Senate Bill Offers Businesses Tax Breaks For Buying 'Clean' Cars

by Leroy Baker, Tax-News.com, New York

14 March 2006

Legislation was introduced into the United States Senate last week that would grant substantial tax breaks for businesses which buy fuel-efficient alternative energy vehicles.

The bill, introduced by Senate Finance Committee Chairman Charles Grassley (R - Iowa) and ranking member Max Baucus (D - Mon) seeks to reward businesses with tax benefits for buying more efficient, cleaner alternative energy vehicles, in much the same way as businesses now receive tax breaks for purchasing sport utility vehicles (SUVs).

The America’s Business Choice (ABC) Act exempts passenger vehicles eligible for the alternative motor vehicle credit and the credit for qualified electric vehicles from the limitation on depreciation for “luxury” automobiles.

Under current depreciation rules, a business owner who buys an SUV gets a deduction for the depreciation not subject to the limitation for “luxury” automobiles. The Grassley-Baucus bill will provide the same depreciation deductions for business owners who buy alternative energy vehicles.

In addition, the Grassley-Baucus bill allows small business owners to expense up to $100,000 for their alternative energy vehicles. Under current law, business owners have not been able to use expensing if they purchased a passenger vehicle that costs more than $10,585 (adjusted for inflation to $14,800 for 2005 purchases).

Qualifying alternative energy vehicles include electric cars; hybrid cars that run on part-fuel, part-electricity; and vehicles that run entirely on alternative fuel such as compressed natural gas.

In a statement, the Senators noted that the bill, if enacted, would be the biggest package of incentives for the business purchase of alternative energy vehicles ever to emerge from the Finance Committee, and they claimed that it could alter the way that businesses approach their vehicle purchases.

“The tax code shouldn’t favor SUVs over alternative energy cars for business owners,” Grassley stated.

“Some business owners will want to use SUVs and some will want to use hybrid cars. The choice should be theirs and the tax code should be consistent," he added.

Meanwhile, Baucus suggested that the proposed legislation will help the US to "shake its oil addiction".

"America’s small business owners are looking for ways to reduce their energy consumption and costs, and the tax code should provide benefits for those who can choose and use clean, lean alternative-fuel vehicles," he observed.

Recommended