To amend the Internal Revenue Code of 1986 to provide tax incentives for the production of qualified hybrid motor vehicles.

SECTION 1. QUALIFIED HYBRID MOTOR VEHICLE CREDITS.

    (a) Qualified Hybrid Motor Vehicle Purchasers Credit.--
            (1) In general.--Subpart B of part IV of subchapter A of 
        chapter 1 of the Internal Revenue Code of 1986 (relating to 
        other credits) is amended by adding at the end the following:

``SEC. 30B. QUALIFIED HYBRID MOTOR VEHICLE PURCHASERS CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to 65 percent of the sum of the credit amounts determined under 
subsection (b) with respect each qualified hybrid motor vehicle placed 
in service by the taxpayer during the taxable year.
    ``(b) Credit Amount.--For purposes of subsection (a)--
            ``(1) Fuel economy.--The credit amount determined under 
        this paragraph shall be determined in accordance with the 
        following table:

``In the case of a vehicle 
  which achieves a fuel
  economy (expressed as a
  percentage of the 2002 model                               The credit
  year city fuel economy) of--                              amount is--
        At least 125 percent but less than 150 percent.........   $400 
        At least 150 percent but less than 175 percent.........   $800 
        At least 175 percent but less than 200 percent......... $1,200 
        At least 200 percent but less than 225 percent......... $1,600 
        At least 225 percent but less than 250 percent......... $2,000 
        At least 250 percent................................... $2,400.
            ``(2) Conservation credit.--The amount determined under 
        paragraph (1) with respect to any vehicle shall be increased in 
        accordance with the following table:

``In the case of a vehicle 
  which achieves a lifetime
   fuel savings (expressed in                         The credit amount
   gallons of gasoline) of--                    shall be increased by--
        At least 1,200 but less than 1,800.....................   $250 
        At least 1,800 but less than 2,400.....................   $500 
        At least 2,400 but less than 3,000.....................   $750 
        At least 3,000......................................... $1,000.
    ``(c) New Qualified Hybrid Motor Vehicle.--For purposes of this 
section--
            ``(1) In general.--The term `new qualified hybrid motor 
        vehicle' means a motor vehicle--
                    ``(A) which draws propulsion energy from onboard 
                sources of stored energy which are both--
                            ``(i) an internal combustion or heat engine 
                        using consumable fuel, and
                            ``(ii) a rechargeable energy storage 
                        system,
                    ``(B) which has received a certificate of 
                conformity under the Clean Air Act and meets or exceeds 
                the equivalent qualifying California low emission 
                vehicle standard under section 243(e)(2) of the Clean 
                Air Act for that make and model year, and--
                            ``(i) in the case of a vehicle having a 
                        gross vehicle weight rating of 6,000 pounds or 
                        less, the Bin 5 Tier II emission standard 
                        established in regulations prescribed by the 
                        Administrator of the Environmental Protection 
                        Agency under section 202(i) of the Clean Air 
                        Act for that make and model year vehicle, and
                            ``(ii) in the case of any other vehicle, 
                        the Bin 8 Tier II emission standard which is so 
                        established,
                    ``(C) which is a passenger automobile or light 
                truck with a gross vehicle weight rating of not more 
                than 8,500 pounds,
                    ``(D) which has a maximum available power of at 
                least 4 percent,
                    ``(E) the original use of which commences with the 
                taxpayer,
                    ``(F) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(G) which is made by a manufacturer.
            ``(2) Consumable fuel.--For purposes of paragraph 
        (1)(A)(i), the term `consumable fuel' means any solid, liquid, 
        or gaseous matter which releases energy when consumed by an 
        auxiliary power unit.
            ``(3) Maximum available power.--The term `maximum available 
        power' means the maximum power available from the rechargeable 
        energy storage system, during a standard 10 second pulse power 
        or equivalent test, divided by such maximum power and the SAE 
        net power of the heat engine.
    ``(d) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under subpart A and 
        sections 27 and 30 for the taxable year.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(2) Other terms.--The terms `automobile', `passenger 
        automobile', `light truck', and `manufacturer' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency for 
        purposes of the administration of title II of the Clean Air Act 
        (42 U.S.C. 7521 et seq.).
            ``(3) 2002 model year city fuel economy.--
                    ``(A) In general.--The 2002 model year city fuel 
                economy with respect to a vehicle shall be determined 
                in accordance with the following tables:
                            ``(i) In the case of a passenger 
                        automobile:

``If vehicle inertia                               The 2002 model year 
  weight class is:                                city fuel economy is:
        1,500 or 1,750 lbs.................................    45.2 mpg
        2,000 lbs..........................................    39.6 mpg
        2,250 lbs..........................................    35.2 mpg
        2,500 lbs..........................................    31.7 mpg
        2,750 lbs..........................................    28.8 mpg
        3,000 lbs..........................................    26.4 mpg
        3,500 lbs..........................................    22.6 mpg
        4,000 lbs..........................................    19.8 mpg
        4,500 lbs..........................................    17.6 mpg
        5,000 lbs..........................................    15.9 mpg
        5,500 lbs..........................................    14.4 mpg
        6,000 lbs..........................................    13.2 mpg
        6,500 lbs..........................................    12.2 mpg
        7,000 to 8,500 lbs.................................   11.3 mpg.
                            ``(ii) In the case of a light truck:

``If vehicle inertia                                The 2002 model year
  weight class is:                                city fuel economy is:
        1,500 or 1,750 lbs.................................    39.4 mpg
        2,000 lbs..........................................    35.2 mpg
        2,250 lbs..........................................    31.8 mpg
        2,500 lbs..........................................    29.0 mpg
        2,750 lbs..........................................    26.8 mpg
        3,000 lbs..........................................    24.9 mpg
        3,500 lbs..........................................    21.8 mpg
        4,000 lbs..........................................    19.4 mpg
        4,500 lbs..........................................    17.6 mpg
        5,000 lbs..........................................    16.1 mpg
        5,500 lbs..........................................    14.8 mpg
        6,000 lbs..........................................    13.7 mpg
        6,500 lbs..........................................    12.8 mpg
        7,000 to 8,500 lbs.................................   12.1 mpg.
                    ``(B) Vehicle inertia weight class.--For purposes 
                of subparagraph (A), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
            ``(4) Fuel economy.--Fuel economy with respect to any 
        vehicle shall be measured under rules similar to the rules 
        under section 4064(c).
            ``(5) Reduction in basis.--For purposes of this subtitle, 
        if a credit is allowed under this section for any expenditure 
        with respect to any property, the increase in the basis of such 
        property which would (but for this paragraph) result from such 
        expenditure shall be reduced by the amount of the credit so 
        allowed.
            ``(6) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter (other than the credits 
        allowable under this section and section 30) shall be reduced 
        by the amount of credit allowed under subsection (a) for such 
        vehicle for the taxable year.
            ``(7) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(8) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(9) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
            ``(10) Business carryovers allowed.--If the credit 
        allowable under subsection (a) for a taxable year exceeds the 
        limitation under subsection (d) for such taxable year, such 
        excess (to the extent of the credit allowable with respect to 
        property subject to the allowance for depreciation) shall be 
        allowed as a credit carryback and carryforward under rules 
        similar to the rules of section 39.
            ``(11) Interaction with motor vehicle safety standards.--
        Unless otherwise provided in this section, a motor vehicle 
        shall not be considered eligible for a credit under this 
        section unless such vehicle is in compliance with the motor 
        vehicle safety provisions of sections 30101 through 30169 of 
        title 49, United States Code.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out the provisions of this 
        section.
            ``(2) Determination of motor vehicle eligibility.--The 
        Secretary, after coordination with the Secretary of 
        Transportation and the Administrator of the Environmental 
        Protection Agency, shall prescribe such regulations as 
        necessary to determine whether a motor vehicle meets the 
        requirements to be eligible for a credit under this section.
    ``(g) Termination.--This section shall not apply to any property 
placed in service after December 31, 2009.''.
            (2) Conforming amendments.--
                    (A) Section 30(d) of such Code (relating to special 
                rules) is amended by adding at the end the following 
                new paragraph:
            ``(5) No double benefit.--No credit shall be allowed under 
        this section for any motor vehicle for which a credit is also 
        allowed under section 30B.''.
                    (B) Section 1016(a) of such Code is amended by 
                striking ``and'' at the end of paragraph (30), by 
                striking the period at the end of paragraph (31) and 
                inserting ``, and'', and by adding at the end the 
                following:
            ``(32) to the extent provided in section 30B(e)(7).''.
                    (C) Section 6501(m) of such Code is amended by 
                inserting ``30B(e)(9),'' after ``30(d)(4),''.
                    (D) The table of sections for subpart B of part IV 
                of subchapter A of chapter 1 of such Code is amended by 
                inserting after the item relating to section 30A the 
                following:

