Source: http://leg.wa.gov/jlarc/taxReports/2017/AlternativeFuelVehicles/p/default.htm
Timestamp: 2017-08-21 02:38:23
Document Index: 459549845

Matched Legal Cases: ['§ 2', '§ 408', '§ 2', '§ 1', '§ 4201', '§ 1', '§ 5200', '§ 3', '§ 409', '§ 3', '§ 3', '§ 408']

Tax Preference Review - Alternative Fuel Vehicles
JLARC > JLARC Reports > 2017 Tax Preferences > Alternative Fuel Vehicles
Alternative Fuel Vehicles | Sales and Use Tax
A sales and use tax exemption on the first $32,000 of a sale or lease agreement for qualifying new clean alternative fuel vehicles with a manufacturer's suggested retail price of $42,500 or less for the lowest price base model.
The preference is scheduled to expire when one of the following occurs:
The total number of qualifying vehicles titled on or after July 15, 2015, reaches 7,500.
RCWs 82.08.809; 82.12.809
The Legislature stated it wanted to increase the use of qualifying clean alternative fuel vehicles by reducing the price of such vehicles.
Review: The Legislature should review the preference in the 2019 legislative session if the number of qualifying vehicles titled in Washington has not reached 7,500.
Sales and use tax exemption for purchases or leases of new vehicles that use clean alternative fuel
The Legislature passed this sales and use tax preference with the stated purpose to increase the use of clean alternative fuel vehicles in Washington.
Clean alternative fuel vehicles are powered by electricity, natural gas, propane, or hydrogen and must meet specific emission standards.
Exemption applies to the first $32,000 of a sale for vehicles with base model priced at $42,500 or less
Individuals are exempt from paying sales or use tax on the first $32,000 of a sale or lease agreement for vehicles with a manufacturer’s suggested retail price of $42,500 or less for the lowest base model.
Qualifying vehicles must be either exclusively powered by a clean alternative fuel or plug-in hybrids that use electricity as at least one power source, and can travel at least 30 miles using only battery power.
The sales and use tax exemption has three components: the 6.5 percent state sales tax, an additional 0.3 percent sales tax for motor vehicle sales, and the applicable local sales tax.
Legislature set two potential expiration dates for the sales and use tax preference
The preference expires as soon as one of the following occurs:
The cumulative number of qualifying vehicles titled in Washington on or after July 15, 2015, reaches 7,500.
Legislature has modified sales and use tax preference over time to encourage more use of clean alternative fuel vehicles
The first sales and use tax preference, passed in 2005, took effect January 1, 2009, when the first alternative fuel vehicles (AFVs) were expected to be on the market.
Since then, the Legislature has continued to modify the preference to encourage more use of qualifying AFVs.
2005:	Legislature passed sales and use tax exemptions for new, clean AFVs and hybrids effective in 2009
The Legislature passed two sales and use tax exemptions for sales and leases of qualifying new passenger cars, light duty trucks, and medium duty passenger vehicles. Qualifying vehicles had to be powered by a clean alternative fuel or by hybrid technology with highway mileage ratings of at least 40 miles per gallon. There were no price limitations for qualifying vehicles.
The preferences were scheduled to expire January 1, 2011.
2009:	Legislature repealed preference for new hybrid vehicles after 8 months, but left the preference for AFVs in place
The Legislature repealed the sales and use tax exemption for new hybrid technology vehicles with highway mileage ratings of at least 40 miles per gallon.
The Legislature did not change the preference for sales and leases of new vehicles powered only by clean alternative fuel.
2010: Legislature extended and expanded tax preference to include some used, modified AFVs
The Legislature expanded the preference to apply to qualifying used vehicles that were part of a fleet of five or more vehicles all owned by the same person. The used vehicles had to be modified after their initial purchase to run exclusively on a clean alternative fuel and meet other qualifying criteria.
The Legislature also extended the expiration date from January 1, 2011, to July 1, 2015.
