Focus on Fleets: Alternative Fuel Use Incentives are Available Even for Tax Exempt Organizations
One of the first questions every fleet manager asks when they are considering transitioning to alternative fuels is "What funding is available to help fund AFV projects?" Since that is often the first question, what more appropriate topic for the first "Focus on Fleets" article than incentives available to users of alternative fuels.
Did you know that fleets using compressed natural gas (CNG), propane (LPG), or liquefied natural gas (LNG) to power vehicles may qualify for an excise tax credit, income tax credit, or direct payment from the IRS even if your organization is tax exempt? It may sound too good to be true but it is!
On October 1, 2006 the alternative fuel excise tax credit provision of the Highway Act went into effect. The Highway Act, signed into law in August of 2005, provides an excise tax credit for certain alternative fuels and alternative fuel mixtures. The most popular fuels covered in the Act include CNG, LPG, and LNG.
The current excise taxes for the more popular fuels are $0.183 per gallon of LPG or gasoline gallon equivalent (GGE) of CNG, and $0.243 per gallon of LNG. The excise tax credit enacted in the Highway Act is $0.50 per GGE of CNG and $0.50 per liquid gallon of LPG and LNG. Yes, the tax credit EXCEEDS the current excise tax amount.
The excise tax credit can be claimed by the entity responsible for paying the excise tax, such as the fuel retailer. Additionally, tax exempt entities such as cities, school districts or transit agencies that fuel from an on-site fueling station-even if it is owned by a third party-can claim the excise tax credit. The form of the excise tax credit will be either a tax credit for taxable organizations or a direct payment from the IRS for tax exempt organizations.
This means that government fleets that do not normally pay excise taxes are eligible for a tax credit in the form of a direct payment in the amount of $0.50 per gallon or GGE for every gallon of fuel used. For larger fleets that use large quantities of fuel, these credits can equal millions of dollars.
Alternative fuels not specified in the Highway Act include ethanol (E-100) and biodiesel (B-100). Excise tax credits for these fuels were established in the Volumetric Ethanol Excise Tax Credit portion of the American Jobs Creation Act of 2004. The tax credit for ethanol is $0.52 per gallon of E-100 ($0.442 per gallon of E-85). The credits for biodiesel range from $0.50 to $1.00 per gallon of B-100, depending on the source of the feedstock. The credits for both of these fuels are distributed to the blenders, allowing the cost savings associated with the credits to be passed on to the fuel purchasers.
If you want to learn more about the tax credits available directly to fleets, we've provided links to a couple resources:
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