This proposed state income tax credit legislation is designed to create economic incentives for the purchase or lease of Alternative Fuel Vehicles. The proposed legislation provides for options to the enacting state, so that it could elect to provide the tax credits: (i) only for Battery Electric Vehicles (BEVs) and Hydrogen Fuel Cell Vehicles (HFCVs); (ii) for BEVs, HFCVs and Plug-in Hybrid Vehicles (PHEVs); or (iii) for BEVs, HFCVs, PHEVs and simple hybrid electric vehicles (HEVs) that recharge predominantly through regenerative braking. For HEVs to qualify for the income tax credit, the vehicles would have to meet a minimum EPA mpg rating for combined city and highway driving, which would be determined on a year-to-year basis by—at the state’s option—the transportation or environmental agency, and would be keyed to the third highest-performing HEV on the market. Initially, the HEV EPA rating qualification would be set at 50 mpg combined city/hwy.
Because the expenditures involved in purchasing and leasing an AFV differ, the model statute includes different tax credit schedules for each of these scenarios. (It should be noted that the amounts set forth in the model statute are merely suggestions, which are provided with the understanding that the enacting state will determine the amount of the incentives to be provided, in its discretion.) The model statute calls for the reduction of the credits over time, so that following December 31, 2022 and December 31, 2026, respectively, the tax credits would be adjusted to lesser amounts specified by the legislature. These reductions are suggested due to the fact that the obstacles to the development of a robust electric vehicle market are likely to diminish over time. It appears that there is limited reason to offer the tax credits beyond December 31, 2028 as the cost of AFVs will likely continue to decrease, limiting the effectiveness of these incentives. Accordingly, under the proposed statute the incentive would terminate on that date. The enacting state could revisit this sunset provision in the event the circumstances currently expected were not to materialize.