NGV Tax Incentives
In December 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (H.R. 5771), which contains tax legislation supported by NGVAmerica that extends the alternative fuel and infrastructure tax credits retroactively for all of 2014. The bill extends over fifty provisions of the tax code through the end of calendar year 2014 that expired at the end of 2013 or during 2014. Key provisions of H.R. 5771 that NGVAmerica lobbied in favor of and which will impact the NGV industry include:
Also included are the extension of several other tax provisions including the extension of the 50 percent bonus depreciation option for nearly all business equipment placed in service in 2014. The incentives are intended to expand the availability of natural gas refueling stations, increase the use of natural gas as a motor fuel, and reduce demand for petroleum motor fuels.
Fuel and infrastructure tax credits have helped accelerate the adoption of natural gas as a motor fuel. However, the current cycle of retroactively applying these credits creates budget uncertainty for both fuel providers and customers. NGVAmerica will work with Congress to secure NGV tax incentives for a three to five year term.
For more information and guidance on federal fuel use/sale and infrastructure tax credits, visit the Federal Tax page.
To view a copy of NGVAmerica’s Statement to the U.S. Senate Committee on Finance regarding tax reform, click here.
LNG Tax Inequity
On July 31, 2015, President Obama signed legislation extending funding for the Nation’s highway programs for three month (H.R. 3236), that included the passage of key legislation to correct the inequity in the way LNG is taxed.
The provision permanently modifies the excise tax on LNG to be based on energy content, rather than volume, and thus brings the tax on LNG into parity with that of diesel. Starting Jan. 1, 2016, LNG will be taxed based on a diesel gallon equivalent (DGE) that is defined as equal to 6.06 pounds of LNG. The highway excise tax on LNG is reduced from approximately 41.3 cents per DGE to equal that of diesel fuel at 24.3 cents per DGE.
To illustrate the significance of the change, consider that a natural gas truck traveling 100,000 miles per year at 5 miles per DGE consumes 20,000 DGE per year. Prior to the passage of the new law, the LNG truck would have a highway fuel tax bill of $8,262. With this change, the LNG truck will now pay $4,860 a year in highway fuel taxes, a savings of $3,402 per year.
In helping to pass the tax equalization language, NGVAmerica commends the efforts of Senators Richard Burr (R-NC) and Michael Bennet (D-CO) as well as Congressmen Mac Thornberry (R-TX), John Larson (D-CT), Todd Young (R-IN), Ron Kind (D-WI), Mike Kelly (R-PA) and their staffs.
The use of LNG in the inland waterways is starting to increase due to the use of marine vessels powered by natural gas. To ensure the fair taxation of natural gas as a marine fuel, NGVAmerica is working with Congress to tax LNG on an energy equivalency basis using the diesel gallon equivalent (DGE) unit, rather than on a volumetric gallon basis.
Highway Bill – The FAST Act
In December, Congressed passed and President Obama signed into law the Fixing America’s Surface Transportation (FAST) Act, which includes significant provisions to advance natural gas as a transportation fuel that have been advocated by NGVAmerica. Provisions include:
Weight Exemption for NG Vehicles on Federal Roads (Page 261 forward – section 1410) – Provides that vehicles powered primarily by natural gas may exceed federal weight limits up to a maximum of 82,000 pounds based on additional weight of natural gas fueling systems and tanks.
Fuel Economy Credits for NGVs (Page 1078 – section 24341) – Creates regulatory parity. Current regulations calculate fuel economy by assuming bi-fuel NGVs operate 50 percent of the time on gasoline instead of natural gas and therefore do not fully reflect benefits of bi-fuel vehicles. This change would allow automakers to use a higher factor for natural gas operation when calculating fuel economy beginning in 2016 vs. 2019 as in current law.
