CO GIL 25-001 Income Tax 2025-02-03

When figuring Colorado's 10% residential energy storage tax credit, does the purchase price include the cost of the on-site generation (like solar panels) paired with the batteries, or only the storage system itself?

Short answer: Only the storage system itself. Colorado's 10% residential energy storage credit is based on the purchase price of the storage system and its batteries (including batteries paired with on-site generation), but the definition does not include the on-site generation — so the cost of solar panels or other generation is excluded from the credit base. (General Information Letter: general guidance only, not binding on the Department.)

Disclaimer: This is a Colorado Department of Revenue General Information Letter (GIL). A GIL is a good-faith general statement of the Department's views; it is NOT binding on the Department, does not have the force of law, and CANNOT be relied upon by any taxpayer. (For a binding determination on specific facts, a taxpayer must request a private letter ruling, which requires a fee.) This summary is informational only and is not legal or tax advice. Consult a licensed Colorado tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Colorado offers a residential income tax credit equal to 10% of the purchase price of an installed energy storage system in a Colorado home. The question here: if you pair batteries with on-site generation (for example, rooftop solar panels), does the credit's "purchase price" include the cost of that generation equipment? The Department said no — the credit is figured on the storage system and its batteries only, not on the on-site generation.

The reasoning is a careful grammar reading of the statute. "Energy storage system" is defined as "any commercially available, customer-sited system, including batteries and the batteries paired with on-site generation, that is capable of retaining, storing, and delivering energy." The Department parsed that clause: the phrase "including batteries…" describes the system, and it captures two categories of batteries — batteries that are part of the customer-sited system, and "batteries paired with on-site generation." But "paired with on-site generation" is just an adjective modifying "the batteries." It pulls in those batteries; it does not pull in the generation equipment itself. So the system (plus both battery categories) counts, but the on-site generation does not.

Two more practical points on the credit base from the statute: the purchase price is what the buyer actually paid for the installed system, including sales tax and freight, but it excludes charges for assembly, installation, other construction services, and permit fees.

What this means for you

Homeowners installing battery storage (with or without solar)

You can claim 10% of what you paid for the storage system and its batteries — including batteries paired with solar or other on-site generation — but you cannot fold the cost of the solar panels (or other generation) into the credit base. When you collect invoices, separate the storage/battery cost from the generation cost, and remember installation labor, other construction charges, and permit fees don't count toward the credit (though sales tax and freight do).

Installers and solar/storage retailers

Help customers by itemizing the storage system and batteries separately from on-site generation and from installation/construction/permit charges. The credit attaches to the system and batteries; bundling generation into one lump sum could overstate the credit base.

Accountants and tax professionals

The credit is § 39-22-546. The grammar holding is the takeaway: the "paired with on-site generation" language extends the battery categories, not the equipment list, so generation cost stays out of the § 39-22-546(2)(b) "purchase price." Watch the express exclusions (assembly, installation, other construction services, permit fees) and inclusions (sales tax, freight).

Common questions

Q: Can I include my solar panels in the residential energy storage credit?
A: No. The credit's purchase price covers the storage system and its batteries (including batteries paired with on-site generation), but not the on-site generation equipment itself.

Q: How big is the credit?
A: 10% of the purchase price actually paid for the installed energy storage system.

Q: What's in (and out of) the "purchase price"?
A: In: the amount paid for the installed system, including sales tax and freight. Out: assembly, installation or other construction services, and permit fees — and the cost of on-site generation.

Q: Can I rely on this letter for my own return?
A: No. This is a General Information Letter — general guidance only, not binding on the Department and not something any taxpayer can rely on. A binding answer requires a private letter ruling (with a fee).

Citations and references

Statutes:
- § 39-22-546(3)(a), C.R.S. (10% credit for an installed residential energy storage system)
- § 39-22-546(2)(a), C.R.S. (definition of "energy storage system")
- § 39-22-546(2)(b), C.R.S. ("purchase price"; excludes assembly/installation/construction and permit fees; includes sales tax and freight)
- § 2-4-101, C.R.S. (statutory construction — grammar and common usage)

Source

Landing page: Colorado Letter Rulings
Original PDF: GIL-25-001.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL 25-001
February 3, 2025
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Re: Residential Energy Storage System Tax Credit
Dear XXXXXXXXX:
You submitted a request for a general information letter regarding the credit allowed against
income tax for the installation of an energy storage system in a residential dwelling in Colorado.
The Colorado Department of Revenue (“Department”) issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues but is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department, and requires payment of
a fee. For more information about general information letters and private letter rulings, please
see 1 CCR 201-1, Rule 24-35-103.5.
Issue
Whether, for the purpose of the income tax credit for residential energy storage systems, the
purchase price of an installed energy storage system that includes batteries paired with on-site
generation should be comprised of both the price of those batteries and the price of on-site
generation.
Discussion
Any purchaser that purchases an energy storage system for a residential dwelling in Colorado is
allowed a credit against income tax equal to ten percent of the purchase price paid by the
purchaser for the installed energy storage system.1 The purchase price is the amount actually
paid by the purchaser for the installed energy storage system, including charges for sales tax
and freight, but the price does not include any charges for assembly, installation or other
construction services, or permit fees.2 “Energy storage system” is defined as “any commercially
available, customer-sited system, including batteries and the batteries paired with on-site
generation, that is capable of retaining, storing, and delivering energy by chemical, thermal,
mechanical, or other means.”3

1
2
3

Section 39-22-546(3)(a), C.R.S.
Section 39-22-546(2)(b), C.R.S.
Section 39-22-546(2)(a), C.R.S.

GIL 25-001
February 3, 2025
Page 2
In interpreting statutory language, “[w]ords and phrases shall be read in context and construed
according to the rules of grammar and common usage.”4 The phrase “any … system, including
batteries and the batteries paired with on-site generation…” must be read according to the rules
of grammar. The clause that begins “including batteries…” modifies the word “system,” clarifying
the scope of this term. The word “and” is a conjunction, demonstrating that both “batteries” and
“the batteries paired with on-site generation” are included within the scope of “system.” The
word “batteries” appearing immediately after “system” in this modifying clause indicates
batteries that are part of the system that is being defined. The phrase “paired with on-site
generation” functions as an adjective that modifies the antecedent noun phrase “the batteries.”
The clause modifying the scope of “system” therefore includes two categories of batteries:
batteries that are part of the “customer-sited system” and “batteries paired with on-site
generation.” Thus, the definition of “energy storage system” includes the storage system itself
and these two categories of batteries. This definition does not include the on-site generation.
Therefore, the purchase price of the “energy storage system” does not include the cost of the
“on-site generation.”
Miscellaneous
This letter represents the good-faith opinion of Department personnel who are knowledgeable
on state taxes issues. However, the Department does not make a specific determination on any
of the issues raised, and the Department is not bound by this general information letter.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue

Section 2-4-101, C.R.S