Fuel Tax Credits Benefit Manufacturers, Distributors, and Transportation Companies

January 27, 2015|Christa Baldridge

You may be inclined to dismiss fuel tax credits as insignificant or not practical to claim because of compliance requirements. In reality, these credits provide substantial benefits to manufacturers, distributors, and transportation companies.

Fuel tax credits can range widely. Many can be very lucrative and worth exploring, and are relatively easy to calculate and claim. Both the alternative fuel and regular fuel tax credits are refundable and available to taxpayers regardless of taxable income or liability.

The alternative fuel tax credit is currently available for purchases through December 31, 2014, and could be extended again for future years.

Signed into law on December 19, 2014, the Tax Increase Prevention Act of 2014 extended the availability of the alternative fuel tax credit to purchases through December 31, 2014. Although it expired again after that date, this credit is part of a number of renewable energy tax credits that we anticipate will be extended again and so will be available in future years.

At fifty cents per gallon, this lucrative credit is available for either the sale or use of an alternative fuel in a motor vehicle, generally to carry a load. Alternative fuels include liquid propane, compressed or liquefied natural gas, liquefied hydrogen, P series fuels, and any liquid fuel derived from coal through the Fischer-Tropsch Process. They do not include ethanol, methanol, biodiesel, or renewable diesel. Because IRS regulations define motor vehicles to include forklifts used at plants and warehouses, credit opportunities are available where forklifts are powered by liquid propane or LP gas.

To claim a credit as an alternative fueler, the Internal Revenue Code requires registration. This one-time filing on Form 637 is necessary to obtain a registration number to report on tax returns for current, future, and potentially amended prior year tax returns. The credit is claimed on Form 4136, which you can include as part of your tax return filing each year. In the case of LP gas-powered forklifts, the credit is available to the taxpayer who connects the propane tank to the forklift, so often the user of the fuel claims the credit, not the vendor.

Alternative fuel tax credit illustration – manufacturing company

To illustrate the alternative fuel tax credit, consider a manufacturing company that runs two shifts with 15 forklifts, running 14 hours per day and consuming 21,000 gallons of propane per year. The company’s credit would be $10,500 annually (21,000 x 50 cents).

Alternative fuel tax credit illustration – logistics warehouse

As a second example, consider a logistics warehouse that uses twenty five 20-pound propane tanks per week. The conversion of pounds to gallons for propane is 4.24 lbs/gallon, which equates to a 20 lb. tank, with 4.717 gallons per tank. This usage would result in a credit of $3,066 [(25 x 52 x 4.717) x 50 cents] or $2.36 per tank.

As illustrated, credits can range widely, however, can be easily calculated and claimed. Often vendors can provide purchase summary information annually for their customers, to limit the need for much recordkeeping. It is also worth noting that taxpayers can claim the credit for alternative fuels even though they pay no excise tax.

Other fuel tax credits

Fuel credits are also available at rates ranging from 18.3-24.3 cents per gallon for fuel used off-road for business in a number of manners. The purpose of these credits is to refund fuel excise taxes designed to pay for road infrastructure costs paid by taxpayers for fuel not used over the road. Unlike the alternative fuel credit, these credits require the excise tax to be paid.

No IRS registration is required to claim these credits; only the filing of Form 4136. Propane, diesel, and gasoline used in forklifts, refrigeration units, generators, and mixing units as part of business operations can qualify. Examples of credit opportunities include refrigeration units on semi-trailers, auxiliary power units for sleeper cab trucks, gasoline powered forklifts, and generators used to cool temporary food storage units. Transportation and distribution companies may find these credits very lucrative and worth exploring. These credits are permanent in the tax law, so they are available for all open tax years and future tax years.

Keep accurate records of fuel purchases and uses

As always, it is important to keep accurate records documenting the purchase and use of fuels when claiming credits. We recommend reviewing fuel usage annually to determine if new credit opportunities exist, especially now that alternative fuel tax credits are available for 2014 filings as we head into the 2014 reporting season.

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Christa Baldridge, CPA, has more than fifteen years of experience providing tax planning, consulting and compliance services to privately-held businesses and individuals, with a concentration in serving the manufacturing and distribution industries.