NGV Tax Incentives
On December 19, 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.
LNG Federal Excise Tax
The equitable taxation of liquefied natural gas (LNG) is an import issue NGVAmerica is pursuing this year. The federal highway excise tax on both diesel and LNG is set at 24.3 cents per gallon (IRC 4041). However, LNG has less energy per gallon than diesel fuel. In fact, it takes about 1.7 gallons of LNG to equal the same energy content as one gallon of diesel. This results in LNG being taxed at 170 percent the rate of diesel on an energy equivalent basis. This inequity raises the cost of LNG versus diesel fuel and thereby reduces its natural economic advantages and slows its widespread adoption among heavy duty truckers. NGVAmerica is working with congress to change the way LNG is taxed—from a volume (gallon) to an energy content (diesel gallon equivalent) basis.
In November, NGVAmerica and 32 other associations, coalitions, companies, and organizations sent a letter to the House and the Senate to urge the passage of the Alternative Fuel Tax Credit Extensions and legislation to address the LNG-Diesel Excise Tax discrepancy. For a copy of the letter, click the link below.
On December 3, 2014, the Senate Finance Committee, Subcommittee on Energy, Natural Resources, and Infrastructure, held a hearing on Natural Gas Vehicles: Fueling American Jobs, Enhancing Energy Security, and Achieving Emissions Benefits. For more information on the hearing, click the link below.
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. For more on the FET issue, click on the fact sheet below.
Weight Penalty for the Interstate Operation of a CNG or LNG Heavy Duty Truck
Despite the positive attributes of operating a CNG or LNG heavy duty truck, the added weight of natural gas tank(s) means that a fully loaded natural gas truck might not be allowed to carry the same amount of freight as a diesel truck given the weight limits on federal highways. This could cause a revenue loss of up to 2–3 percent due to reduced payload. Some states (i.e., Ohio and Indiana) have already passed legislation to correct this problem, but it is only for their intrastate highways. Most recently, Sens. Jim Inhofe (R-OK) and Joe Donnelly (D-IN) introduced the Natural Gas Long Haul Truck Competitiveness Act of 2014 (S. 2721), legislation to allow natural gas trucks to exceed the weight restriction placed on trucks operating on the Interstate Highway System. S. 2721 would allow a natural gas truck to exceed the weight limit by the difference between the additional weight of the natural gas fuel system in use and the weight of a comparable diesel fuel system. Similar legislation (H.R. 3940) has been introduced in the House by Reps. Sam Graves (R-MO) and Lee Terry (R-NE).
CAFE Standards and NGVs
U.S. Sen. Jim Inhofe (R-OK) has introduced S. 1355 that would increase the production of NGVs by improving parity among alternative fuel vehicles without taxpayer subsidies. S. 1355 encourages the production of more bi-fuel NGVs by amending the requirements imposed on automakers to meet the Corporate Average Fuel Economy (CAFE) standard. Currently, the U.S. Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) light duty vehicle rules for greenhouse gases and fuel economy (FE) base the FE of dual-fuel vehicles on a 50/50 fuel-use assumption and places limits on the number of credits that can be earned. In contrast, dedicated NGVs assume a 100 percent fuel use and are not subject to limits on credits. S. 1355 expands the definition of dedicated NGVs to include vehicles with a reserve gasoline tank to be used for incidental or emergency fuel use. Additionally, the bill amends CAFE standards to ensure NGVs are given equal treatment with electric vehicles. These amendments will ensure automakers receive the maximum number of credits for the production of natural gas vehicles.
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 or to review S. 1355, click on the links below.