2015:	Legislature allowed preference to expire, then replaced with a modified version
After the existing tax preference expired on July 1, 2015, the Legislature passed a new, modified preference that took effect July 15, 2015.
The new exemption applied to sales and leases for the following vehicles with a sales or lease price of $35,000 or less:
“Plug-in hybrid vehicles” - vehicles that use at least one power source that can be recharged by an external electricity source and can travel at least 30 miles using only battery power.
Qualifying alternative fuel vehicles which are powered exclusively by natural gas, propane, hydrogen, or electricity.
The exemption no longer applied to sales or leases of used, modified vehicles.
The Legislature established a July 1, 2019, expiration date.
2016:	Legislature revised current preference to include higher priced vehicles but lowered amount eligible for exemption
Effective July 1, the preference applies to the first $32,000 of a vehicle’s sales price or lease agreement on new qualifying vehicles with a manufacturer’s suggested retail price of $42,500 or less for the lowest base model.
The total number of qualifying vehicles titled in Washington on or after July 15, 2015, reaches 7,500.
Other tax credits, exemptions, and Governor’s goals focus on increasing use of alternative fuel vehicles and clean fuel
The sales and use tax exemption is one of many tools used to encourage the use of alternative fuel vehicles and clean fuel.
Federal income tax credit up to $7,500 for plug-in electric vehicles
A federal income tax credit is currently available to people who purchase new, qualifying plug-in electric vehicles (PEVs). For vehicles purchased after December 31, 2009, the minimum credit is $2,500 and the maximum is $7,500. The credit amount is determined by the vehicle’s battery capacity and gross weight. The credit will phase out when a manufacturer’s cumulative sales reach 200,000 vehicles.
Governor’s Results Washington program established other clean transportation goals in 2011
Governor Inslee’s “Results Washington” program set a goal to increase the number of PEVs registered in Washington to 50,000 by 2020. This includes all PEVs, not just those that are exempt from sales and use tax.
Washington has passed other tax preferences for clean alternative vehicles, fuels, and infrastructure
In addition to the sales and use tax preference, the Legislature has passed several other preferences related to clean alternative fuel vehicles and related infrastructure.
Exhibit 3.1: Additional preferences for clean alternative fuel vehicles and related infrastructure
Clean Alternative Fuel Commercial Vehicle B&O or Public Utility Tax (PUT) Credit Credits for businesses purchasing or leasing a clean alternative fuel commercial vehicle or modifying a vehicle to use clean fuel.
EV Battery and Charging Station Sales and Use Tax Exemption Click here for 2017 JLARC review. Exemption for purchases of batteries, component parts of EV infrastructure, and labor and services to install and repair batteries or infrastructure.
EV Leasehold Excise Tax (LET) Exemption Click here for 2017 JLARC review. Exemption for private leases of public land to construct, install, or operate EV infrastructure.
EV Supply Equipment (EVSE) Return on Utility Investment Incentive Utilities and Transportation Commission may approve an additional 2% to the standard return rate if the utility installs EVSE on a fully regulated basis like other capital investments.
Biodiesel Feedstock Sales and Use Tax Exemption Exemptions for purchases of waste vegetable oil (cooking oil) from restaurants or commercial food processors that is used to produce biodiesel for personal use.
Alternative Fuel and Hybrid Electric Vehicle (HEV) Emissions Inspection Exemption Exemption from state emissions control inspections on dedicated electric, natural gas, and propane vehicles, and HEVs with an EPA fuel economy rating of at least 50 MPG (city driving).
Natural Gas Used in Transportation - Various Preferences Five preferences for the manufacturers and sellers of natural gas used for transportation.
Exhibit 3.2: Vehicles Qualifying for Sales and Use Tax Preference as of March 1, 2017
Source: JLARC staff analysis of Department of Licensing list of qualifying vehicles, as posted March 1, 2017.
Legislature stated public policy objective in its performance statement
Stated objective: Increase use of clean alternative fuel vehicle by reducing the price
The Legislature categorized the sales and use tax preference as intending to induce certain behaviors. The stated public policy objective was to:
“. . . . increase the use of clean alternative fuel vehicles in Washington . . . by extend[ing] the existing sales and use tax exemption on certain clean alternative fuel vehicles in order to reduce the price charged to customers for clean alternative fuel vehicles.”
