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Alternative Fuel Excise Tax Credit Extended

Alternative Fuel Excise Tax Credit Extended

The Bipartisan Budget Act of 2018 was passed and signed into law on February 9, 2018, and included several retroactive extensions to expired tax credits. One of which is the Alternative Fuel Excise Tax Credit under IRC Sec. 6426(d).

 

Originally, the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA) added IRC Sec. 6426(d), which provides for a 50 cent per gallon tax credit for each gallon of alternative fuel sold by a taxpayer for use as a fuel in a motor vehicle or motorboat, or so used by the taxpayer. Alternative fuel includes liquefied petroleum gas (LPG), also known as propane. Taxpayers may be entitled to this Alternative Fuel Excise Tax Credit for propane that is used in a forklift if used in a trade or business.

Although the Internal Revenue Code does not specifically define the term motor vehicle in IRC Sec. 6426(d), the IRS has previously ruled that a forklift meets the definition of a motor vehicle.

The tax credit is tied to the 18.3 cents per gallon excise tax charged for on-highway use of propane. Even though the purchase of propane for an off-highway purpose, such as in a forklift, is exempt from payment of the excise tax the fuel is still eligible for the full credit.

In order to be the proper claimant of the credit the business must meet two tests, the tax test and the registration test. The tax test states that the claimant must have paid the tax on the fuel or would have paid the tax if the fuel was used for a taxable purpose. In most cases, the taxpayer who delivers the propane into the fuel supply tank of the motor vehicle is the taxpayer liable for the excise tax. Since the business is the taxpayer delivering the propane into the fuel supply tank of the forklift they are considered to pass the tax test.

The taxpayer must register with the Internal Revenue Service in order to claim the Alternative Fuel Excise Tax Credit by completing Form 637, Application for Registration (For Certain Excise Tax Activities.) The taxpayer will receive a letter of registration from the IRS that allows the taxpayer to claim the credit. Registering for the credit gives the IRS the right to inspect your use of the propane in order to verify that you are eligible for the credit.

The credit itself will be claimed on one of two forms:

  • For a taxpayer who is responsible for remitting federal excise tax on other types of fuel, the taxpayer will first claim the credit on Form 720, Quarterly Federal Excise Tax Return.
  • For a taxpayer who does not pay excise tax on propane or still has an available credit after filing Form 720, the credit will be claimed on Form 4136, Credit for Federal Tax Paid on Fuels, which is attached to the taxpayer’s current year income tax return.

The Protecting Americans from Tax Hikes Act of 2015 (PATH) extended many tax credits, including the Alternative Fuel Excise Tax Credit.  Moreover, the Bipartisan Budget Act of 2018 retroactively extended this credit through the end of 2017.  Therefore, propane used in forklifts between October 1, 2006, and December 31, 2017, is eligible for the credit.

However, the PATH act modified the provisions of the credit.  For propane used or sold after December 31, 2015, the tax credit is calculated based on the gasoline gallon equivalent (GGE).  Propane has a GGE of 5.75 lbs. or 1.353 gallons of propane.  This modification essentially reduces the credit from 50 cents per gallon to approximately 36 cents per gallon or 50 cents per 1.353 gallons.

Questions on the Alternative Fuel Excise Tax Credit? Contact a member of  Withum’s Construction Services Team or fill out the form below and we’ll respond to you shortly.

Author: Andrew Schoenemann, CPA | aschoenemann@withum.com

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