Leaders of US Senate Finance Committee Introduce Bill for Increasing Tax Incentives for Alternative-Energy Vehicles

1 March 2006

The Republican chairman and Democrat ranking member of the US Senate Finance Committee introduced legislation to increase significantly tax incentives for business owners who buy fuel-efficient alternative-energy vehicles—just as they now receive incentives for the purchase of SUVs.

If enacted, the bill, introduced by Senators Chuck Grassley and Max Baucus, would represent the biggest incentives for the business purchase of alternative energy vehicles ever to emerge from the Finance Committee.

The alternative energy vehicles include electric cars; hybrid cars; and vehicles that run entirely on alternative fuel such as compressed natural gas.

The tax code shouldn’t favor SUVs over alternative energy cars for business owners. Some business owners will want to use SUVs and some will want to use hybrid cars. The choice should be theirs and the tax code should be consistent. The purchase of either kind of vehicle will help business growth, especially for small businesses, which create most of the nation’s jobs.

—Chairman Grassley

At a time when America needs to shake its oil addiction, Congress needs to do all it can to encourage the purchase and use of alternative fuel vehicles. America’s small business owners are looking for ways to reduce their energy consumption and costs, and the tax code should provide benefits for those who can choose and use clean, lean alternative-fuel vehicles.

—Senator Baucus

Grassley and Baucus’ bill, the America’s Business Choice (ABC) Act, exempts passenger vehicles eligible for the alternative motor vehicle credit and the credit for qualified electric vehicles from the limitation on depreciation for luxury automobiles.

Under current depreciation rules, a business owner who buys an SUV gets a deduction for the depreciation not subject to the limitation for luxury automobiles. The Grassley-Baucus bill will provide the same depreciation deductions for business owners who buy alternative energy vehicles.

In addition, the Grassley-Baucus bill allows small business owners to use the tax benefit of expensing of up to $100,000 for their alternative energy vehicles. Under current law, business owners have not been able to use expensing if they purchased a passenger vehicle that costs more than $10,585 (adjusted for inflation to $14,800 for 2005 purchases).