Department of Energy's Question of the Month
Question of the Month: It's tax time! What are some common questions related to the federal tax credits for alternative fuels and infrastructure?
Tax season is upon us, and the recent federal tax incentive extensions and changes impact the alternative fuel and infrastructure tax credits.
The Consolidated Appropriations Act of 2016 (H.R. 2029, https://www.congress.gov/bill/114th-congress/house-bill/2029/text) retroactively extended several tax credits, including the Alternative Fuel Excise and Alternative Fuel Infrastructure Tax Credits. It also included updates to the calculation method for the Alternative Fuel Excise Tax Credit amounts, specifically for propane and liquefied natural gas (LNG). Below we discuss three recent frequently asked questions about these credits.
How have the Alternative Fuel Excise Tax Credit amounts changed for propane and LNG in 2016 and beyond?
The Alternative Fuel Excise Tax Credit (http://www.afdc.energy.gov/laws/319) applies to alternative fuel sold or used to operate a motor vehicle. Previously, the excise tax credit amount for propane and LNG was based on a volumetric basis ($0.50 per gallon). For fuel sold or used starting January 1, 2016, however, the excise tax credit amount for propane and LNG is based on an energy equivalent basis. This means the credit for propane is now measured per gasoline gallon equivalent (GGE) and LNG is measured per diesel gallon equivalent (DGE). Specifically, the updated Internal Revenue Service (IRS) Form 8849, Schedule 3 (https://www.irs.gove/pub/irs-prior/f8849s3--2016.pdf) defines 2016 tax credit rates for propane and LNG as follows:
- Propane: One GGE is equal to 5.75 pounds (lbs.) or 1.353 gallons of propane.
- LNG: One DGE is equal to 6.06 lbs. or 1.71 gallons of LNG.
What does this mean for propane and natural gas retailers and fleets? In short, the tax credit for the same amount of fuel is now less:
- The propane tax credit was previously $0.50 per gallon and is not $0.50 per GGE (1.353 gallons of propane), which equates to $0.37 per gallon.
- The LNG tax credit was previously $0.50 per gallon and is now $0.50 per DGE (1.71 gallons of LNG), which equates to $0.29 per gallon.
The tax credit amount for compressed natural gas (CNG) is still based on the GGE, where one GGE is equal to 121 cubic feet.
Natural Gas Vehicles for America (NGVAmerica) provides additional information on federal tax incentives for LNG and CNG (https://www.ngvamerica.org/government-policy/federal-incentives/federal-tax-incentives), and highlights the impacts of the recent tax credit changes in the article, New Year Rings in Changes for CNG and LNG in 2016 (http://ngv.com/new-year-rings-in-changes-for-cng-and-lng-in-2016/). The National Propane Gas association explains the excise tax equalization for propane (https://www.npga.org/i4a/pages/index.cfm?pageid=1898).
So, you said the Alternative Fuel Excise Tax Credit was retroactively extended. Does that mean I can claim it for fuels sold or used in 2015?
Yes! Both the federal Alternative Fuel Excise Tax Credit and Biodiesel Mixture Excise Tax Credit (http://www.afdc.energy.gov/laws/395) were extended to cover 2015, meaning that propane, CNG, LNG, hydrogen, and biodiesel sold or used in 2015 are eligible for the federal tax credit. To file for the tax credit, registered claimants must submit a single one-time 2015 claim with IRS Form 8849 (https://www.irs.gov/pub/irs-pdf/f8849.pdf), as well as the accompanying Schedule 3 (https://www.irs.gov/pub/irs-pdf/f8849s3.pdf). The deadline to submit a claim for fuels sold or used in 2015 is August 8, 2016. Please note that the tax credit amount for propane and LNG sold or used in 2015 is based on the previous, volumetric rate of $0.50 per gallon.
For additional information on claiming the tax credit for fuels sold or used in 2015, please see IRS Notice 2016-05 (https://www.irs.gov/pub/irs-drop/n-16-05.pdf).
Are tax-exempt entities eligible for the Alternative Fuel Infrastructure Tax Credit?
While a tax-exempt entity, such as a school or state government fleet, may not be eligible to claim the Alternative Fuel Infrastructure Tax Credit (http://www.afdc.energy.gov/laws/10513) directly, the entity selling the fueling infrastructure to the tax-exempt entity can claim the credit and pass the "discount" along to the fleet. According to Title 26 of the United States Code, Section 30C(e)(3) (https://www.gpo.gov/fdsys/pkg/USCODE-2014-title26/pdf/USCODE-2014-title26-subtitleA-chap1-subchapA-partIV-subpartB-sec30C.pdf), the entity selling the fueling equipment to the tax-exempt entity can be treated as the taxpayer and claim the Alternative Fuel Infrastructure Tax Credit, but only if the seller discloses the amount of the credit allowable to the tax-exempt purchaser in writing. In practice, this means the tax-exempt fleet would have the opportunity to use this information to request a discount. However, the infrastructure seller is not required to pass along any savings associated with the tax credit.
For more information on how tax-exempt entities may be eligible for the Alternative Fuel Infrastructure Tax Credit, please see the IRS instructions for Form 8911 (https://www.irs.gov/pub/irs-pdf/i8911.pdf).