First Regular Session
Seventy-fifth General Assembly
STATE OF COLORADO
REENGROSSED
This Version Includes All Amendments
Adopted in the House of Introduction
LLS NO. 25-0165.01 Clare Haffner x6137
SENATE BILL 25-040
Senate Committees House Committees
Agriculture & Natural Resources
Appropriations
A BILL FOR AN ACT
C
ONCERNING THE CREATION OF THE FUTURE OF SEVERANCE TAXES101
AND WATER F UNDING TASK FORCE , AND, IN CONNECTION
102
THEREWITH, MAKING AN APPROPRIATION .103
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
SENATE
3rd Reading Unamended
April 15, 2025
SENATE
Amended 2nd Reading
April 14, 2025
SENATE SPONSORSHIP
Roberts and Simpson, Bridges, Marchman, Pelton B., Amabile, Pelton R.
HOUSE SPONSORSHIP
McCormick and Martinez,
Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.
Capital letters or bold & italic numbers indicate new material to be added to existing law.
Dashes through the words or numbers indicate deletions from existing law. 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.
Be it enacted by the General Assembly of the State of Colorado:1
SECTION 1. Legislative declaration. (1) The general assembly
2
finds and declares that:3
(a) Severance taxes provide a source of revenue to the state and4
the state's political subdivisions;5
(b) A portion of revenues derived from severance taxes is used to6
fund the development and conservation of the state's water resources;7
(c) Another portion of revenues derived from severance taxes is8
made available to local governments to offset the impact created by9
nonrenewable resource development;10
(d) The state also relies on severance tax revenue to fund staff11
positions in the department of natural resources and the department of12
local affairs;13
(e) In times of need, the state has relied on severance tax revenue14
to backfill the state budget, which depletes funding from programs that15
would otherwise benefit local governments; and16
(f) There is a need to study how the state can:17
(I) Avoid using severance tax revenue to backfill the state budget18
in the future;19
040-2- (II) Begin to pay back the severance tax revenue previously used1
to backfill the state budget; and2
(III) Continue to fund water needs and grants to local3
governments without relying on the revenues derived from severance4
taxes.5
SECTION 2. In Colorado Revised Statutes, add 37-98-106 as6
follows:7
37-98-106. Future of severance taxes and water funding task8
force - created - membership - third party to conduct study - report9
- definitions - repeal. (1) A
S USED IN THIS SECTION, UNLESS THE10
CONTEXT OTHERWISE REQUIRES :11
(a) "C
OMMITTEE" MEANS THE WATER RESOURCES AND12
AGRICULTURE REVIEW COMMITTEE CREATED IN SECTION 37-98-10213
(1)(a)(I).14
(b) "T
ASK FORCE" MEANS THE FUTURE OF SEVERANCE TAXES AND15
WATER FUNDING TASK FORCE CREATED IN SUBSECTION (2) OF THIS16
SECTION.17
(c) "T
HIRD PARTY" MEANS THE THIRD PARTY HIRED BY THE18
DEPARTMENT OF NATURAL RESOURCES PURSUANT TO SUBSECTION (5)(a)19
OF THIS SECTION.20
(2) (a) T
HE FUTURE OF SEVERANCE TAXES AND WATER FUNDING21
TASK FORCE IS CREATED IN THE DEPARTMENT OF NATURAL RESOURCES .22
(b) T
