## Tax Breaks for Green Vehicles and Fuels in Massive Bill

##### 12 October 2004

Congress passed the JOBS (Jumpstart Our Business Strength) bill, an amalgam of $136 billion in corporate and some individual tax breaks officially known as HR 4520, the American Jobs Creation Act of 2004. This bill incorporates numerous amendments to the tax code, to the benefit of businesses in many sectors, including energy, transportation and tobacco. The AP provides a good background on the bill, including its history and the supposed economics of it. Among the provisions relevant (to us) are: Alternative vehicles • Eliminates the phase-out of the tax credit for electric vehicles, increases the tax credit for electric vehicles ($1,500 to $40,000 based on weight, range and carrying capacity) and expands the definition of electric vehicles eligible for the credit. • Allows tax credits for: • Fuel cell motor vehicles ($4,000 up to $40,000, based on vehicle weight, with an increase for fuel efficiency over a baseline also based on weight) • Hybrid motor vehicles ($250 to $10,000, based on percentage power contributed by the electric motor and vehicle weight, with an increase for fuel efficiency over a baseline based on weight, and a special increase for heavy-duty hybrids meeting certain emissions requirements) • Alternative fuel (CNG, LNG, LPG, H2, M85/E85 or better) motor vehicles (the incremental cost of an alternative fuel vehicle over the cost of a diesel or gasoline version, capped at a range between$5,000 and $40,000, based on vehicle weight; mixed-fuel vehicles receive a pro-rated amount based on the percentage of alternative fuel use) Terminates the credit after 2011 for fuel cell motor vehicles and after 2006 for the other vehicles. Alternative Fuel • Modifies the small ethanol producer tax credit to allow the allocation of credit amounts to patrons of a tax-exempt cooperative organization. Changes the definition of a small ethanol producer to increase from 30 to 60 million gallons the required capacity of a producer to qualify for the credit. Allows a small ethanol producer to apply credit amounts against alternative minimum tax liability. • Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2004: • Allows a producer credit against the gasoline excise tax for alcohol fuel of$0.52 per gallon until the end of this year, dropping to $0.51 in 2005. If none of the alcohol in the mix is ethanol, the credit increases to$0.60 per gallon.

• A producer credit against the gasoline excise tax for biodiesel of $0.50 per gallon, or$1.00 per gallon if it is “agri-biodiesel”—biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats. This is the first tax credit for biodiesel. If the biodiesel is used in a mixture, this works out to $0.01 credit per percentage point biodiesel used. • Allows a tax credit for up to 50% of the cost of installing a clean-fuel vehicle refueling property, up to$30,000 for a retail property and $1,000 for a residential property. Terminates the credit for: (1) a property relating to hydrogen after 2011; and (2) any other property after 2007. • Allows a tax credit for the retail sale of alternative fuels (CNG, LNG, LPG, H2, M85/E85 or better). Terminates the credit after 2006. Oil and Gas Producers • Allows a tax credit for producing oil and gas from marginal wells. • Allows a current year tax deduction for up to 75 percent of the capital costs incurred in complying with Environmental Protection Agency (EPA) sulfur regulations. • Allows a business tax credit for the production of low sulfur diesel fuel. • Modifies the definition of small refiners for purposes of the percentage depletion allowance to require an average daily run of less than 60,000 barrels (current law requires less than 50,000 barrels). • Extends through 2006 the suspension of the 100 percent of net income limit on percentage depletion for oil and natural gas produced from marginal properties. • Permits the amortization of delay rental payments (payments by oil and gas producers under production contracts with mineral owners when the producer delays mineral production to delay payments of royalties under the contract) over a two-year period. • Permits the amortization of geological and geophysical expenditures in connection with oil and gas exploration in the United States over a two-year period. • Revises the tax credit for producing fuel from a nonconventional source to extend placed-in-service dates for certain fuel producing facilities and to add facilities producing fuels from agricultural and animal waste, viscous oil, refined coal, and coal mine gas as fuel sources eligible for the credit. Directs the Secretary to study the effect of this tax credit on the production of coal bed methane. • Allows a 15-year recovery period for the depreciation of natural gas distribution lines. • Allows a tax credit for production of Alaska natural gas equal to$0.52 per 1 million British thermal units of Alaska natural gas, adjusted for inflation. Allows application of the credit amount against income and alternative minimum tax liabilities.

• Allows a seven-year recovery period for the depreciation of any Alaska natural gas pipeline.

There is a great deal more in this bill—important support for renewables, tax breaks for co-generation and combined heating and power—as well as items that seem incomprehensible and ridiculous. This is a messy way to back into an energy policy.

I was hoping someone could explain to me in very simple terms what this means for biodiesel end-users. I run B100 in my car.

It's not clear to me from the language in this bill and even from the subsequent press releases if there is a tax break for 100% biodiesel or only for blends (B20, B5, B50, etc.)

I know producers are going to get a break but I thought I also read something about distributors. And finally, do consumers get any tax break or will we have to rely on tax breaks to be passed down to consumers in the form of lower prices at the pump, due to lower wholesale prices.

Thanks in advance for any insight you might have on these issues.

Dave

As I understand it, and from what I glean from the relevant associations (soybean growers, etc.):

1. The credit against the excise tax is for either B100 or for blends, but pro-rated. In other words, for what they call agri-biodiesel, there is a $1.00 credit per gallon of pure biodiesel. Mix it down—say to B20—and the producer still gets a$1.00 credit per gallon of pure biodiesel, which works out to \$0.20 per gallon of B20 mixture.

3. The bill explicitly witholds the credit from “casual, off-farm” producers and from end-users at retail stations.

4. Retailers get the credit, but I’m not sure whether or not those retailers also have to be the producers.

So, as you say, you need to rely on the price benefit trickling down (so to speak) due to presumably lower wholesale prices. What the loopholes in this might be, if this applies to commercial or public fleets that use the fuel...I don’t know. We need a tax law whiz to weigh in here.

is there any tax breaks for the indivudual that uses any type of ethonol gasolines in their private vehicles?

Not directly for fuel use. In this plan you could get a tax break if you bought an E85 flex fuel vehicle that could run either on 85% ethanol or conventional gasoline.

The fuel break goes to the producers.

I was under the impression that flexible fuel vehicles qualified for a tax break. Not only did I get a brand new vehicle and I have been fueling up pretty much exclusively on E85, even though it cost more than regular unleaded, now I hear that I can't get the credit. Why is that? And why is it more than regular gas whereas everywhere else in the country its a few cents to significantly cheaper.

So, can someone tell me if I am going to recieve a credit for my 2007 Chevy Avalanche that I purchased. I'm going to file my taxes soon and need to know.

do you get a tax break on e85 vehicles.

Will I receive a tax credit on my 07 Ford f150 flex fuel pick up that I purchased in Feb. of 07

I purchased 2007 Avalanche in Sept 07 I would like to know if I could a tax break, on (EZ) short tax form? either IL State or Federal. It runs on E85.
Thank you

I am going to start producing and selling M85. What kind of break would I get as a small producer. I read it to be over as of 2007. At least it says Terminates after 2007. That figures.

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