Providing Tax Advice for an Electric Car Environment
Providing Tax Advice for an Electric Car Environment
The embryonic U.S. electric car vehicle (EV) market is supported by wide range of federal tax incentives. As with the beginning of all major technology changes there is wide range of predictions about the rate of market acceptance. Tax advisers who understand the relevance of creative cities and objectively analyze the step by step developments in this market can provide strategic tax advice.
Electric Car Tax Credits:
The Section 30D per vehicle tax credit for purchasing an electric car weighing less than 8,500 pounds is capped at $7,500. The credit is equal to the sum of $2,500 with an additional $417 for each kilowatt hour of battery capacity in excess of 4 kilowatt hours
The credits presented above phase out beginning in the second calendar quarter following the manufacturer’s sale of its 200,000th plug in electric drive motor after 2009. Thereafter, there is a 50% credit reduction in the second and third quarters, a 75% credit reduction in the fourth and fifth quarters, and zero credit available for any additional quarters. It is important to note that the EV credit can be claimed against AMT, which is particularly important for the creative city target markets where there is a greater percentage of high income tax payers subject to AMT.
Due to the impact of these large per vehicle credits, EV manufacturer marketing departments are going to need to carefully time their advertising campaigns to correlate EV tax credit phase out. The advertising tax planning strategy should be to try to accurately predict the second calendar quarter commencing after the first quarter with model sales of 200,000 or more and correlate budgets and advertising release dates. The concept would be to optimize the selling volumes during the full credit availability and phase out period. The concern would be that, like the recent first time home buyer tax credit, sales will stall once tax credits end.
Electric Car Charging Station Tax Credit Extended:
The extension of the Bush era tax incentives included a provision extending the 30% tax credit for the purchase and installation costs of charging equipment up to $30,000 for businesses (Sec 30C) and $1,000 for individuals (for one year through December 31st, 2011). Although these are lower amounts than the pre-extension $50,000 credit limits for businesses and $2,000 for individuals, a business will also be eligible for 100% bonus depreciation in 2011. The $50,000 credit limits were effective for tax years beginning after December 31, 2008 and before January 2011.
Understanding Creative City Relevance:
Richard Florida, the widely read college professor and book author , places a great emphasis on the importance of America's creative cities. Cities that are regularly identified as creative include Austin, Texas, Los Angeles, CA, New York City, San Francisco, Seattle, Washington and Washington D.C. It is no coincidence that the attributes that make these cities creative also make them the launch points for the major car brands electric car programs. Two of the creative cites are government capitals including Washington D.C. and Austin. It is expected that virtually all government state fleets will be converting to electric vehicles. In state capitals that also have major state universities such as Albany New York, Austin, Texas, Ann Arbor, Michigan, Boise Idaho, Columbus, Ohio and Madison Wisconsin this could result in a large concentration of electric vehicles in these cities.
* Note that many of these brands are launching EV marketing initiatives in various other cities
Consistent with the creative city framework, Hertz has announced that starting December 15, 2010, electric rental cars will be available in New York, Washington DC, and San Francisco.
On July16, 2010 Edison, a major parking garage operator in New York City, announced the installation of the first of 100 New York City charging stations pursuant to a federal program.
BYD is a Chinese electric vehicle manufacturer that has agreed to locate its U.S. headquarters in Los Angeles and is being rewarded as the electric car supplier for Los Angeles municipal needs.
Charging Station Initiatives:
General Electric has embarked on a major marketing initiative to introduce its battery charging product directly to consumers. Consistent with this initiative GE has recently announced that it will be purchasing 25,000 electric cars for its corporate fleet by 2015
Recognizing the underlying need for battery charging system Nissan has endeavored to support its electric car initiative with infrastructure support including the concurrent sale of chargers with its electric cars. eTec/Ecotality in Michigan was granted $8 million to wire five regions in the country and to supply 12,500 charging stations to support 5,000 Nissan “Leaf” EV's.
Understanding Electric Car Charging Ranges:
Electric car battery mileage limits vary widely from 40/50 miles at the low end to Tesla car models that may achieve 200+ miles before requiring a recharge. It is important for commercial property owners and tax advisers to understand electric charging ranges from the creative cities to popular destinations. For example hotels, restaurants, entertainment sites, and shopping complexes that rely on the creative cities need to consider creating the infrastructure to support electric cars. Examples would be San Francisco to Napa Valley, Washington to Baltimore Inner Harbor, New York City to the Woodbury Commons Shopping Complex, and Austin to San Antonio. The roundtrip mileage to these popular destinations is illustrated below:
California as an Electric Car Center:
California is the national center of electric car developments. Virtually every major EV Company is targeting California for its initial marketing launches. The California energy commission has provided a $3.4 million dollar grant to California based Coulomb technologies to aid in wiring the state for EV's. California also has the “Cash for Clunkers” program, offering $5,000 cash for clunker vehicles. This means that a California resident with a “clunker” could earn $12,500 in combined cash equivalents ($5,000 cash grant plus $7,500 credit) when purchasing an electric car.
Some experts believe that trucks particularly inner city delivery trucks could be an early adapter of electric vehicle technology. Inner city delivery trucks by definition travel within the battery charging ranges. Most importantly initial data indicates that the cost per mile from switching from gasoline to electric would be much lower for inner city delivery vehicles. Smith Electric Vehicles of Missouri a company that converts delivery trucks to electric power received two Department of Energy grants ($10 and $22 million) to support developments in this area. Navistar the large truck manufacturer was also awarded $39 million for its electric truck initiatives. If the post office and the major delivery companies such as Federal Express and UPS embrace this technology it could quickly become a leading electric vehicle sector.
Massive investments have been made by the U.S. government, state governments, the global automotive industry and other industrial companies to prepare for electric battery vehicles. The creative cities are the first beachhead's. Tax advisers with impacted clients located in or dependent upon the creative cities should monitor these developments and be ready to provide relevant tax advice.
Internal Revenue Bulletin 2009-26. “Qualified Plug-in Electric Vehicle Credit”. IRS Notice 2009-54. June 29, 2009.
Florida, R., “The Rise of the Creative Class” Basic Books, First Edition, 2002
Goulding, Charles, Kumar, Raymond, & Goulding, Taylor. “The G-2/ U.S./ China Tax and Stimulus Focus on Solar and Electric Cars” Corporation Business Taxation Monthly