HE TASK FORCE CONSISTS OF THE FOLLOWING MEMBERS :23
(I) T
HE EXECUTIVE DIRECTOR OF THE DEPARTMENT OF NATURAL24
RESOURCES OR THE EXECUTIVE DIRECTOR 'S DESIGNEE;25
(II) T
HE DIRECTOR OF THE COLORADO WATER CONSERVATION26
BOARD CREATED IN SECTION 37-60-102 OR THE DIRECTOR'S DESIGNEE;27
040
-3- (III) THE COMMISSIONER OF AGRICULTURE OR THE1
COMMISSIONER'S DESIGNEE;2
(IV) A
REPRESENTATIVE OF AN ENVIRONMENTAL ADVOCACY3
ORGANIZATION, APPOINTED BY THE SPEAKER OF THE HOUSE OF4
REPRESENTATIVES;5
(V) A
REPRESENTATIVE OF THE OIL AND GAS INDUSTRY WITH6
EXPERIENCE IN SEVERANCE TAX ISSUES , APPOINTED BY THE MINORITY7
LEADER OF THE SENATE;8
(VI) A
REPRESENTATIVE OF A WATER CONSERVATION DISTRICT ,9
APPOINTED BY THE PRESIDENT OF THE SENATE ;10
(VII) A
REPRESENTATIVE OF THE AGRICULTURE INDUSTRY WITH ,
11
TO THE EXTENT POSSIBLE , EXPERIENCE IN THE INTERSECTION OF12
AGRICULTURE, WATER PROJECTS, AND THE OIL AND GAS INDUSTRY ,13
APPOINTED BY THE MINORITY LEADER OF THE HOUSE OF14
REPRESENTATIVES;15
(VIII) A
COUNTY COMMISSIONER FROM A COUNTY THAT CONTAINS16
OIL AND GAS OPERATIONS, APPOINTED BY THE GOVERNOR; AND17
(IX) A
N ELECTED MUNICIPAL OFFICIAL OR CITY OR TOWN18
MANAGER FROM A CITY , TOWN, OR CITY AND COUNTY THAT HAS BEEN
19
SOCIALLY OR ECONOMICALLY IMPACTED BY THE DEVELOPMENT ,20
PROCESSING, OR ENERGY CONVERSION OF OIL AND GAS OPERATIONS21
SUBJECT TO TAXATION UNDER ARTICLE 29 OF TITLE 39, APPOINTED BY THE22
GOVERNOR.23
(3) T
HE PURPOSE OF THE TASK FORCE IS TO CONSULT AND24
COORDINATE WITH THE THIRD PARTY IN THE DEVELOPMENT OF A STUDY25
REGARDING THE FUTURE OF SEVERANCE TAXES AND WATER FUNDING IN26
THE STATE.27
040
-4- (4) (a) NO LATER THAN SEPTEMBER 1, 2025, THE APPOINTING1
AUTHORITIES SHALL MAKE APPOINTMENTS TO THE TASK FORCE .2
(b) T
HE DEPARTMENT OF NATURAL RESOURCES SHALL PROVIDE3
STAFF AND OTHER RESOURCES TO SUPPORT THE WORK OF THE TASK FORCE .4
(c) T
HE TASK FORCE SHALL CONDUCT MEETINGS AS NECESSARY TO5
PERFORM ITS DUTIES PURSUANT TO THIS SECTION. EVERY MEETING OF THE
6
TASK FORCE MUST BE OPEN TO THE PUBLIC AND INCLUDE AN OPPORTUNITY7
FOR PUBLIC TESTIMONY.8
(d) T
HE MEMBERS OF THE TASK FORCE SERVE WITHOUT9
COMPENSATION BUT MAY BE REIMBURSED FOR ANY REASONABLE10
EXPENSES INCURRED IN THE PERFORMANCE OF THE DUTIES REQUIRED11
UNDER THIS SECTION.12
(5) (a) T
HE DEPARTMENT OF NATURAL RESOURCES SHALL13
CONTRACT WITH A THIRD PARTY TO CONDUCT A FUTURE OF SEVERANCE14
TAXES AND WATER FUNDING STUDY . THE PURPOSE OF THE STUDY IS TO15
EXPLORE WAYS TO CONTINUE FUNDING WATER NEEDS AND ENERGY
16
IMPACT GRANTS DISTRIBUTED PURSUANT TO SECTION 39-29-110 (1)(b)(I)17
IN THE FACE OF THE DECREASING AVAILABILITY OF SEVERANCE TAX18
REVENUE COLLECTED PURSUANT TO ARTICLE 29 OF TITLE 39 AND TO19
DEVELOP RELATED RECOMMENDATIONS . THE STUDY MUST FOCUS ON20
IDENTIFYING WAYS TO ALLEVIATE THE NEED TO TRANSFER REVENUES21
DERIVED FROM SEVERANCE TAXES TO THE GENERAL FUND AND TO22
REPLACE SEVERANCE TAX REVENUE THAT WAS PREVIOUSLY23
TRANSFERRED.24
(b) N
O LATER THAN JANUARY 15, 2026, THE THIRD PARTY SHALL25
SUBMIT A DRAFT REPORT TO THE DEPARTMENT OF NATURAL RESOURCES26
AND THE TASK FORCE DESCRIBING THE STUDY 'S FINDINGS AND ANY27
040
-5- RECOMMENDATIONS . THE TASK FORCE SHALL REVIEW AND PROVIDE INPUT1
