Senate Bill 25-040 Revised

A Bill for an Act

• Page 1, Line 101Concerning the creation of the future of severance taxes

• Page 1, Line 102and water funding task force, and, in connection

• Page 1, Line 103therewith, making an appropriation.

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://leg.colorado.gov/.)

Water Resources and Agriculture Review Committee. The bill creates the future of severance taxes and water funding task force (task force).

The department of natural resources is required to contract with a third party to conduct a study on severance taxes and water funding and develop recommendations for ways to continue funding water needs in the face of decreasing severance tax revenue (study). The purpose of the task force is to work with the third party to conduct the study and develop recommendations.

No later than January 15, 2026, the third party must submit a draft report, detailing the results of the study and any recommendations, to the department of natural resources and the task force for review. The task force is required to provide input on the draft report. No later than July 15, 2026, the third party must submit a final report, which incorporates the input of the task force, to the water resources and agriculture review committee (committee). The task force must present the final report to the committee during the 2026 legislative interim.

• Page 2, Line 1Be it enacted by the General Assembly of the State of Colorado:

• Page 2, Line 2SECTION 1.  Legislative declaration. (1)  The general assembly finds and declares that:

• Page 2, Line 3(a)  Severance taxes provide a source of revenue to the state and the state's political subdivisions;

• Page 2, Line 4(b)  A portion of revenues derived from severance taxes is used to fund the development and conservation of the state's water resources;

• Page 2, Line 5(c)  Another portion of revenues derived from severance taxes is

• Page 2, Line 6made available to local governments to offset the impact created by nonrenewable resource development;

• Page 2, Line 7(d)  The state also relies on severance tax revenue to fund staff

• Page 2, Line 8positions in the department of natural resources and the department of local affairs;

• Page 2, Line 9(e)  In times of need, the state has relied on severance tax revenue

• Page 2, Line 10to backfill the state budget, which depletes funding from programs that would otherwise benefit local governments; and

• Page 2, Line 11(f)  There is a need to study how the state can:

• Page 2, Line 12(I)  Avoid using severance tax revenue to backfill the state budget

• Page 2, Line 13in the future;

• Page 3, Line 1(II)  Begin to pay back the severance tax revenue previously used to backfill the state budget; and

• Page 3, Line 2(III)  Continue to fund water needs and grants to local

• Page 3, Line 3governments without relying on the revenues derived from severance taxes.

• Page 3, Line 4SECTION 2.  In Colorado Revised Statutes, add 37-98-106 as follows:

• Page 3, Line 537-98-106.  Future of severance taxes and water funding task

• Page 3, Line 6force - created - membership - third party to conduct study - report

• Page 3, Line 7- definitions - repeal. (1)  As used in this section, unless the context otherwise requires:

• Page 3, Line 8(a)  "Committee" means the water resources and

• Page 3, Line 9agriculture review committee created in section 37-98-102(1)(a)(I).

• Page 3, Line 10(b)  "Task force" means the future of severance taxes and

• Page 3, Line 11water funding task force created in subsection (2) of this section.

• Page 3, Line 12(c)  "Third party" means the third party hired by the

• Page 3, Line 13department of natural resources pursuant to subsection (5)(a) of this section.

• Page 3, Line 14(2) (a)  The future of severance taxes and water funding task force is created in the department of natural resources.

• Page 3, Line 15(b)  The task force consists of the following members:

• Page 3, Line 16(I)  The executive director of the department of natural resources or the executive director's designee;

• Page 3, Line 17(II)  The director of the Colorado water conservation

• Page 3, Line 18board created in section 37-60-102 or the director's designee;

• Page 4, Line 1(III)  The commissioner of agriculture or the commissioner's designee;

• Page 4, Line 2(IV)  A representative of an environmental advocacy

• Page 4, Line 3organization, appointed by the speaker of the house of representatives;

• Page 4, Line 4(V)  A representative of the oil and gas industry with

• Page 4, Line 5experience in severance tax issues, appointed by the minority leader of the senate;

• Page 4, Line 6(VI)  A representative of a water conservation district, appointed by the president of the senate;

• Page 4, Line 7(VII)  A representative of the agriculture industry with,

• Page 4, Line 8to the extent possible, experience in the intersection of

• Page 4, Line 9agriculture, water projects, and the oil and gas industry,

• Page 4, Line 10appointed by the minority leader of the house of representatives;

• Page 4, Line 11(VIII)  A county commissioner from a county that contains oil and gas operations, appointed by the governor;

• Page 4, Line 12(IX)  An elected municipal official or city or town

• Page 4, Line 13manager from a city, town, or city and county that has been

• Page 4, Line 14socially or economically impacted by the development,

• Page 4, Line 15processing, or energy conversion of oil and gas operations

• Page 4, Line 16subject to taxation under article 29 of title 39, appointed by thegovernor; and

• Page 4, Line 17(X)  The executive director of the department of local affairs or the executive director's designee.

