The Business Journals – What small businesses should know about an Inflation Reduction Act tax credit
The Inflation Reduction Act includes a potentially lucrative tax credit for businesses buying electric vehicles. Here’s what companies need to know.
Business owners pinched by higher gas prices and looking to upgrade their fleets could see a windfall under the new Inflation Reduction Act.
The legislation, passed by both the Senate and the House in recent days and awaiting President Joe Biden’s signature, would make some types of electric vehicles far cheaper to buy. That includes a new tax credit aimed at commercial “clean” vehicles.
The electric vehicle credits are one of several climate-focused components of the Inflation Reduction Act, which also includes a minimum tax for large corporations, provides the ability to negotiate the prices of certain drugs and doubles a potentially lucrative research and development tax credit for businesses.
What the Inflation Reduction Act means for electric vehicle purposes
The act includes a tax credit for qualifying electric vehicles of up to $7,500 for vehicles weighing less than 14,000 pounds, and up to $40,000 for vehicles that weigh more than that, subject to certain limitations. The credit is slated to last until the end of 2032, according to the legislation.
“Within the Inflation Reduction Act, there are many EV-related provisions included that will be pertinent for both large organizations and small businesses,” according to Mark Fowler, director of government relations for clean tech integrator Ameresco. “Overall, the new tax credits will lead to even more EV use.”
In addition to the tax credits for purchasing EVs, Fowler said measures calling for new tax credits for charging stations could help alleviate consumer fears about range anxiety for EVs.
The buildout of electric charging stations could also mean a tax credit of $30,000 to $100,000, Fowler said, with the credit to be calculated based on a single unit rather than per location.
Consumers won’t be left out either, as a new $7,500 tax credit revamped from an existing 2008 tax credit will apply to new all-electric cars, and another $4,000 credit for used vehicles, although the credit will not be available for single tax filers with an adjusted gross income above $150,000 or $300,000 for couples filing jointly, Fowler said.
“At the time, that legislation also included a phase-out of the tax credit once an auto manufacturer reached 200,000 vehicles sold. Within the Inflation Reduction Act, a new measure has been added that would eliminate the 200,000 sales cap, which in turn, would make electric cars again eligible for the credit,” Fowler said.
Will the Inflation Reduction Act increase electric vehicle sales?
The new credits could cause small-business owners who passed on electric vehicles in the past to give them a second look, something Transportation Secretary Pete Buttigieg suggested they do in a recent interview with The Playbook. While many large companies — including Walmart, DHL Express Inc. and several others — are planning substantial investments in electric fleets, federal officials are encouraging more small businesses to embrace the trend.
Buttigieg recently pushed back on the cost of electric vehicles in a recent and viral exchange with Rep. Scott Perry, R-Pa., who said electric vehicles start at about $55,000, higher than traditional gas-powered cars. But Buttigieg cited the manufacturers’ price for several models, including $26,595 for the Chevy Bolt, $39,900 for the Chevy Silverado EV and $39,974 for the Ford F-150 Lightning.
“A lot of businesses I think are starting to do their math where they see even if there’s a higher sticker price than a comparable, gas burning model, if you finance it and you have even conservative assumptions about gas prices, it’s probably the right financial decision and maybe even start paying back right away,” Buttigieg said. “Again, depending on the model and the market and the year.”
Manufacturers are also trying to make the case to small businesses, with Ford Motor Co. planning to offer a one-stop electric vehicle shopping service for small businesses, according to Small Business Trends.
Other tax credits in the Inflation Reduction Act
But there is at least one other tax credit in the legislation that small business owners should be aware of — a doubling of the refundable research and development tax credit.
That tax credit would double from $250,000 to $500,000 if the legislation were to become law. The tax credit is refundable and applied against payroll taxes and includes expenditures for a wide variety of expenses, including the improvement or development of products, processes, techniques or even software.
And small businesses that missed out on the SBA’s Economic Injury Disaster Loan or industry-specific programs like the Restaurant Revitalization Fund still have a potentially lucrative Covid-19 relief opportunity available in the form of the Employee Retention Credit.
The Business Journals
By Andy Medici