ON THE DRAFT REPORT.2
(c) N
O LATER THAN JULY 15, 2026, THE THIRD PARTY SHALL:3
(I) I
N CONSULTATION WITH THE DEPARTMENT OF NATURAL4
RESOURCES AND THE TASK FORCE , CREATE A FINAL REPORT THAT5
INCORPORATES THE TASK FORCE'S INPUT REGARDING THE DRAFT REPORT;6
AND7
(II) S
UBMIT THE FINAL REPORT TO THE COMMITTEE .8
(d) F
OLLOWING THE SUBMISSION OF THE REPORT TO THE9
COMMITTEE, THE TASK FORCE SHALL PRESENT A SUMMARY OF THE REPORT10
TO THE COMMITTEE DURING THE 2026 LEGISLATIVE INTERIM.11
(6) T
HE TASK FORCE SHALL BE FUNDED SOLELY WITH MONEY FROM
12
THE SEVERANCE TAX PERPETUAL BASE FUND CREATED IN SECTION13
39-29-109 (2)(a)(I.5).14
(7) THIS SECTION IS REPEALED, EFFECTIVE DECEMBER 31, 2026.15
SECTION 3. In Colorado Revised Statutes, 39-29-105, amend16
(2)(b)(II) and (2)(d) introductory portion; and repeal (2)(c) as follows:17
39-29-105. Tax on severance of oil and gas.18
(2) (b) (II) (A) With respect to oil and gas there is allowed, as a credit19
against the tax computed in accordance with the provisions of subsection20
(1)(b) of this section for each taxable year commencing on or after21
January 1, 2024, but prior to January 1, 2026 2027, an amount equal to22
seventy-five percent of all ad valorem taxes assessed during the taxable23
year in the case of accrual basis taxpayers or paid during the taxable year24
in the case of cash basis taxpayers upon oil and gas leaseholds and25
leasehold interests and oil and gas royalties and royalty interests for state,26
county, municipal, school district, and special district purposes, except27
040
-6- such ad valorem taxes assessed or paid for such purposes upon equipment1
and facilities used in the drilling for, production of, storage of, and2
pipeline transportation of oil and gas.3
(B) W
ITH RESPECT TO OIL AND GAS THERE IS ALLOWED , AS A
4
CREDIT AGAINST THE TAX COMPUTED IN ACCORDANCE WITH SUBSECTION5
(1)(b)
OF THIS SECTION FOR EACH TAXABLE YEAR COMMENCING ON OR
6
AFTER JANUARY 1, 2027, BUT PRIOR TO JANUARY 1, 2028, AN AMOUNT7
EQUAL TO EIGHTY-SEVEN AND FIVE-TENTHS PERCENT OF ALL AD VALOREM8
TAXES ASSESSED DURING THE TAXABLE YEAR IN THE CASE OF ACCRUAL9
BASIS TAXPAYERS OR PAID DURING THE TAXABLE YEAR IN THE CASE OF10
CASH BASIS TAXPAYERS UPON OIL AND GAS LEASEHOLDS AND LEASEHOLD11
INTERESTS AND OIL AND GAS ROYALTIES AND ROYALTY INTERESTS FOR12
STATE, COUNTY, MUNICIPAL, SCHOOL DISTRICT, AND SPECIAL DISTRICT13
PURPOSES, EXCEPT SUCH AD VALOREM TAXES ASSESSED OR PAID FOR SUCH14
PURPOSES UPON EQUIPMENT AND FACILITIES USED IN THE DRILLING FOR ,15
PRODUCTION OF, STORAGE OF, AND PIPELINE TRANSPORTATION OF OIL AND16
GAS.17
(c) For a taxable year beginning on or after January 1, 2026, but18
before January 1, 2027, for each well that is not exempt from the state19
severance tax pursuant to subsection (1)(b) of this section, there is20
allowed a credit against the tax computed in accordance with the21
provisions of subsection (1)(b) of this section in an amount calculated by22
the formula C = 0.65625 x GI x ML, where:23
(I) C is the amount of the credit;24
(II) GI is the gross income attributable to the well for the current25
taxable year; and26
