Why invest in a propane-powered fleet?
Alternative Fuel Vehicle Refueling Property Credit (Effective through December 31, 2013*)
The alternative vehicle refueling property credit allows companies to claim a 30 percent tax credit for the cost of installing a propane vehicle refueling station to be used in a trade or business of the taxpayer, or installed at the principal residence of the taxpayer. This tax credit may not exceed $30,000. Additionally, tax credits for a residential refueling station may not exceed $1,000.
Volumetric Excise Tax Credit (VEETC) (Effective through December 31, 2013*)
The gross alternative fuel tax credit is 50 cents per gallon of propane sold by the taxpayer for use as a motor fuel in a motor vehicle or motorboat. Currently, propane engine fuel is federally taxed at 13.6 cents per gallon, but for purposes of this tax credit, propane will be federally taxed at 18.3 cents per gallon.
Federal Excise Tax on Propane - with respect to the excise tax on the sale of propane used in motor vehicles, the change in law does not change who is liable for the tax. Thus, those who have been paying the tax on various sales transactions must continue to do so. As indicated above, the rate of federal tax on propane used in motor vehicles increases from 13.6 cents/gallon to 18.3 cents/gallon effective October 1, 2006. IRS Form 720 (Quarterly Federal Excise Tax Return) must be used to report this tax. Further explanation of who is liable for the tax is provided below under the section entitled “Tax Test.”
Who Qualifies for the Credit?
In order to obtain the 50 cent/gallon credit on the propane that you have sold for use in motor vehicles, you must meet the following requirements:
1. Tax Test – You must be liable for the tax on propane sold for use or used as fuel in a motor vehicle, or you would have been liable for tax but for application of exemption.
2. Registration Test – You must register with the IRS and be classified as an “Alternative Fueler.”
In order to be so classified you need to complete and mail IRS Form 637 entitled “Application for Registration for Certain Excise Tax Activities.” The IRS will then notify you when you are registered. If you already have either a Certificate of Registry or a Letter of Registration, you are grandfathered in and do not have to register immediately and thus you may start to claim the credit on your Form 720 filings; however, we recommend that you file Form 637 as everyone must be registered as an “Alternative Fueler” by July 1, 2007 in order to take the credit.
How to Claim the Credit
Once you are properly registered, you may start claiming the credit. First, the 50 cent credit must be claimed as a credit against your propane or other special fuel tax liability under Section 4041 of the IRC on Form 720. On Form 720 you will report 18.3 cents per gallon in tax on Part 1 and then claim 18.3 cents of the 50 cents as a credit on Schedule C. In this manner, your net tax liability for these filings should typically be zero. In order to receive the remainder of the 50 cent/gallon credit (31.7 cents) you must file IRS Form 4136 at the end of the taxable year. Form 4136 allows you to claim a credit against your income tax liability. If your income tax liability is less than the credit, the IRS will send you a check for the difference. In other words, this is a refundable credit and is due to you even if you have no further federal tax liability.
We recommend you visit the IRS web site directly for a complete review of each program. For more information on applying for these tax credits, we suggest you consult your tax attorney.
Tax Incentive Resources
* These provisions were also made retroactive for taxable year 2012.