Federal Tax Incentives for Natural Gas Vehicles


Since 1992, NGVAmerica has been working with the U.S. Congress to pass a series of financial incentives, programs and studies in support of the NGV industry. In the 107th and 108th Congresses, many of these provisions were included in the comprehensive energy bills the Congress was considering at the time unfortunately those bills did not get enacted. It was not until President Bush signed the 2005 Energy bill (H.R. 6; PL 109-58) and the 2005 Highway bill (H.R. 3; PL 109-59) that NGVAmerica was successful in getting enacted into law a broad package of financial incentives, programs and studies that support the NGV market. The following is a description of the three major financial incentives that are included in either the Energy or Highway Bills. A detailed description of the other programs and studies that were enacted at that time can be found under: Energy Policy Act of 2005 (H.R. 6; PL 109-58) and SAFETEA-LU (Highway Bill or H.R. 3; PL 109-59).

1) Tax Credits for Alternative Fuel Vehicles:
Section 1341 of H.R. 6 provides for a tax credit for the purchase of a new, dedicated alternative fuel vehicle of 50 percent of the incremental cost of the vehicle, plus an additional 30 percent if the vehicle meets certain tighter emission standards. These credits would range from $2,500 to $32,000 depending on the size of the vehicle. The credit is effective on purchases made after December 31, 2005 and expires on December 31, 2010.

2) Tax Credits of Alternative Fuel Infrastructure:
Section 1342 of H.R. 6 provides for a tax credit equal to 50 percent of the cost of natural gas refueling equipment, up to $30,000 in the case of large stations and $1,000 for home refueling appliances. The credit is effective on purchases placed in service after December 31. 2005 and expires December 31, 2009. The $100,000 tax deduction that currently available for this purpose is scheduled to expire at the end of 2006.

3) An Excise Tax Credit to the Seller of CNG or LNG: Section 11113 of H.R. 3 provides for a tax credit of 50-cent per gasoline-gallon-equivalent of CNG or liquid gallon of LNG for the sale of CNG and LNG for use as a motor vehicle fuel. The credit begins on October 1, 2006 and expires on September 30, 2009. Partially offsetting the value of the excise tax credit is an increase in the motor fuels excise tax rate for both CNG and LNG. The CNG rate would increase from 6 cents per gallon equivalent to 18.3 cents. The LNG rate would increase from 18.3 cents to 24.3 cents on a liquid gallon basis. Under this approach, CNG and LNG will pay the same rate of tax into the Highway Trust Fund as all other transportation fuels, but then CNG and LNG would receive an excise tax credit paid out of the general fund. The credit will be paid to eligible recipients on a regular basis.