``Sec. 30B. Qualified hybrid motor vehicle purchasers credit.''.
            (3) Effective date.--The amendments made by this section 
        shall apply to property placed in service after the date of the 
        enactment of this Act, in taxable years ending after such date.
            (4) Sticker information required at retail sale.--
                    (A) In general.--The Secretary of the Treasury 
                shall issue regulations under which each qualified 
                vehicle sold at retail shall display a notice--
                            (i) that such vehicle is a qualified 
                        vehicle, and
                            (ii) that the buyer may not benefit from 
                        the credit allowed under section 30B of the 
                        Internal Revenue Code of 1986 if such buyer has 
                        insufficient tax liability.
                    (B) Qualified vehicle.--For purposes of paragraph 
                (1), the term ``qualified vehicle'' means a vehicle 
                with respect to which a credit is allowed under section 
                30B of the Internal Revenue Code of 1986.
    (b) Qualified Hybrid Motor Vehicle Manufacturers Credit.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 of the Internal Revenue Code of 1986 (relating to 
        business related credits) is amended by adding at the end the 
        following new section:

``SEC. 45J. QUALIFIED HYBRID MOTOR VEHICLE MANUFACTURERS CREDIT.

    ``(a) In General.--For purposes of section 38, the qualified hybrid 
motor vehicle manufacturers credit determined under this section is 35 
percent of the sum of the credit amounts determined under section 
30B(b) with respect to each qualified hybrid motor vehicle produced by 
the taxpayer.
    ``(b) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 30B shall have the meaning 
given such term by section 30B.''.
            (2) Credit treated as business credit.--Section 38(b) of 
        such Code is amended by striking ``plus'' at the end of 
        paragraph (18), by striking the period at the end of paragraph 
        (19) and inserting ``, plus'', and by adding at the end the 
        following new paragraph:
            ``(20) the qualified hybrid motor vehicle manufacturers 
        credit determined under section 45J(a).''.
            (3) Clerical amendment.--The table of sections for subpart 
        D of part IV of subchapter A of chapter 1 of such Code is 
        amended by adding at the end the following new item:

``Sec. 45J. Qualified hybrid motor vehicle manufacturers credit.''.
            (4) Effective date.--The amendments made by this section 
        shall apply to property produced after the date of the 
        enactment of this Act, in taxable years ending after such date.

Summary: Amends the Internal Revenue Code to allow tax credits for purchasers and manufacturers of qualified hybrid motor vehicles. Defines qualified hybrid motor vehicle as a motor vehicle which: (1) operates on an internal combustion or heat engine using consumable fuel and a rechargeable energy storage system, (2) meets specified emission standards under the Clean Air Act. (3) is a passenger vehicle or light truck with a gross weight rating of not more than 8,500 pounds. (4) has a maximum available power of at least four percent. And (5) is acquired for use or lease by a taxpayer and not for resale.