Over how many years can a taxpayer claim the refundable enterprise-zone renewable energy investment tax credit, and how much per year?

Plain-English summary

A taxpayer planning to invest in renewable energy resources in a Colorado enterprise zone asked over what period it could claim the refundable version of the enterprise-zone renewable energy investment tax credit (Renewable Energy ITC). The Department ruled it can claim $750,000 of refund per year until the refundable amount is fully used.

How the refundable credit works under § 39-30-104(2.6), C.R.S.:

• You can take the credit as cash instead of as a credit. In lieu of applying the ITC against income tax, a taxpayer may elect to receive a cash refund.
• The trade-off is a 20% haircut. The refund equals 80% of the tax credit — to get cash, the taxpayer agrees to reduce the credit by 20%.
• The refund is capped at $750,000 a year. The refundable amount paid in any single year cannot exceed $750,000.
• The excess carries forward. Any refundable ITC above the $750,000 annual cap is carried forward and claimed, up to $750,000 each following year, until the credit is fully used. So a large credit is paid out as a string of annual $750,000 refunds over however many years it takes.

The Department stressed this ruling rests on the taxpayer's representation that the project qualifies for the Renewable Energy ITC; it didn't independently verify that, and the ruling is null and void if the representations are wrong. As a private letter ruling, it binds the Department only as to this taxpayer and these facts and cannot be relied on by anyone else.

What this means for you

Enterprise-zone renewable energy developers and investors

If your project earns a large Renewable Energy ITC, the refund route turns it into cash — but at 80 cents on the dollar and metered out at $750,000 a year. A credit big enough to exceed $750,000 effectively becomes a multi-year payout. Model the time value: a 20% reduction plus a multi-year wait is the price of getting cash rather than waiting to absorb the full credit against future tax.

Businesses choosing between credit and refund

Compare two paths: (1) keep the full ITC and offset Colorado income tax as you generate it (no 20% reduction), or (2) elect the refund at 80% with the $750,000 annual cap. Taxpayers expecting little Colorado tax to absorb the credit — for example because income is offset by net operating loss carryforwards or other credits — may prefer the refund despite the haircut.

Accountants and tax professionals

The governing provision is § 39-30-104(2.6); "renewable energy resources" is defined in § 39-30-104(2.8). The refund election is 80% of the credit, capped at $750,000/year, with the excess carried forward at the same annual ceiling until exhausted. The ruling is fact-specific and conditioned on the project actually qualifying.

Common questions

Q: Can the enterprise-zone renewable energy ITC be paid as cash?
A: Yes. A taxpayer may elect a cash refund in lieu of using the credit against income tax, equal to 80% of the credit.

Q: Is there a yearly limit on the refund?
A: Yes — $750,000 per year. Refundable amounts above that carry forward and are paid out at up to $750,000 in each following year until fully used.

Q: Why is the refund only 80% of the credit?
A: Electing the refund requires reducing the credit by 20%. The 80% figure is the price of taking cash instead of a credit against tax.

Q: Does this ruling apply to my project?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied upon by anyone else. It also assumed the project qualifies for the credit.

Citations and references

Statutes and rules:
- § 39-30-104(2.6), C.R.S. (refundable enterprise-zone renewable energy ITC; 80% refund, $750,000 annual cap, carryforward)
- § 39-30-104(2.8), C.R.S. (definition of renewable energy resources)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)

Source

• Landing page: https://tax.colorado.gov/all-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-18-002.pdf

Original ruling text

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

PLR 18-002
February 27, 2018
XXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Renewable Energy Investment Tax Credit
Dear XXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXXXXXXXXXXXX (“Taxpayer”) a
request for a private letter ruling to the Colorado Department of Revenue
(“Department”) pursuant to Department Rule 24-35-103.5. This letter is the
Department’s private letter ruling. This ruling is binding on the Department to the extent
set forth in Department Rule 24-35-103.5. It cannot be relied upon by any taxpayer
other than the taxpayer to whom the ruling is made.
Issue
Over what period can Taxpayer claim the refundable enterprise zone
renewable energy investment tax credit?
Conclusion
Taxpayer can annually claim a refund of the renewable energy investment tax
credit of up to $750,000 pursuant to §39-30-104(2.6), C.R.S. until the refund is
fully utilized (approximately XXX years), assuming Taxpayer is entitled to claim
a refund of $XXXXXX in the enterprise zone renewable energy investment tax
credit.
Background
Taxpayer intends to invest approximately $XXXXX in the development of
renewable energy resources1 in Colorado in an enterprise zone. Taxpayer
anticipates the assets will be placed into service by XXXX. Taxpayer is a related
1

As defined in §39-30-104(2.8), C.R.S

entity to XXXXXXXXX. (XXXX) and is included in a Colorado combined report
filed by XXXX. Taxpayer anticipates that any taxable income XXXXXXXX reports
on its Colorado combined reports filed through XXXX will be offset by Colorado
net operating loss carry-forwards and/or other tax credits. The renewable energy
investment is in addition to XXXXXXXX’s normal annual investments in qualified
property in Colorado enterprise zones. All renewable energy investment assets of
this project will be owned and operated by Taxpayer.
Taxpayer will elect to claim the renewable energy investment tax credit
(Renewable Energy ITC) set forth in §39-30-104(2.6), C.R.S. as a refund rather
than as a credit. In order to claim the credit as a refund, Taxpayer agrees to
reduce the credit by 20% and limit the refund payment to $750,000 per year. It
will take XX years of these refunds to fully utilize the refundable portion of the
Renewable Energy ITC.2 XXXXXXXX will report on its federal income tax returns
the EZ refunds either as income or as reduction in its deduction for state income
taxes.
Discussion
A taxpayer may receive, in lieu of Renewable Energy ITC taken as a credit
against income tax, a cash refund equal to 80% of the tax credit. The refundable
amount is limited to $750,000 per year. The balance of the refundable ITC in
excess of this cap may be carried forward and claimed, up to the maximum yearly
amount of $750,000, in each of the following years until the credit is fully utilized.
In the present case, Taxpayer states that 80% of the value of the Renewable
Energy ITC is $XXXXXXX. This is an estimate and the final amount of
Renewable Energy ITC Taxpayer may claim may be different. Taxpayer
represents that the project qualifies for the Renewable Energy ITC. Assuming this
representation is correct, the Department rules that Taxpayer can claim
Renewable Energy ITC refunds of $750,000 per year for as many years as
required to fully utilize the refundable amount of ITC. In this case, and assuming
Taxpayer claims the entire $750,000 refund each year, Taxpayer can carry
forward its unused Renewable Energy ITC claimed as a refund for XX years.
Miscellaneous
This ruling is premised on the assumption that Taxpayer has completely and
accurately disclosed all material facts and that all representations are true and
complete. The Department reserves the right, among others, to independently
evaluate Taxpayer’s representations and assumptions. The ruling is null and void if
any such assumption or representation is incorrect and has a material bearing on the

2

2

An investment of $XXXXXX results in a $XXXXXXX ITC. Eighty percent of the $XXXXXXX
credit is $XXXXXX in refundable Renewable Energy ITC.
DR 4010A (06/11/14)

conclusions reached in this ruling. The ruling is subject to modification or revocation
in accordance to Department Regulation 24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department
Regulation 24-35-103.5. It cannot be relied upon by any taxpayer other than the
taxpayer to whom the ruling is made.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation,
this redacted version of the ruling will be made public within 60 days of the date of
this letter. Please let me know in writing within that 60 day period whether you
have any suggestions or concerns about this redacted version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the
taxpayer to whom the ruling is made.

3

DR 4010A (06/11/14)