Federal Tax Credit on Propane Products

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 into law, which contained several positive provisions for propane. On October 3, 2008, former President George W. Bush signed the omnibus financial rescue package that contained three other high-priority propane tax credit extensions. Below are the highlights of each.

Propane-Specific Provisions

• Alternative Fuel Tax Credit
• Refueling Infrastructure Tax Credit
• Energy Efficient Appliance Tax Credit

General Provisions

• Expensing
• Net Operating Losses (NOL)
• Extension of Bonus Depreciation

In 2005, Congress enacted the Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2005, otherwise known as the Highway Bill (P.L. 109-59). Among other things, the legislation modestly increased excise taxes on alternative fuels while at the same time creating a $0.50 per gallon credit for alternative fuels, including propane, used in motor vehicles. These provisions went into effect on October 1, 2006. The goal of the legislation was to encourage the use of alternative fuels. Congress did increase the federal excise tax on most fuels, including propane, although propane received the smallest increase (from 13.6 to 18.3 cents per gallon). Moreover, it should be emphasized that sales of propane for use in forklifts remain exempt from the federal excise tax on motor fuels.

In providing further guidance regarding the legislation, the Internal Revenue Service (IRS) made clear that forklifts fit the definition of an off-highway business motor vehicle and hence fuel used in a forklift is eligible for the $0.50 per gallon credit. The IRS indicated that in this instance it is the end-user, namely the forklift operator, who is entitled to apply for the credit, not the propane marketer. Therefore, forklift operators should be aware that the fuel they use for forklift operation will be eligible for a $0.50 per gallon credit, assuming they take appropriate steps to properly register with the IRS.

As a first step, forklift operators need to file Form 637 with the IRS to be registered as an “Alternative Fueler.” IRS will then issue a registration number identifying the forklift operator as an Alternative Fueler. After receiving a registration number, the forklift operator can file a claim for the credit at the end of the year by filing Form 4136. If the alternative fuel excise tax credit exceeds the excise tax liability, the forklift operator may be able to claim an alternative fuel income tax credit or refund under certain circumstances.

Mark your calendars that the deadline for the Propane Fuel Tax credit for 2010 propane usage for forklifts is August 1, 2011. This credit allows owners of manufacturing, distribution, and warehousing facilities to apply for the credit for $0.50 per gallon of propane used to power forklifts during the 2010 operating year. According to Propane Education & Research Council (PERC), this would be the end of the IRS allowed 180-day grace period to submit all retroactive fuel tax credits.

The IRS warns that these claims can only be filed one time, and before it can be claimed, owners must register with the IRS and follow all noted documentation requirements.

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010. This legislation contains many favorable provisions that apply to both individuals and businesses within the propane industry including:

• Propane Fuel Tax Credit: This fuel tax credit was revitalized from when it was left to expire at the end of 2009. It offers a $0.50 per gallon credit through December 31, 2011, and made retroactive to 2010. For both years this credit includes propane for forklifts. The alternative fuel infrastructure tax credit has been extended through the end of 2011 as well. The percentage credit for refueling property reverts back to the pre-stimulus levels of 30%, with a $30,000 cap
• Propane Equipment Bonus Depreciation Extension:This legislation allows 100% depreciation for qualifying expenditures or investments from September 8, 2010 through the end of 2011. An additional 50% depreciation above the standard percentage depreciation schedule is also allowed for the 2012 calendar year.
• Small Business Propane Expensing:Businesses with smaller annual investments may deduct the cost of some property placed in service for the year rather than depreciate costs over time. For the taxable years 2020 and 2011, the amount small businesses may expense is temporarily set at $500,000 with a phase-out of the benefit beginning when qualified investments hits $2 million. For 2012, the tax bill just signed into law extends for one year a $125,000 expensing limit, and a $500,000 phase-out, indexed for inflation.

• Propane Appliance Credits:The "non-business" energy property tax credit for propane furnaces, boilers and hot water heaters is extended through 2011, but at the pre-stimulus levels of 10% with a maximum credit of $500. This legislation also reinstates the caps for appliances as they were in the original provision, which are $300 for water heaters and $150 for furnaces.

