NGV Tax Credit Provisions Overview

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NGV Tax Credit Provisions Overview Status
Update

• Richard Kolodziej
• NGVAmerica
• March 27, 2008

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Outline

• Fuel Excise Tax Credits
• Vehicle Income Tax Credits
• Fueling Infrastructure Income Tax Credits
• Other federal grants and funding

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Natural Gas Fuel Excise Tax Credit

• In 2004, Congress created the Volumetric Energy
  Excise Tax Credit (VEETC) for ethanol and
  biodiesel
• In 2005, SAFETEA-LU (Pub. L. No. 109-59) extended
  the VEETC tax credit to include
• CNG, LNG, LPG, Hydrogen, CTL, liquid hydrocarbons
  derived from biomass

(continued)
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Natural Gas Fuel Excise Tax Credit

• Value of credit
• For CNG 50 cents per GGE
• For LNG 50 cents per LNG gallon
• This is an excise tax credit not an income tax
  credit
• Acts like a rebate -- whether entity owes any
  taxes or not

(continued)
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Natural Gas Fuel Excise Tax Credit

• Credit effective 10/1/2006
• Scheduled to expire 09/30/09
• Legislation introduced to extend it to 12/31/2010
• Credit goes to the seller of the CNG or LNG
• If seller and buyer is the same, seller/buyer
  gets the credit
• Example Truck fleet that owns its own CNG
  station

(continued)
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Natural Gas Fuel Excise Tax Credit

• All entities taking the tax credit must register
  with the IRS
• The credits must first be used to offset any
  excise taxes owed
• Excise tax
• CNG 18.3 cents per GGE
• LNG 24.3 cents per LNG gallon

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Motor Vehicle Defined

• The tax credits for alternative fuels may be
  taken for fuel used in a motor vehicle
• The IRS regulations define motor vehicle in
  section 48.4041-8(c)
• Definition includes all types of vehicles
  propelled by motor designed for carrying or
  towing loads from one place to another
• Regardless of whether vehicle registered for
  highway use
• (continued)

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Motor Vehicle Defined

• The term includes
• Forklifts (industrial trucks)
• Yard hostlers
• The term does NOT include
• farm tractors, trench diggers, power shovels,
  bulldozers, road graders or rollers, and similar
  equipment which does not carry or tow a load
• Nor does it include any vehicle which moves
  exclusively on rails

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How Tax Exempt Entities Benefit from Fuel Tax
Credits

• Tax exempt sellers qualify for a payment, not a
  tax credit
• To qualify, tax exempt entity must
• Produce and use fuel for own purposes, or
• Produce fuel and sell to others, or
• Purchase bulk fuel and dispense fuel using their
  own refueling equipment

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Non-Taxable Uses of Fuels

• On farm for farming purposes
• Off-highway business use
• Boat engaged in commercial fishing
• Exclusive use by nonprofit education organization
• Exclusive use by state local governments
• Intra-city urban buses

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Natural Gas Fuel Excise Tax Credit-- IRS
Guidance --

• Guidance released Sept. 2006 Notice 2006-92
• Clarifies who takes the credit
• Unit of measurements to be used
• 121 cubic feet GGE for CNG tax credit
• 126.67 cubic feet GGE for CNG excise tax
• LNG rate based on gallons

(continued)
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Natural Gas Fuel Excise Tax Credit-- IRS
Guidance --

• Clarifies ability of state and local government
  and certain non-profits to take credit (receive
  payment)
• Identifies appropriate forms to file
• Clarifies responsibility for excise tax and rates
  to be applied

(continued)
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Natural Gas Fuel Excise Tax Credit-- IRS
Guidance --

• To take credit must register with IRS
• Form 637, Application for Registration
• Must first use credit against excise tax
  liability
• Form 720, Quarterly Excise Tax Return
• Excess credit taken annually as income tax credit
  
• Form 4136, Credit for Fed. Tax Paid on Fuels
• Offsets tax liability and is refundable
• Alternatively, taxpayers can offset Estimated
  Corp. Tax during year

(continued)
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Natural Gas Fuel Excise Tax Credit-- IRS
Guidance --

• Tax exempt entities file Form 8849, schedule 6 to
  receive payment
• The Tax Technical Corrections Act of 2007 ((HR
  4839) (Pub. L. No. 110-172) amends tax payment
  provisions so that corporations also may claim
  payments during the year
• Expect that this will include filing Form 8849,
  Sch. 6

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Motor Vehicle Tax Credit

• EPAct Sec. 1341 (codified at 26 USC 30B) includes
  income tax credits for dedicated Alternative Fuel
  Vehicles
• Applies to vehicles placed in service after Jan.
  1, 2006
• Prior to Jan. 1, 2006 some of these vehicles
  qualified for clean-fuel vehicle deduction per
  EPAct 1992 provisions
• Schedule to expire 12/31/2010
• Industry working to extend that

