Federal NGV Tax Incentives
In an effort to reduce America’s dependence on foreign oil, reduce urban emissions and reduce greenhouse gases, the federal government offers a number of tax incentives to encourage the use of natural gas vehicles.
Income Tax Credits of Alternative Fuel Infrastructure (Extended for 2013, Retroactive for 2012)
The Energy Policy Act (EPAct) of 2005, Public Law (PL) 109–58, provides for an income tax credit equal to 30 percent of the cost of natural gas refueling equipment, up to $30,000 in the case of large stations and $1,000 for home refueling appliances. The credit went into effect after December 31, 2005 and currently is available until the end of 2013. The American Recovery and Reinvestment Act of 2009 (PL 111–5) increased the value of the credit for property placed in service during 2009 and 2010. The credit value for these years was $50,000 or 50 percent (whichever was smaller) of the cost for business property and $2,000 or 50 percent of the cost (whichever was smaller) for a home refueling appliance.
This tax credit was previously set to expire on December 31, 2010 but has been extended twice by Congress. The first extension was in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (PL 111–312), which extended the credit through the end of 2011 at the $30,000 or 30 percent credit level ($1,000 for home refueling). That law also includes an incentive allowing companies to expense 100 percent of the cost of new capital acquisitions in 2011. The bonus depreciation provision also extends to capital equipment placed in service after September 8, 2010. For 2012, bonus depreciation was worth 50 percent of the cost of property placed in service.
The second extension of this incentive came in January 2013 as part of the American Taxpayer Relief Act of 2012 (HR 8; PL 112–240). Section 402 of the law extends the availability of this incentive through the end of 2013 and makes it retroactive for property placed in service in 2012. The law also extends the bonus depreciation provision at the 50 percent level for 2013.
Persons intending to take advantage of tax credits and bonus depreciation provisions should consult with their tax advisors to understand how these provisions affect each other and also whether any limitations exist.
Excise Tax Credit to the Seller of CNG or LNG (Extended for 2013, Retroactive for 2012)
The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), PL 109–59, provides a 50-cent tax credit per gasoline gallon equivalent (GGE) of compressed natural gas (CNG) and per liquid gallon of liquefied natural gas (LNG) sold for use as a motor vehicle fuel. The credit went into effect October 1, 2006 and originally expired December 31, 2009. Congress has extended this credit twice. The first extension was included in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (PL 111–312). That law extended the credit for 2011 and made it retroactive for fuel sales or use during 2010. PL 111–312 included special instructions directing the Treasury Department to develop procedures allowing for a one-time claim for any fuel used or sold in 2010. The IRS issued guidance (Notice 2011–10) directing that all claims relating to 2010 fuel use or sales must be made no later than August 1, 2011.
The second extension of this incentive by Congress occurred January 3, 2013 and was part of the American Taxpayer Relief Act of 2012 (HR 8; PL 112–240). Section 412 of the law extends the availability of the 50-cent credit through the end of 2013 and makes it retroactive for 2012. Unlike the previous extension, the law does not provide special instructions directing the Treasury regarding how claims for 2012 must be submitted. The IRS has indicated that it expects claimants therefore to follow the normal procedures for making such claims: tax exempt entities should file claims using 8849, Schedule 3 for natural gas used in 2012, and taxable entities should follow the procedures for filing amended claims for the reporting quarters for which they have already submitted Form 720. For more information on this incentive, click below.
Income Tax Credits for Alternative Fuel Vehicles (Expired as of December 31, 2010)
The EPAct of 2005, PL 109–58, provided for an income tax credit for the purchase of a new, dedicated alternative fuel vehicle of 50 percent of the incremental cost of the vehicle, plus an additional 30 percent if the vehicle met certain tighter emission standards. These credits ranged from $2,500 to $32,000 depending on the size of the vehicle. The credit was effective after December 31, 2005 and expired on December 31, 2010. The IRS has indicated that simply having a sales contract for a new motor vehicle is not sufficient to claim this credit as the vehicle also must be placed in service in the tax year in order to qualify.
While Congress did not extend this credit, it did enact a new bonus depreciation provision that allows companies to expense 100 percent of the cost of new capital equipment. This provision extends to transportation equipment used to transport persons or goods. This provision will be useful to businesses that acquired NGVs in 2011. The bonus provision also applies to equipment placed in service after September 8, 2010. For 2012, bonus depreciation was worth 50 percent of the cost of property placed in service. The American Taxpayer Relief Act of 2012 (HR 8; PL 122–240) extends the bonus depreciation provision at the 50 percent level for 2013.
Persons intending to take advantage of tax credits and bonus depreciation provisions should consult with their tax advisors to understand how these provisions work and whether any limitations exist. The IRS has issued guidance addressing the limitations that exist with respect to passenger cars and some trucks and vans. For more information on this incentive, click below.
State NGV Tax Incentives
State governments, as well as many regional and local governments, offer incentives for buying and operating natural gas vehicles. These incentives include tax deductions/credits, reduced license fees, reduced vehicle sale taxes, lower registration fees. Some states, such as California and Arizona, permit certain alternative fuel vehicles to operate in high occupancy vehicle lanes during peak rush-hour periods. These programs may cover all alternative fuel vehicles or may provide incentives for a specific fuel.
The U.S. Department of Energy’s Alternative Fuels and Advanced Vehicles Database Center maintains a searchable database of state laws, regulations and programs. The database covers state incentives, utility and private incentives, and state laws and regulations. The database also includes information on key contacts in the states, including Clean Cities Coordinators, who are actively involved in advancing the growth of alternative fuel vehicles http://www.afdc.energy.gov/laws/state- State Incentives