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Alternative Fuel Credits and Payments: Propane Used to Power Forklifts and Other Vehicles
By:
Gregory A. Sanderson April 17, 2009
Many
have heard of the tax credits and other incentives available for producers of alternative energy but not everyone is familiar
with the tax credits available for some users of alternative fuels.
The
U.S. Tax Code provides tax provides incentives for many alternative fuels that can displace conventional gasoline and diesel.
Before January 1, 2005, a reduced excise tax rate applied to most alcohol-blended fuels. The American
Jobs Creation Act of 2004 (Public Law 108-357) replaced the reduced excise tax rate for alcohol-blended fuels with credits
or payments for alcohol and alcohol mixtures that are sold for use or used as a fuel. This law also added
credits and payments for biodiesel and biodiesel mixtures sold for use or used as a fuel. The Energy Policy Act of 2005 (Public Law 109-58), and the Safe, Accountable,
Flexible, Efficient Transportation Equity Act: A Legacy for Users (Public Law 109-59) added credit and payment provisions
for renewable diesel, renewable diesel mixtures, alternative fuel, alternative fuel mixtures, and diesel-water fuel emulsions.
The Energy Improvement and Extension Act of 2008 (Public Law 110-343) extended the renewable diesel and alternative
fuel incentives until December 31, 2009.
Perhaps
the most commonly recognized fuel incentives are the income and excise tax credits allowed for ethanol and biodiesel.
Many other fuels, however, qualify for an alternative fuels credit of 50¢ per gallon of fuel used or sold for
use in a motor vehicle. This alternative fuel credit is “refundable”, meaning that the taxpayers
may receive payments from the government in cases where they cannot use the credit to offset tax liability.
Alternative
fuels that may qualify for the 50¢ per gallon refundable tax credit include: - Liquefied petroleum gas, including propane;
- Alcohol
fuels defined by the Department of Energy as “P Series Fuels” under 42 USC 13211(2);
- Compressed
or liquefied natural gas;
- Liquefied hydrogen;
- Liquid fuel derived from coal;
- Compressed or liquefied gas derived from biomass
defined under §45K(c)(3);
- Liquid
fuel derived from biomass defined under §45K(c)(3), but excluding ethanol, methanol, or biodiesel.
A
common example of an alternative fuel use that qualifies for the refundable tax credit is propane when used to operate motor
vehicles, such as forklifts. Propane-powered forklifts are widely-used today and yet many owners may not
realize that they qualify for a 50¢ per gallon refundable tax credit. The
credit may be claimed as: (1) an excise tax payment on Form 8849, Claim for Refund of Excise Taxes, (2) an excise tax credit on Form 720, Quarterly Federal Excise Tax Return, or (3) as a
refundable income tax credit on Form 4136, Credit for Federal Tax
Paid on Fuels. The taxpayer must coordinate its claims to prevent double usage of credits
and refunds. Excise tax payments and credits are generally included in taxable income, but refundable income
tax credits claimed on Form 4136 may not be.
To
claim alternative fuel credits or payments, the taxpayer must first register for excise tax activities by filing Form 637,
Application for Registration (For Certain Excise Tax Activities). This is an administrative process
to obtain an excise tax registration number, which normally occurs within six to eight weeks after filing the application.
A propane user may apply using the “AL” activity designation, which qualifies the user as an “alternative
fueler” who may receive credit for use of propane as a fuel in its trade or business. Once the taxpayer receives its registration number, it may then apply for credits
or refunds in the future and for all open prior taxable years. The statute of limitations for this purpose
is generally three years from the original filing date. Taxpayers should consult their tax advisors regarding
the appropriate method to claim credits or payments.
Table
1 below provides a summary of alternative fuel tax incentives. Attorneys in the Taylor English Duma tax
department are available to answer questions or assist tax payers in determining their qualification for these incentives.