(continued)
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Alternative Motor Vehicle Tax Credit

• Tax credits go to the purchaser of the vehicle,
  including
• Businesses
• Individuals
• If vehicle leased, the credit goes to the lessor,
  not the person or business leasing the vehicle

(continued)
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Alternative Motor Vehicle Tax Credit

• Sellers may take credit if vehicle sold to tax
  exempt entity
• Seller must disclose the full tentative value of
  the credit to customer
• Motor vehicles defined as 4 wheel vehicles
  manufactured primarily for use on public streets,
  roads and highways

(continued)
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Alternative Motor Vehicle Tax Credit

• Only dedicated AFVs qualify for the credit
• Bi-fuel and flexfuel vehicles do not qualify
• AFVs that meet cleanest available emission
  standards qualify for a credit of 80 of
  incremental cost
• All others qualify for credit of 50 of
  incremental cost
• Mix-fuel CNG or LNG vehicles earn less credit

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Alternative Motor Vehicle Tax Credit-- Credit
Value --
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Alternative Motor Vehicle Tax Credit-- IRS
Guidance --

• IRS issued guidance June 2006 - Notice 2006-54
• Establishes voluntary certification process for
  manufacturers
• Clarifies that aftermarket conversions and
  repowers qualify
• Does not provide additional guidance on cleanest
  available technology
• LDV - likely requires EPA Bin 2 or CA SULEVII
• IRS certifies vehicles/engines on case-by-case
  basis

(continued)
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Alternative Motor Vehicle Tax Credit-- IRS
Guidance --

• Numerous manufacturers have now had tax credit
  values of their vehicles certified by the IRS
• IRS publication of tax credit values
• http//www.irs.gov/newsroom/article/0,,id161076,0
  0.html (LDV values)
• http//www.irs.gov/businesses/article/0,,id175456
  ,00.html (HD and aftermarket conversion values)

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Issues Not Addressed in IRS Guidance

• Application to leases
• Although website and tax forms indicate lessor
  takes credit not the person leasing the vehicle
• Definition or clarification for cleanest
  available emission standard
• Has been handled on case by case basis
• Recapture requirements
• AMT applicability
• The statute and tax forms indicate vehicle
  credits are subject to AMT

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Fueling Infrastructure Credit

• EPAct 1342 includes income tax credit for
  alternative fuel refueling infrastructure
• Includes equipment used to dispense
• CNG, LNG, LPG, hydrogen, E85, biodiesel mixtures
  of 20 or more
• Credit values
• 30,000 or 30 of cost whichever is less
  (business property)
• 1,000 or 30 of cost whichever is less (personal
  residence property)

(continued)
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Fueling Infrastructure Credit

• Credits replace the 100,000 tax deduction
  provided for certain qualified refueling property
  allowed under EPAct 1992 (26 USC 179A)

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Fueling Infrastructure Credit-- IRS Guidance --

• Notice 2007- 43 released May 2007 addresses
  fueling station credits
• Form 8911, Alternative Fuel Vehicle Refueling
  Property Credit available
• Instructions clarify that credit may be taken for
  more than one refueling property
• Maximum of 30,000 (or 1,000) per property
• However, it was not clear from guidance and
  instructions whether multiple dispensers at a
  single location qualify for separate credits

(continued)
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Fueling Infrastructure Credit-- IRS Guidance --

• Tax Technical Corrections Act of 2007 (HR 4839)
  (Pub. L. No. 110-172)
• Clarifies that only 1 credit is allowed each year
  for equipment installed at a single location

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Other Federal Grants and Funding

• CMAQ
• Federal grant program that sends billions of
  dollars through MPOs each year
• Funding can be used for
• Alternative fuel vehicle purchase
• Upgrades and modifications of transit facilities
  that go beyond routine maintenance
• DOE SEP
• (continued)

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Other Federal Grants and Funding

• EPA Clean School Bus Program
• FAA VALE
• Diesel Emission Reductions Program (DERA)
• EPA program to make grants and loans to State and
  local government agencies and non-profit
  organizations for reducing emissions from diesel
  engines.
• Repowers, retrofits and rebuilds are eligible. .
  
• Congressional Earmarks

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Contact Information

• Jeffrey Clarke
• General Counsel Regulatory Director
• NGVAmerica
• [phone]
• Jclarke_at_NGVAmerica.org
• www.NGVAmerica.org

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NGV Tax Credit Provisions Overview Status
Update

• Richard Kolodziej
• NGVAmerica
• March 27, 2008