• Page 4, Line 18(3)  The purpose of the task force is to consult and

• Page 4, Line 19coordinate with the third party in the development of a study

• Page 5, Line 1regarding the future of severance taxes and water funding in the state.

• Page 5, Line 2(4) (a)  No later than September 1, 2025, the appointing authorities shall make appointments to the task force.

• Page 5, Line 3(b)  The department of natural resources shall provide staff and other resources to support the work of the task force.

• Page 5, Line 4(c)  The task force shall conduct meetings as necessary to

• Page 5, Line 5perform its duties pursuant to this section.Every meeting of the

• Page 5, Line 6task force must be open to the public and include an opportunity for public testimony.

• Page 5, Line 7(d)  The members of the task force serve without

• Page 5, Line 8compensation but may be reimbursed for any reasonable

• Page 5, Line 9expenses incurred in the performance of the duties required under this section.

• Page 5, Line 10(5) (a)  The department of natural resources shall

• Page 5, Line 11contract with a third party to conduct a future of severance

• Page 5, Line 12taxes and water funding study. The purpose of the study is to

• Page 5, Line 13explore ways to continue funding water needsand energy

• Page 5, Line 14impact grants distributed pursuant to section 39-29-110 (1)(b)(I)

• Page 5, Line 15in the face of the decreasing availability of severance tax

• Page 5, Line 16revenue collected pursuant to article 29 of title 39 and to

• Page 5, Line 17develop related recommendations.The study must focus on

• Page 5, Line 18identifying ways to alleviate the need to transfer revenues

• Page 5, Line 19derived from severance taxes to the general fund and to

• Page 5, Line 20replace severance tax revenue that was previously transferred.

• Page 5, Line 21(b)  No later than January 15, 2026, the third party shall

• Page 6, Line 1submit a draft report to the department of natural resources

• Page 6, Line 2and the task force describing the study's findings and any

• Page 6, Line 3recommendations. The task force shall review and provide input on the draft report.

• Page 6, Line 4(c)  No Later than July 15, 2026, the third party shall:

• Page 6, Line 5(I)  In consultation with the department of natural

• Page 6, Line 6resources and the task force, create a final report that

• Page 6, Line 7incorporates the task force's input regarding the draft report; and

• Page 6, Line 8(II)  Submit the final report to the committee.

• Page 6, Line 9(d)  Following the submission of the report to the

• Page 6, Line 10committee, the task force shall present a summary of the report to the committee during the 2026 legislative interim.

• Page 6, Line 11(6)  The task force shall be funded solely with money from

• Page 6, Line 12the severance tax perpetual base fund created in section 39-29-109 (2)(a)(I.5).

• Page 6, Line 13(7)  This section is repealed, effective December 31, 2026.

• Page 6, Line 14SECTION 3.  In Colorado Revised Statutes, 39-29-105, amend (2)(b)(II) and (2)(d) introductory portion; and repeal (2)(c) as follows:

• Page 6, Line 1539-29-105.  Tax on severance of oil and gas.

• Page 6, Line 16(2) (b) (II) (A)  With respect to oil and gas there is allowed, as a credit

• Page 6, Line 17against the tax computed in accordance with the provisions of subsection

• Page 6, Line 18(1)(b) of this section for each taxable year commencing on or after

• Page 6, Line 19January 1, 2024, but prior to January 1, 2026 2027, an amount equal to

• Page 6, Line 20seventy-five percent of all ad valorem taxes assessed during the taxable

• Page 6, Line 21year in the case of accrual basis taxpayers or paid during the taxable year

• Page 6, Line 22in the case of cash basis taxpayers upon oil and gas leaseholds and

• Page 7, Line 1leasehold interests and oil and gas royalties and royalty interests for state,

• Page 7, Line 2county, municipal, school district, and special district purposes, except

• Page 7, Line 3such ad valorem taxes assessed or paid for such purposes upon equipment

• Page 7, Line 4and facilities used in the drilling for, production of, storage of, and pipeline transportation of oil and gas.

• Page 7, Line 5(B)  With respect to oil and gas there is allowed, as a

• Page 7, Line 6credit against the tax computed in accordance with subsection

• Page 7, Line 7(1)(b) of this section for each taxable year commencing on or

• Page 7, Line 8after January 1, 2027, but prior to January 1, 2028, an amount

• Page 7, Line 9equal to eighty-seven and five-tenths percent of all ad valorem

• Page 7, Line 10taxes assessed during the taxable year in the case of accrual

• Page 7, Line 11basis taxpayers or paid during the taxable year in the case of

• Page 7, Line 12cash basis taxpayers upon oil and gas leaseholds and leasehold

• Page 7, Line 13interests and oil and gas royalties and royalty interests for

• Page 7, Line 14state, county, municipal, school district, and special district

• Page 7, Line 15purposes, except such ad valorem taxes assessed or paid for such

• Page 7, Line 16purposes upon equipment and facilities used in the drilling for,

• Page 7, Line 17production of, storage of, and pipeline transportation of oil and gas.