Expansion of CMAQ Program (Page 87 forward – section 1114) – Amends the CMAQ program to among other things clarify that port facilities qualify for funding if located in areas that are non-attainment for PM 2.5. The amendment incudes on-road and non-road vehicles. The PM 2.5 priority allocations continue to include priority consideration for projects proven to reduce PM 2.5 and specifically calls out diesel retrofits. The amendments do not specifically call out alternative fuel projects as had been proposed in the House version but alternative fuel projects have historically qualified under the diesel retrofit program.
Extension of HOV Lane Access for NGVs (Page 265 forward – section 1411) – Amends toll and high occupancy lane provisions. Current ability of states to provide exemptions for alternative fuel vehicles expires Sept. 30, 2017. This language extends authority until Sept. 30, 2025. Amendments drop the references to Inherently Low Emission Vehicles and the exemption language refers to dedicated alternative fuel vehicles, such as NGV’s, and plug-in electric vehicles. Hybrid and fuel efficient vehicles are phased out of the program in 2019.
Alt Fuel Infrastructure Corridors (Page 277 – section 1413) – Creation of alternative fuel infrastructure corridors including natural gas fueling stations along major national highways. Requires initial designations be done in consultation with communities to identify priorities, and establish aspirational deployment goals.
Federal Excise Tax on Heavy Duty Trucks
Another legislative goal is eliminating or amending the Federal Highway Excise Tax (FET) on Heavy Duty Trucks (IRC 4051, 4053). IRC 4051 currently imposes a 12 percent excise tax on heavy duty trucks, trailers, and tractors. The tax is a penalty because the 12 percent rate is assessed not only on the base cost of the truck but also on the incremental cost, unnecessarily adding to the already higher cost of these vehicles. The result is added sticker shock for buyers and a longer payback period. This tax makes it harder for many businesses that may be considering natural gas trucks to justify that initial purchase. Congress should do away with this tax or, at a minimum, amend section 4051 so that the incremental cost of natural gas trucks and other advanced technology trucks is exempt from the tax.
On September 21, 2016, Senator Bill Cassidy (R-LA) and Congressman Tim Ryan (D-OH) introduced the Natural Gas Truck Tax Parity Act of 2016. If passed, this legislation would provide a permanent 35 percent exclusion from the 12 percent FET for alternative fueled heavy-duty trucks. This exclusion is designed to cover the additional incremental cost of heavy-duty natural gas trucks, ensuring the cleaner-burning trucks do not pay more in taxes than comparable diesel-powered trucks.
Some states—South Carolina and New Mexico—already recognize this inequity and exempt portions of the vehicle cost from state sales taxes. The proposal introduced by Senator Cassidy and Congressman Ryan would extend this tax fix to the FET and would have a significant impact on putting cleaner alternative fueled trucks on America’s roads.
For more in the FET issue, follow the links below:
CAFE Standards and NGVs
Today’s automakers are required to meet the Corporate Average Fuel Economy (CAFE) standards. The U.S. Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) light duty vehicle rules for greenhouse gases (GHG) and fuel economy (FE) base the FE of dual-fuel natural gas vehicles on a 50/50 fuel-use assumption and place limits on the number of credits that can be earned. Expanding the definition of dedicated NGVs to include vehicles with a reserve gasoline tank to be used for incidental or emergency fuel use would ensure automakers receive the maximum number of credits for the production of NGVs.
Another important CAFE issue to understand is the inequitable treatment of NGVs under the statutory restrictions included in the Energy Independence and Security Act of 2007. The statutory restrictions have had the unintended effect of causing dual-fuel NGVs to be effectively treated as dedicated gasoline vehicles—effectively a “utility factor” of zero—under the CAFE standards until MY 2020. This statute also groups dual-fuel NGVs with ethanol flex-fuel vehicles (FFVs) and limits the combined credits these vehicles can receive through MY 2019. Since automakers are already receiving the maximum CAFE credits from existing FFV production, there are effectively no credits left for dual-fuel NGVs.
For a more thorough overview of this issue, visit the CAFE and GHG overview page for NGVs below.
Information on Current Legislation
Write your Congressional Representatives
To view NGVAmerica’s 2015 Legislative Priorities, click here.
Last Reviewed: September 14, 2015