April 24, 2012 by Minuteman Trucks
By: Dick Witcher, CEO of Minuteman Trucks & Chairman of ATD
Article Featured: Truck Corner of Massachusetts Auto Dealer
Natural gas – once thought in short supply – is seemingly abundant in the US today. Except for the issues related to “frac-ing” it even seems the fuel of choice by environmentalists. At this year’s Mid-America Truck Show in Louisville every manufacturer displayed natural gas fueled heavy trucks and several showed a variety of configurations making the fuel available in cross country, long haul, local and vocational applications.
Of course there are technology issues: spark ignited or diesel ignited, full dependence or the ability to limp home, compressed or liquefied, fill rates and facility’s needs. But, there is consensus natural gas power will happen – the economics are right — the real question is how soon? So many are trying to determine what the feds can do to speed up the process. T Boone Pickens, Clean Energy, The Natural Gas Vehicle America Association and others have been on Capitol Hill promoting the use of natural gas. Pickens and Clean Energy have invested hundreds of millions building fueling stations across the country. Their efforts and the apparent logic of using natural gas recently resulted in Senator Menendez (D-NJ) introducing the Nat Gas Bill. Included in the Bill was a Tax Credit Transfer provision.
The NADA / ATD is in favor of using natural gas but, the Tax Credit Transfer forced us to come out in opposition to the Nat Gas Bill. I participated along with the NADA / ATD Legislative Office in a number of conferences during which we attempted to find, with other interested parties, a resolution to our opposition. Unfortunately the Bill was brought to a vote before we could find acceptable language. We are continuing to work with these other interested organizations to find acceptable language because the Bill is likely to be introduced during the lame duck session.
Why were we opposed to the Tax Credit Transfer?
- Transferring tax credits between taxpayers is very rare in the US Tax Code. The only recent experience involving motor vehicles is limited to the transfer of a credit from a tax-exempt entity to a dealer.
- ATD, working with tax counsel has identified significant issues for administering transferability from one taxpayer to another taxpayer.
- The IRS might condition the credit on the tax status of the purchaser. This would mean that a dealer’s or an OEM’s tax credit would depend upon the customer’s tax status. (The theory of the IRS would be that if the first taxpayer in the chain has nothing to claim, there is nothing of value to transfer.) The dealer/OEM would then be put in an untenable position – determining at time of sale, the future tax status of the customer.
- The other potential condition would be whether the transferee had enough tax liability against which to offset the credit. This would mean that entities who, for whatever reason, did not have ample tax liability would be unable to realize the value of the credits transferred.
- The IRS undoubtedly will apply the general “recapture” provisions of the Code to a transferable tax credit. The extent of the recapture may depend upon the tax status or actions of the purchaser, the dealer, or the OEM. Presumably, this risk would remain for the useful tax life of the vehicle.
- The IRS’s treatment of the float may complicate the economic burden for transferees.
- The float may create insurmountable cash flow concerns for transferees / dealers. For example, the floor plan lender must be paid within days of purchase, but the dealer’s economic benefit from the tax credit will depend on the vagaries of the IRS. This would tie up internal capital (cash and/or credit).
- Even a “voluntary” program (as the proposal was drafted) would create net winners and losers unrelated to dealer or manufacturer performance.
- Transferability is not likely to “sell more trucks,” because alternative fuel sales will come overwhelmingly from existing diesel sales, not from new sales. Given this economic reality, transferability may make NGV truck less attractive to dealers than diesel sales.
- No other retailer or manufacturer in any other industry subsidizes an entire tax credit at point of sale. Rebates are not the same as tax credits.
- The light duty “cash for clunkers” program was NOT a tax credit or tax incentive. The Federal money was appropriated by Congress and the dealers were repaid by the US Department of Transportation. The dealers overcame administrative costs, cost of funds, and risk of nonpayment, but did not have to deal with the complexity of the US Tax Code.
Most of the benefits of transferability go to entities that will bear few, if any, of the costs. Transferees will be subsidizing the subsidy for the Federal government and the end user beneficiaries.
Although the Bill was defeated, we know from the staff of Senator Menendez that he will keep the transfer in the next submittal of the legislation. Menendez wants local, municipal, county and state agencies to benefit from the transfer. We believe the “cash for clunkers” model is better for dealers. Unfortunately, members of Congress are reluctant to pass an appropriation but, they are willing to approve reducing the receipt of revenue by issuing tax credits.