• Page 7, Line 18(c)  For a taxable year beginning on or after January 1, 2026, but

• Page 7, Line 19before January 1, 2027, for each well that is not exempt from the state

• Page 7, Line 20severance tax pursuant to subsection (1)(b) of this section, there is

• Page 7, Line 21allowed a credit against the tax computed in accordance with the

• Page 7, Line 22provisions of subsection (1)(b) of this section in an amount calculated by the formula C = 0.65625 x GI x ML, where:

• Page 7, Line 23(I)  C is the amount of the credit;

• Page 7, Line 24(II)  GI is the gross income attributable to the well for the current taxable year; and

• Page 8, Line 1(III)  ML is the total of all mill levies, fixed not later than

• Page 8, Line 2December 22 of the preceding calendar year pursuant to section 39-1-111, by all local governments for property at the well's location.

• Page 8, Line 3(d)  For a taxable year beginning on or after January 1, 2027 2028,

• Page 8, Line 4for each well that is not exempt from the state severance tax pursuant to

• Page 8, Line 5subsection (1)(b) of this section, there is allowed a credit against the tax

• Page 8, Line 6computed in accordance with subsection (1)(b) of this section in an amount calculated by the formula C = 0.7656 x GI x ML, where:

• Page 8, Line 7SECTION 4.  In Colorado Revised Statutes, 39-29-108, amend (2)(e)(I) and (2)(e)(III)(B) as follows:

• Page 8, Line 839-29-108.  Allocation of severance tax revenues - definitions

• Page 8, Line 9- repeal. (2) (e) (I)  Except as provided in subsection (2)(e)(II) of this

• Page 8, Line 10section, for the state fiscal years 2023-24 through 2026-27, the state

• Page 8, Line 11treasurer shall credit the discrete increased amount of severance tax for

• Page 8, Line 12oil and gas production that is attributable to the reduction of the credit

• Page 8, Line 13against tax pursuant to section 39-29-105 (2)(b)(II) and 39-29-105 (2)(c)

• Page 8, Line 14to the decarbonization tax credits administration cash fund created in section 24-38.5-120 (2).

• Page 8, Line 15(III)  As used in this subsection (2)(e), unless the context otherwise requires:

• Page 8, Line 16(B)  "Discrete increased amount of severance tax for oil and gas

• Page 8, Line 17production" means the amount of tax collected that is attributable to a

• Page 8, Line 18twelve and one-half percent reduction in the severance tax credit for oil

• Page 8, Line 19and gas production set forth in section 39-29-105 (2)(b)(II) for tax years

• Page 8, Line 20beginning on or after January 1, 2024, but before January 1, 2026. and a

• Page 8, Line 21ten and nine hundred thirty-five thousandths percent reduction set forth

• Page 9, Line 1in section 39-29-105 (2)(c) for tax years beginning on or after January 1, 2026, but before January 1, 2027.

• Page 9, Line 2SECTION 5.  Appropriation. (1)  For the 2025-26 state fiscal

• Page 9, Line 3year, $198,592 is appropriated to the department of natural resources for

• Page 9, Line 4use by the executive director's office. This appropriation is from the

• Page 9, Line 5severance tax operational fund created in section 39-29-109 (2)(b)(I),

• Page 9, Line 6C.R.S. To implement this act, the office may use this appropriation as follows:

• Page 9, Line 7(a)  $192,566 for personal services; and

• (b)  $6,026 for operating expenses.

• Page 9, Line 8(2)  Any money appropriated in subsection (1) of this section not

• Page 9, Line 9expended prior to July 1, 2026, is further appropriated to the department through December 31, 2026 for the same purpose.

• Page 9, Line 10SECTION 6.  Act subject to petition - effective date. This act

• Page 9, Line 11takes effect at 12:01 a.m. on the day following the expiration of the

• Page 9, Line 12ninety-day period after final adjournment of the general assembly; except

• Page 9, Line 13that, if a referendum petition is filed pursuant to section 1 (3) of article V

• Page 9, Line 14of the state constitution against this act or an item, section, or part of this

• Page 9, Line 15act within such period, then the act, item, section, or part will not take

• Page 9, Line 16effect unless approved by the people at the general election to be held in

• Page 9, Line 17November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.