Discover how you can benefit from the Alternative Vehicle Refueling Property Credit and embark on a journey towards a more sustainable transportation ecosystem.
With additional clean vehicle purchases, more infrastructure is needed. The maximum credit per charging station is generally 30% per the cost of the charging station, increased to $100,000 per station (not project). However, the charging stations must be placed in certain locations to be eligible for the credit.
The Alternative Vehicle Refueling Property Credit is a federal tax credit designed to incentivize the adoption of eco-friendly refueling infrastructure. Whether you’re planning to install electric vehicle (EV) charging stations, hydrogen fueling stations, or other qualifying refueling equipment, this credit can help you save money while contributing to a cleaner and greener future. Discover how you can benefit from the Alternative Vehicle Refueling Property Credit and embark on a journey towards a more sustainable transportation ecosystem.
What Is the Federal Income Tax Credit for a Charging Station Utilized in a Trade or Business?
Generally, a trade or business that places a charging station in service after December 31, 2022, and before January 1, 2033, will receive a general business credit equal to 6 percent of the cost, with the potential to receive a credit of 30% if the prevailing wage and apprenticeship requirements are met.
The new legislation did adjust the maximum credit amount from $30,000 to $100,000 and currently applies the limitation per charging station as opposed to the entire project.
Example: Assume a taxpayer purchases five charging stations to be utilized in their trade or business. The purchase price, including installation, is $150,000. Assume the charging stations meet all the requirements to be deemed qualifying charging stations for the federal income tax credits. Provided the prevailing wage and apprenticeship requirement is met, the maximum credit would be $45,000 (150,000 x 30%).
What Tests Must Be Met for the Charging Station Installed in a Trade or Business to Qualify for the Credit?
A charging station eligible for the credit must satisfy all the following conditions:
- It must not be a building or its structural components;
- It must be depreciable property;
- Its original use must begin with the taxpayer;
- It must be for:
- The storage or dispensing of a clean-burning fuel into the fuel tank of a motor vehicle propelled by that fuel, but only if the storage or dispensing property is at the point where the fuel is delivered into the fuel tank of the motor vehicle; or
- For the recharging of motor vehicles propelled by electricity, but only if the recharging property is located at the point where the motor vehicles are recharged.
- It must not be property used predominantly outside the United States;
- It must be placed in service in a population census tract which is a low-income community or in a population census tract that is not an urban area; and
- It must be placed in service on or before December 31, 2032.
Under the new legislation, a charging station is not excluded from the credit solely because it is a property capable of charging the battery of a motor vehicle propelled by electricity and allows discharging electricity from the battery to an external electric load (i.e. bidirectional charging).
What Are the Prevailing Wage and Apprenticeship Requirements That Must Be Met to Receive an Increased Credit Percentage of 30%?
Taxpayers that place in service a charging station utilized in a trade or business may be eligible for an enhanced 30% credit, five times the base credit, if they meet specific wage and apprenticeship requirements.
A taxpayer ensures the prevailing wage requirement is met provided any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of the charging station which is part of such project are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor. In addition, the taxpayer must maintain and preserve sufficient records, including books of account or records for work performed by contractors or subcontractors of the taxpayer, to establish that such laborers and mechanics were paid wages not less than such prevailing rates.
A taxpayer that doesn’t meet the prevailing wage requirement can satisfy the obligation by making the laborer or mechanic whole and paying certain penalties.
In order for a taxpayer to meet the apprenticeship requirements in relation to a charging station, they need to ensure that they satisfy:
- Apprenticeship Labor Hour Requirements;
- Apprenticeship Participation Requirements; and
- Comply with general recordkeeping requirements, including maintaining books of account or records for the taxpayer's contractors or subcontractors, as applicable.
A taxpayer must ensure that the applicable percentage of the total labor hours of the construction, alteration, or repair work (including such work performed by any contractor or subcontractor) concerning the charging station project is performed by qualified apprentices. The applicable percentages are based on the year of construction and are as follows:
- In the case of construction that begins before January 1, 2023, 10 percent;
- In the case of construction that begins after December 31, 2022, and before January 1, 2024, 12.5 percent; and,
- In the case of construction that begins after December 31, 2023, 15 percent.
A taxpayer will satisfy the apprenticeship participation requirements provided that every taxpayer, contractor, or subcontractor who employs four or more individuals to perform construction, alteration, or repair work with respect to the construction of a charging station project employs one or more qualified apprentices to perform the work.
A taxpayer can cure the failure to satisfy the apprenticeship requirements if the taxpayer pays the Treasury $50 per labor hour for which the apprenticeship requirement was not satisfied.
How Do I Claim a Qualified Charging Station Federal Income Tax Credit?
For-profit entities claim the charging station credit on their income tax return. The charging station credit is non-refundable. For-profit entities must reflect an income tax liability to receive an immediate benefit from the credit. If there is no income tax liability for the taxable year, the for-profit entity can transfer (i.e. sell) the charging station credit. Not-for-Profits can make a direct pay election, which would allow them to receive a tax refund for the charging station credit even if no unrelated business income (UBI) is identified.
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For more information on this topic, please contact a member of Withum’s Tax Services Team.
