowed to claim such amount subject to any restrictions set forth in this section. (5) If a credit authorized in this section approved by the board exceeds the income tax due on the income of the taxpayer for the taxable year, the excess credit shall not be carried forward and must be refunded to the taxpayer. (6) The board shall, in a sufficiently timely manner to allow the department to process returns claiming the credit allowed by this section, provide the department by electronic means a report that identifies each of the taxpayers that received a credit for the income tax year that correlates with the calendar year. The report must include the following information: (a) The taxpayer's name; (b) The taxpayer's Colorado account number or social security number; (c) The amount of the credit allocated; and (d) The associated pass-through entity name and Colorado account number if the credit is allocated to a pass-through entity pursuant to subsection (4) of this section. (7) The department may promulgate rules as may be necessary to more effectively administer and enforce any provision of this section. The rules must be promulgated in accordance with article 4 of title 24, C.R.S. (8) Any taxpayer who offsets a tax deficiency with a credit that is disallowed pursuant to this section is liable for such tax deficiency, interest, and penalties as may be specified in this article or otherwise provided by law. (9) For any income tax year commencing on or after January 1, 2015, a taxpayer may transfer all or any portion of a tax credit granted pursuant to subsection (3) of this section to another taxpayer for such other taxpayer, as transferee, to apply as a credit against the taxes imposed by this article subject to the following requirements: (a) The taxpayer may only transfer such portion of the tax credit as the taxpayer has neither applied against the income taxes imposed by this article nor used to obtain a refund. (b) The taxpayer may transfer a prorated portion of the tax credit to more than one transferee. (c) For any tax year in which a tax credit is transferred pursuant to this subsection (9), both the taxpayer and the transferee shall file written statements with their income tax returns specifying the amount of the tax credit that has been transferred. A transferee may not claim a credit transferred pursuant to this subsection (9) unless the taxpayer's written statement verifies the amount of the tax credit claimed by the transferee. (d) To the extent that a transferee paid value for the transfer of a watershed health project tax credit to such transferee, the transferee is deemed to have used the credit to pay, in whole or in part, the income tax obligation imposed on the transferee under this article, and to such extent the transferee's use of a tax credit from a transferor under this section to pay taxes owed is not deemed a reduction in the amount of income taxes imposed by this article on the transferee. (e) The transferee shall submit to the department a form approved by the department. (f) A transferee of a tax credit shall purchase the credit prior to the due date imposed by this article, not including any extensions, for filing the transferee's income tax return. (g) With the exception of a tax credit held by a transferee required to be used by the transferee's estate for taxes owed by the estate, a tax credit held by an individual either directly or as a result of a donation by a pass-through entity survives the death of the individual and may be claimed or transferred by the decedent's estate. (h) The transferor of a tax credit transferred pursuant to this subsection (9) is the tax matters representative in all matters with respect to the credit. The tax matters representative is responsible for representing and binding the transferees with respect to all issues affecting the credit, including, but not limited to, notifications and correspondence from and with the department, audit examinations, assessments or refunds, settlement agreements, and the statute of limitations. The transferee is subject to the same statute of limitations with respect to the credit as the transferor of the credit. (i) The final resolution of any disputes regarding the tax credit between the department and the tax matters representative, including final determinations, compromises, payment of additional taxes or refunds due, and administrative and judicial decisions, is binding on all transferees. (10) This section is repealed, effective July 1, 2021. SECTION 2. In Colorado Revised Statutes, add 37-60-126.7 as follows: 37-60-126.7. Watershed health project grant program - creation - definitions - repeal. (1) As used in this section, unless the context otherwise requires: (a) "Board" means the Colorado water conservation board created in section 37-60-102. (b) "Fund" means the watershed health project grant program cash fund created in paragraph (a) of subsection (2) of this section. (c) "Qualified entity" means any municipality, county, home rule county, city and county, water conservation district, water conservancy district, irrigation district, water district, water and sanitation district, metropolitan district, or any private nonprofit entity that is exempt from paying income taxes under article 22 of title 39, C.R.S. (d) "Qualified expenditures" means the type and extent of expenditures a qualified entity spends on a watershed health project as further specified by the board in accordance with section 39-22-538 (3) (c) (II), C.R.S. (e) "Watershed health project" means collaborative, science-based ecosystem restoration of watersheds, forests, grasslands, riparian zones, streams, lakes, or reservoirs that: (I) Encourages ecological, economic, and social sustainability; (II) Leverages local resources with national and private resources; (III) Facilitates the reduction of wildfire management costs through reestablishing natural fire regimes and reducing the risk of uncharacteristic wildfire; (IV) Demonstrates the degree to which various ecological restoration techniques achieve ecological and watershed health objectives; (V) Makes use of any woody material generated by the project, including traditional forest products and biomass energy products; or (VI) Improves watershed, forest, grassland, riparian zone, stream, lake, or reservoir health. (2) (a) There is hereby created the watershed health project grant program for purposes of providing state funding to encourage the restoration and long-term preservation of watersheds, forests, grasslands, riparian zones, streams, lakes, and reservoirs and to encourage ecological, economic, and social sustainability across the state. The board is authorized to distribute grants to qualified entities in accordance with the requirements of this section from the moneys transferred to and appropriated from the watershed health project grant program cash fund, which is hereby created in the state treasury. (b) Moneys in the fund are hereby continuously appropriated to the board for the purposes of this section and are available for use until the programs and projects financed using the grants have been completed. (3) (a) The board may make grant awards from the fund in accordance with the requirements of this section on or after the effective date of this section but prior to January 1, 2018. The board shall develop procedures for the review of grant applications and shall develop guidelines for its use in evaluating and awarding grants. (b) Any qualified entity that intends to make qualified expenditures for a watershed health project may apply to the board for a grant of moneys in the fund to aid in the financing of said project. Moneys in the fund may also be awarded as grants to finance outreach or education programs aimed at demonstrating the benefits of watershed health protection. (c) The board shall review grant applications submitted by qualified entities and, in its sole discretion, make recommendations regarding the awarding and distribution of grants to applicants who satisfy the criteria outlined in this section and any guidelines it has developed pursuant to paragraph (a) of this subsection (3). (4) for any one calendar year, the board shall not award grants in an amount that exceeds five hundred thousand dollars. (5) This section is repealed, effective July 1, 2021. SECTION 3. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.