The LPDD team is proud to announce the publication of a new model law, a piece of model federal legislation offering tax credits for purchasing used Alternative Fuel Vehicles (AFVs). The legislation is available to view here.
Excerpted from the introductory memorandum to the model law:
Some studies suggest that AFVs depreciate faster than internal combustion vehicles. Two main reasons AFVs depreciate faster than internal combustion vehicles are (i) the rapid pace that technology is advancing for AFVs and the potential for obsolescence and (ii) the lack of tax incentives for used AFVs. The proposed legislation is intended to incentivize consumers to purchase both new and used AFVs because it will (i) help maintain the resale value of AFVs and (ii) make used AFVs more affordable.
The model legislation has been drafted to provide drafters with several options as to the types of used vehicles that would qualify for the tax credit, so Congress can decide — based upon market or political considerations — which types of vehicles should qualify for a credit. Additionally, the proposed legislation provides that to qualify for the tax incentive, the used AFV must be a model year that is no less than two and no more than six years earlier than the date of the sale. This is intended to incentivize new purchasers of AFVs to retain the vehicle for a longer period of time than they may otherwise have intended and also tends to lower the underlying resale value. This will improve the affordability of qualifying sales. The proposed legislation also limits the tax incentive to lower income households. This decreases the barriers to entry into the AFV market for more households and limits the possibility that sellers of used AFVs will increase the prices of used AFVs to account for the tax incentive.
As drafted, the tax credit would remain in effect through December 31, 2030. However, following December 31, 2024 and December 31, 2026, respectively, the amount of the tax credit would decrease by Seven Hundred Fifty Dollars ($750) from its then current amount. This reduction balances the aim of stabilizing the resale value of used AFVs, on the one hand, and the goal of incentivizing consumers to take more immediate action to purchase used AFVs. The effectiveness of the incentive should diminish by December 31, 2030, for, among other reasons, the cost of used AFVs will likely continue to decrease as supply increases.
Lastly, the proposed legislation requires that the used AFV be purchased from a qualifying seller – a registered car dealership or business that is primarily involved in the sale of used vehicles. This limits the possibility for affiliated transactions, fraud and price manipulation that may otherwise occur in transactions between individual buyers and sellers.