(III) ML is the total of all mill levies, fixed not later than27
040
-7- December 22 of the preceding calendar year pursuant to section 39-1-111,1
by all local governments for property at the well's location.2
(d) For a taxable year beginning on or after January 1, 2027 2028,3
for each well that is not exempt from the state severance tax pursuant to4
subsection (1)(b) of this section, there is allowed a credit against the tax5
computed in accordance with subsection (1)(b) of this section in an6
amount calculated by the formula C = 0.7656 x GI x ML, where:7
SECTION 4. In Colorado Revised Statutes, 39-29-108, amend8
(2)(e)(I) and (2)(e)(III)(B) as follows:9
39-29-108. Allocation of severance tax revenues - definitions10
- repeal. (2) (e) (I) Except as provided in subsection (2)(e)(II) of this11
section, for the state fiscal years 2023-24 through 2026-27, the state12
treasurer shall credit the discrete increased amount of severance tax for13
oil and gas production that is attributable to the reduction of the credit14
against tax pursuant to section 39-29-105 (2)(b)(II) and 39-29-105 (2)(c)15
to the decarbonization tax credits administration cash fund created in16
section 24-38.5-120 (2).17
(III) As used in this subsection (2)(e), unless the context otherwise18
requires:19
(B) "Discrete increased amount of severance tax for oil and gas20
production" means the amount of tax collected that is attributable to a21
twelve and one-half percent reduction in the severance tax credit for oil22
and gas production set forth in section 39-29-105 (2)(b)(II) for tax years23
beginning on or after January 1, 2024, but before January 1, 2026. and a24
ten and nine hundred thirty-five thousandths percent reduction set forth25
in section 39-29-105 (2)(c) for tax years beginning on or after January 1,26
2026, but before January 1, 2027.27
040
-8- SECTION 5. Appropriation. (1) For the 2025-26 state fiscal1
year, $198,592 is appropriated to the department of natural resources for2
use by the executive director's office. This appropriation is from the3
severance tax operational fund created in section 39-29-109 (2)(b)(I),4
C.R.S. To implement this act, the office may use this appropriation as5
follows:6
(a) $192,566 for personal services; and7
(b) $6,026 for operating expenses.8
(2) Any money appropriated in subsection (1) of this section not9
expended prior to July 1, 2026, is further appropriated to the department10
through December 31, 2026 for the same purpose.11
SECTION 6. Act subject to petition - effective date. This act12
takes effect at 12:01 a.m. on the day following the expiration of the13
ninety-day period after final adjournment of the general assembly; except14
that, if a referendum petition is filed pursuant to section 1 (3) of article V15
of the state constitution against this act or an item, section, or part of this16
act within such period, then the act, item, section, or part will not take17
effect unless approved by the people at the general election to be held in18
November 2026 and, in such case, will take effect on the date of the19
official declaration of the vote thereon by the governor.20
040
-9-