On June 7, 2022, Governor Jared Polis signed into law H.B. 22-1026 which will replace the Mass Transit and Ridesharing Expenses Deduction with a more broad-based refundable tax credit for employers who provide alternative transportation options to their employees. The legislative purpose of the tax credit is to increase the use of alternative transportation options by employees going to and from their places of employment and to provide an incentive to employers to provide alternative transportation options to their employees. This law is effective for tax years beginning on or after January 1, 2023 but before January 1, 2025.
H.B. 22-1026 replaces the existing income tax deduction for employers who provide free or partially subsidized ridesharing arrangements as well as free or partially subsidized mass transit tickets, tokens, passes, or fares. In January 2021, the Office of the State Auditor issued a report concluding that the deduction had not been widely utilized in the past as the deduction was limited to C corporation employers, until 2018 could only be taken to the extent that eligible expenses exceeded the amount deducted for federal income tax purposes, and did not provide a substantial enough benefit to induce a change in taxpayer behavior for most employers.
With the passing of H.B. 22-1026, employers will now be allowed to claim a refundable income tax credit equal to 50% of the amount spent by the employer to provide alternative transportation options to employees up to $2,000 per employee and $250,000 in total in any tax year. “Alternative transportation options” are defined to mean free or partially subsidized generally accepted transportation demand management strategies to employees working in Colorado including, but not limited to, rideshare arrangements, provision of ridesharing vans or low-speed conveyances such as human-powered or electric bicycles, shared micromobility options such as bikesharing and electric scooter sharing programs, carsharing programs, and guaranteed ride home programs for employees including, but not limited to:
- Providing vehicles for ridesharing arrangements
- Cash incentives, not to exceed the value of such transportation demand management strategies, including for participation in ridesharing or bikesharing
- The payment of all or part of the administrative cost incurred in organizing, establishing, or administering alternative transportation options programs for employees
- Free or partially subsidized mass transit tickets, tokens, passes, or fares for use by employees in going to and returning from their places of employment
- Free or partially subsidized prearranged rides, or free or partially subsidized rides provided by bikesharing for use by an employee in traveling between the employee’s residence, the employee’s place of employment, or a mass transit facility that connects the employee to the employee’s residence or place of employment1
In advance of claiming this credit, an employer will need to provide the Department of Revenue its plan for notifying its employees of the availability of the alternative transportation options that it offers and the steps that it plans to take to encourage employees to use those alternative transportation options. Additionally, the Department of Revenue shall require each employer that claims the credit to provide information about the specific alternative transportation options offered, the number of employees offered alternative transportation options, and, to the extent feasible, the number of employees actually using an alternative transportation option including the number of trips taken by employees using this option. The bill also defines an “employer” to mean any entity, including but not limited to, a corporation, nonprofit organization, partnership, joint venture, common trust fund, limited association, local government, or limited liability company that employs three or more persons in the state.
The Colorado Department of Revenue has stated that it is currently drafting regulations establishing a process for employers to claim the credit for the 2023 tax year as well as developing a form that will allow employers to file their alternative transportation options plans with the state. However, employers wanting to take advantage of this legislation beginning in 2023 should begin to develop their plans, keeping in mind the intent of the legislation, which is to drive employee behavior to alternative transportation options.
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