The National Propane Gas Association (NPGA) has stated plans to with Congress to restore the alternative fuel vehicle tax credit, which was left out of this legislation. Furthermore, the NPGA will be looking for additional opportunities to benefit propane in other areas such as commercial mowing.

If you have ever been considering making the switch to propane, now is the time! Read more about the advantages of propane to learn how you can save money and make your operations a little greener.

There's now another economic incentive to use propane: New "Fiscal Cliff" legislation, recently enacted by President Obama, includes an Alternative Fuel Tax Credit of $0.50 per gallon for all propane used in forklifts. The credit is available for each gallon of propane used to power a motor vehicle, which includes a forklift.

There's now another economic incentive to use propane: New "Fiscal Cliff" legislation, recently enacted by President Obama, includes an Alternative Fuel Tax Credit of $0.50 per gallon for all propane used in forklifts. The credit is available for each gallon of propane used to power a motor vehicle, which includes a forklift.

If necessary, refer to several of the Internal Revenue Service tax forms and instructions: Form 637: Application for Registration (For Certain Excise Tax Activities) Form 720: Quarterly Federal Excise Tax Return

To receive the credit, you must be registered with IRS as an Alternative Fuel provider. Be sure to consult with your tax advisor or accountant to ensure you get the maximum benefit from this tax credit, just one of the many good reasons to make propane your #1 fuel choice!

Fueling your forklifts with versatile, clean-burning propane? Propane is used by nearly 60% of all commercial and industrial buildings in the U.S. as an inexpensive and efficient alternative. Recently, the Alternative Fuel Tax Credit was extended for propane used to power a motor vehicle, including forklifts.

This tax credit first expired at the end of 2013 but has been extended for the entirety of 2014. Unfortunately, almost all the tax credit's extension period was retroactive. Some of the normal deadlines for making IRS fillings for this credit have already passed. The IRS has issued guidance to help with this issue, included below.

The main takeaway from the IRS guidance is that there is a one-time opportunity to file and claim the credit for 2014. The last day to make this filing will be August 8, 2015 (prior anticipatory and preemptive filings for 2014 must be resubmitted during this period). Form 8849, Claim for Refund of Excise Taxes, along with the guidance to claim the tax credit can be found below. IRS Guidance Form 8849

The Alternative Fuel Tax Credit has been extended most recently through December 31, 2016. This tax incentive applies to propane that is used as a fuel to operate motor vehicles, including forklifts. The tax credit of $0.50 per gallon is available for propane used between January 1, 2015, and December 31, 2016.

Update: Year-End Deal Set to Extend Tax Credit

In December, the National Propane Gas Association (NPGA) announced that a deal had been reached to extend the Alternative Fuel Tax Credit for two years. Currently the rate is $0.50 per gallon but will likely be adjusted to $0.36 beginning January 1, 2016, depending on fuel sales. The bill, named the Omnibus and Tax Extenders deal, is still in process but enactment into law is “virtually certain,” according to NPGA.

The Alternative Fuel Excise Tax credit applies to motor vehicles, including forklifts, that use propane as fuel. To claim your potential credit, you will need to fill out a Form 8849. For additional information, including information on tax incentives by state, visit the Alternative Fuels Data Center.

UPDATE: Alternative Fuel Excise Tax Credit Extended Through 2017

Originally expiring in December 2016, the Alternative Fuel Excise Tax credit was extended through December 31, 2017. This applies to propane used to operate a motor vehicle, including forklifts. The tax credit incentive is $0.50 per gallon. More information is available at Alternative Fuels Data Center including tax incentives by state.

At the end of 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020. The law extends both the Alternative Fuel Tax Credit and the Alternative Fuel Vehicle Refueling Property Tax Credit for three years – retroactively for 2018 and 2019 and prospectively for 2020.

The Alternative Fuel Tax Credit is generally available to any individual or entity that sells or uses alternative fuel for a motor vehicle or motorboat within the United States. For these purposes, the term “alternative fuel” includes propane. The amount of the credit is $0.50 per gasoline gallon equivalent of propane, which equates to approximately $0.37 per gallon of propane. Learn more with this tax credit fact sheet from the National Propane Gas Association. Energy tax credits are just one of the many advantages of propane.