Alternative Fuel Use Incentives Available for Tax Exempt Organizations

Feb 21, 2007 12:00 AM, By Staff

One of the first questions every fleet manager asks when considering transitioning
to alternative fuels is #8220;What funding is available to help fund AFV projects?#8221;
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?
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 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 gal. of
LPG or gasoline gal. equivalent (GGE) of CNG, and $0.243 per gal. of LNG. The
excise tax credit enacted in the Highway Act is $0.50 per GGE of CNG and $0.50
per liquid gal. of LPG and LNG. 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 gal. or GGE for every gal. 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 gal. of E-100 ($0.442 per
gal. of E-85). The credits for bio-diesel range from $0.50 to $1.00 per gal.
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.