New Federal Tax Incentives

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New Federal Tax Incentives
Granite State Clean Cities Coalition December 1,
2006 Paul Kerkhoven
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2005 Energy and Transportation Bills Approved
By Congress

• HR 6 the Energy Policy Act of 2005
• It includes income tax credit for alt fuel
  vehicle purchases and fueling infrastructure
• HR 3 SAFETELU
• It includes an excise tax credit for natural gas
  and other alternative fuels

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Alternative Fuel Tax Incentives

• The Jobs Act and Transportation Bill increased
  the Federal excise tax rates imposed on
  alternative fuels.
• Biodiesel 0.244 per gallon
• CNG 0.183 per GGE
• Ethanol 0.183 per gallon
• LPG 0.183 per gallon
• LNG 0.243 per gallon
• Hydrogen 0.184 per gallon
• (continued)

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Alternative Fuel Tax Incentives

• Federal Excise Tax Credit for Alternative Fuels
• Biodiesel 0.50/1.00 per gallon
• CNG 0.50 per GGE
• Ethanol 0.51 per gallon
• LPG 0.50 per gallon
• LNG 0.50 per gallon
• Hydrogen 0.50 per gallon

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Alternative Fuel Tax Incentives

• Credit goes to the person that is liable for
  paying the excise taxes on the fuel
• If the seller not liable for collecting the
  taxes, the user takes tax credit
• (continued)

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Alternative Fuel Tax Incentives

• Since this is not an income tax credit,
  non-profits (e.g., public agencies) benefit
• Acts like a rebate
• (continued)

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Alternative Fuel Tax Incentives

• Applies to some off-road vehicles
• like fork lifts and yard hostlers
• Begins on October 1, 2006
• Expires on September 30, 2009
• (continued)

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Alternative Fuel Tax Incentives

• Expiration dates for the Federal excise tax
  credits
• Biodiesel 12/31/2008
• CNG 09/30/2009
• Ethanol 12/31/2012
• LPG 09/30/2009
• LNG 09/30/2009
• Hydrogen 09/30/2014
• (continued)

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Alternative Fuel Tax IncentivesExample WMATA

• WMATA owns it own fueling stations, thus WMATA
  gets the excise tax rebate
• Current natural gas use 5.5 million DGEs per
  year
• 50 gallons per bus per day X 265 days X 414 CNG
  buses
• Tax rebate for current fleet Over 3 million per
  year (55 cents per DGE X 5.5 million gallons)

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Vehicle Purchase Tax Incentives

• An income tax credit to the buyer of a new,
  dedicated alternative fuel vehicle
• 50 percent of the incremental cost of the vehicle
• plus an additional 30 percent if the vehicle
  meets certain tighter emission standards.
• Tax credit goes to the seller if the buyer is a
  non-tax paying entity
• (continued)

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Vehicle Purchase Tax Incentives

• Credits range from 2,500 to 32,000 depending on
  the size of the vehicle
• 2,500-8,000 8,500-14,000 lbs.
• 12,500-20,000 14,000-26,000 lbs.
• 20,000-32,000 Over 26,000 lbs.
• The credit is effective for vehicles placed in
  service after December 31, 2005 and expires on
  December 31, 2010

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Vehicle Purchase Tax Incentives

• A Tax Credit to the Buyer of a New Hybrid Vehicle
  
• Examples
• Ford Escape (2wd) 2600
• Honda Civic (auto) 2100
• Toyota Prius (2006) 1575 (cap)
• Source IRS Website

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Vehicle Purchase Tax Incentives

• Conversions qualify, if retrofit/repower was
  done after 12/31/05
• IRS Guidance issued in June 2006 Notice 2006-54
• Use IRS Form 8910 and Instructions for
  Alternative Motor Vehicle Credit to claim
  credit for vehicle excise tax refund

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Vehicle Purchase Tax IncentivesOptions To
Explore For Tax Exempts

• Tax-exempt entity has useless credit wants to
  glean value
• Ex A. Passes back to dealer, who must state in
  writing what credit will be actually taken
  assuming dealers tax liability is limited,
  agrees to take 28K of available 32K per
  vehicle. Next step Define value to be passed
  back to customer. Assume dealer passes along 24K
  in price reduction (takes a cut for time-value of
  money, admin paperwork).

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Vehicle Purchase Tax IncentiveOptions To Explore
For Tax Exempts

• Tax-exempt entity has useless credit wants to
  glean value
• Ex B. Dealer has little or no tax liability
  doesnt want it and will not cut price to tax
  exempt. Enter lease/finance entity, who buys
  vehicle from dealer, takes 32K credit and
  reduces basis of vehicle price in the capital
  lease structured for the customer. Capital lease
  is common form of loan for tax-exempt entities
  who are often barred from entering into loan
  terms that go beyond approved budget year.
  Financing/leasing through municipal lenders is
  common for cash-strapped tax-exempts.

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Refuse Collection Truck Life-Cycle Costs(Taking
Vehicle Tax Credit and Partial Fuel Tax Credit)
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Schoolbus Life-Cycle Costs(Taking Vehicle Tax
Credit and Partial Fuel Tax Credit)
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Alt Fuel Infrastructure Tax Incentives

• An income tax credit equal to 30 of the Cost
  Refueling Equipment
• Up to 30,000 in the case of large stations
• Up to 1,000 for home refueling appliances
• The credit is effective on purchases made after
  December 31, 2005 and expires on December 31,
  2009
• Tax credit goes to the equipment seller if the
  buyer is a non-tax paying entity

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Alt Fuel Infrastructure Tax Incentives

• A Tax Credit Equal to 30 of the Cost of
  Refueling Equipment
• The existing 100,000 tax deduction for refueling
  property is repealed
• Use IRS Form 8911 and Instructions for
  Alternative Fuel Vehicle Refueling Property
  Credit, to claim infrastructure tax credits

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Alternative Fuel Tax Incentives

• To take tax credit must register with IRS
• Form 637, Application for Registration
• Must first use credit against excise tax
  liability
• Form 720, Quarterly Excise Tax Return
• (continued)

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Alternative Fuel Tax Incentives

• Excess credit taken annually as income tax credit
  
• Form 4136, Credit for Fed. Tax Paid on Fuels
• Alternatively, taxpayers can use the credit to
  offset their Estimated Corporate Taxes during
  year
• (continued)

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Alternative Fuel Tax Incentives

• Tax exempt entities also must register with IRS
  to claim credit
• File Form 8849 instead of Form 4136 to claim
  credit
• Credit can be claimed as often as you want
  weekly, monthly, quarterly
• Credit will be a rebate check from the IRS

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Alternative Fuel Tax Incentives

• IRS Guidance Forms
• Tax Credit Guidance - http//www.irs.gov/pub/irs-d
  rop/n-06-92.pdf (released Sept. 30, 2006)
• Publication 510 Excise Taxes for 2006,
  Instruction booklet includes information on the
  excise tax and tax credits for fuels.

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Alternative Fuel Tax Incentives

• IRS Guidance Forms
• IRS Forms Publication Site http//www.irs.gov/
  formspubs/index.html

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• For more information please contactPaul C.
  KerkhovenNGVAmerica400 N. Capitol St. NW 4th
  floorWashington, DC20001
• [phone]pkerkhoven_at_ngvamerica.org