TABLE
1: Summary of Alternative Fuel Credit Incentives Incentive Title | Code Section | Specifications | Credit Type | Incentive for 2009 | Sunset Date | Alcohol Fuel Credit (Neat) | §40(a)(2) | Alcohol
from biomass that is at least 150 proof. Neat fuel must be used as a fuel in producer's business or sold at retail
by producer into a motor vehicle tank. | Income Tax | 190 Proof Ethanol = 45¢ / Gal 150
Proof Ethanol = 33.33¢ / Gal 190 Proof Methanol = 60¢ / Gal 150 Proof Methanol = 45¢ / Gal | 12-31-10 | Alcohol Fuel Mixture Credit | §40(a)(1) §6426(b) §6427(e)(1) | Mixture of alcohol from biomass that is at least 150 proof with gasoline
or motor fuel, that is used as a fuel in producer's business or sold by producer as a fuel. | Income & Excise Tax | 190
Proof Ethanol = 45¢ / Gal 150 Proof Ethanol = 33.33¢ / Gal 190 Proof Methanol = 60¢ / Gal 150 Proof Methanol = 45¢ / Gal | 12-31-10 | Small
Ethanol Producer Credit | §40(a)(3) | Small producer of 150 proof ethanol from biomass that producer uses as a
fuel or sells as a fuel. May be mixed or neat. Limited to 15 mil. gallons per year. A small producer is generally
60 mil. gallons or less per year. | Income Tax | 150 Proof Ethanol = 10¢ / Gal | 12-31-10 | Cellulosic
Biofuel Credit | §40(a)(4) | Liquid fuel form renewable cellulosic matter that meets Clean Air Act §211, and
which producer uses as a fuel or sells as a fuel. May be mixed or neat. If alcohol, it must be 150 proof. | Income Tax | $1.01
/ Gal, reduced by alcohol mixture and small ethanol producer credits, if fuel is alcohol | 12-31-12 | Biodiesel Credit (Neat) | §40A(a)(2) | Fatty
acids from plant or animal matter that that meets (i) Clean Air Act §211, and (ii) ASTM Standard D6751. Neat fuel
must be used as a fuel in producer's business or sold at retail by producer into a motor vehicle tank. | Income Tax | $1.00
/ Gallon | 12-31-09 | Biodiesel Mixture Credit | §40A(a)(1) §6426(c) §6427(e)(1) | Mixture of biodiesel and diesel fuel that is used as a fuel in producer's business or sold by producer
as a fuel. | Income & Excise Tax | $1.00 / Gallon | 12-31-09 | Small Agri-Biodiesel Credit | §40A(a)(3) | Small producer of biodiesel
that producer uses as a fuel or sells as a fuel. May be mixed or neat. Limited to 15 mil. gals / year. A small producer
is generally 60 mil. gallons or less per year. | Income
Tax | 10¢ / Gallon of Agri-Biodiesel | 12-31-09 | Diesel-Water
Fuel Emulsions | §4081(a)(2)(D) | Diesel-water fuel emulsion of at least 14% water, and which meets Clean
Air Act §211. | Excise
Tax | 4.6¢ / Gallon Reduces
Excise Tax from 24.3¢ down to 19.7¢ | Not Indicated | Alternative Fuel Credits (Neat) | §6426(d) §6427(e)(2) | Liquid petroleum gas; "P Series " alcohol fuels; Compressed
or liquefied natural gas; Liquid hydrogen; Liquid coal fuel; Compressed or liquefied biomass gas; Liquid biomass fuel (excluding
ethanol, methanol, or biodiesel). Fuel must be used or sold for use in a motor vehicle. | Excise Tax | 50¢
/ Gallon | 12-31-09 | Alternative Fuel Mixture Credits | §6426(e) §6427(e)(1) | Mixture of alternative fuel with diesel fuel, gasoline, or kerosene. The mixture must be sold as a fuel
or used as a fuel in the producer's business. | Excise
Tax | 50¢ / Gallon | 12-31-09 |
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