In an effort to reduce America’s dependence on foreign oil, reduce urban emissions and reduce greenhouse gases, the federal government offers a number of tax incentives to encourage the use of natural gas vehicles.

Alternative Fuel Infrastructure Tax Credit

NOTE: This incentive originally expried on December 31, 2016, but was retroactively extend through December 31, 2020, by Public Law 116-94.

Fueling equipment for natural gas, propane, liquefied hydrogen, electricity, E85, or diesel fuel blends containing a minimum of 20% biodiesel installed through December 31, 2020, is eligible for a tax credit of 30% of the cost, not to exceed $30,000. Permitting and inspection fees are not included in covered expenses. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit towards each location. Consumers who purchase qualified residential fueling equipment prior to December 31, 2020, may receive a tax credit of up to $1,000. Unused credits that qualify as general business tax credits, as defined by the Internal Revenue Service (IRS), may be carried backward one year and carried forward 20 years. For more information about claiming the credit, see IRS Form 8911, which is available on the IRS Forms and Publications website. (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, 26 U.S. Code 30C and 38, and IRS Notice 2007-43(PDF))

Point of Contact
U.S. Internal Revenue Service
Phone: (800) 829-1040
http://www.irs.gov/

Alternative Fuel Excise Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A tax incentive is available for alternative fuel that is sold for use or used as a fuel to operate a motor vehicle. A tax credit in the amount of $0.50 per gallon is available for the following alternative fuels: natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass. For propane and natural gas sold after December 31, 2015, the tax credit is based on the gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE). For taxation purposes, one GGE is equal to 5.75 pounds (lbs.) of propane and 5.66 lbs. of compressed natural gas. One DGE is equal to 6.06 lbs. of liquefied natural gas.

For an entity to be eligible to claim the credit they must be liable for reporting and paying the federal excise tax on the sale or use of the fuel in a motor vehicle. Tax exempt entities such as state and local governments that dispense qualified fuel from an on-site fueling station for use in vehicles qualify for the incentive. Eligible entities must be registered with the Internal Revenue Service (IRS). The incentive must first be taken as a credit against the entity's alternative fuel tax liability; any excess over this fuel tax liability may be claimed as a direct payment from the IRS. The tax credit is not allowed if an incentive for the same alternative fuel is also determined under the rules for the ethanol or biodiesel tax credits.

For more information about claiming the credit, see IRS Form 4136, which is available on the IRS Forms and Publications website. (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 6426)

Point of Contact
Excise Tax Branch
U.S. Internal Revenue Service Office of Chief Counsel
Phone: (202) 317-6855
http://www.irs.gov/

State NGV Tax Incentives

State governments, as well as many regional and local governments, offer incentives for buying and operating natural gas vehicles. These incentives include tax deductions/credits, reduced license fees, reduced vehicle sale taxes, lower registration fees. Some states, such as California and Arizona, permit certain alternative fuel vehicles to operate in high occupancy vehicle lanes during peak rush-hour periods. These programs may cover all alternative fuel vehicles or may provide incentives for a specific fuel.

The U.S. Department of Energy’s Alternative Fuels and Advanced Vehicles Database Center maintains a searchable database of state laws, regulations and programs. The database covers state incentives, utility and private incentives, and state laws and regulations. The database also includes information on key contacts in the states, including Clean Cities Coordinators, who are actively involved in advancing the growth of alternative fuel vehicles.

 

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