Legislature provided metric for JLARC review
In 2016, the Legislature directed JLARC to report on the number of clean alternative fuel vehicles titled in the state to measure the effectiveness of the tax preference.
Legislature set two potential targets for when preference should end
The Legislature identified two targets for when the sales and use tax preference should expire. The preference will end when the first of these is reached:
7,500 qualifying new vehicles are titled in Washington on or after July 15, 2015.
Preference has reduced prices for qualifying vehicles but it is unknown the extent it is impacting sales
The preference has reduced the purchase and lease price of qualifying new clean alternative fuel vehicles (AFVs). Prices are reduced by the applicable sales tax rate for the first $32,000 of the sale or lease agreement.
Exhibit 5.1: How does the AFV preference work?
Price without preference
Price with preference
Savings with Preference
Vehicle purchase price from dealer
Cap on exemption
Sales tax owed (Average rate – 9.3%)
Source: JLARC staff analysis of tax preference.
New AFV titles about halfway to 7,500 target
The Department of Licensing has issued 3,520 titles for qualifying vehicles since July 15, 2015. This represents 47 percent progress toward the 7,500 target. To reach 7,500 titles before the final expiration date of July 1, 2019, an additional 3,980 qualifying AFVs must be titled between April 1, 2017, and July 1, 2019. This equates to 442 per quarter.
Since July 1, 2016, the number of new titles per quarter has exceeded 442 and has increased each successive quarter. If this trend continues, the 7,500 target will be met before the final expiration date.
Throughout this period, the federal income tax credit for purchases of new, qualifying plug-in electric vehicles (PEVs) has remained in place.
Exhibit 5.2: AFV titles about halfway to 7,500 target as of March 31, 2017
Note: Quarter 3, 2015 begins July 15, 2015.
Source: Department of Revenue detail per Department of Licensing reports. Detail from July 15, 2015 through March 31, 2017.
New clean AFV titles less than 1% of all new titled vehicles in Washington
Department of Licensing data indicates that clean AFVs accounted for just 0.5 percent of new titles for vehicles of the same class in Fiscal Year 2016.
During the first five months of Fiscal Year 2017 (July through November 2016, the latest data available when this report was published), the share of AFVs increased to 0.9 percent of new vehicle titles for similar classes of vehicles.
Majority of new qualifying AFV titles are in Puget Sound region
Sixty percent of the newly titled qualifying alternative fuel vehicles were in King County between July 2015 and November 2016. Snohomish County and Pierce County were the second and third top counties for total number of new AFV titles.
Many other factors impact vehicle purchases
Continuing the tax preference beyond the expiration date will provide a reduction in the sale or lease price of qualifying vehicles for up to $32,000. While this may encourage people to purchase qualifying vehicles, other issues also influence vehicle purchasing decisions. These include:
Purchase price of electric vehicles tend to be higher than conventional vehicles.
High battery costs and concerns about battery range for electric vehicles.
Average driving costs are lower for electric vehicles than gas-powered vehicles—The U.S. Department of Energy reports that it costs about one-half as much on average to drive an electric vehicle using electricity the same distance as a similar vehicle fueled by gasoline. The estimate uses national averages for gasoline and electricity prices.
Access to charging stations.
Washington and nine other states charge additional registration fees on AFVs.
Preference benefits buyers, lessees, and sellers of clean alternative fuel vehicles
The direct beneficiaries are individuals, businesses, and public or private entities that purchase or lease a qualifying clean alternative fuel vehicle (AFV) in Washington.
The purchaser or lessee does not pay sales or use tax on up to $32,000 of the qualifying vehicle’s sale or lease agreement. Qualifying vehicles include:
Vehicles powered exclusively by natural gas, propane, hydrogen, or electricity.
Plug-in hybrids powered partly by an external electricity source that can travel at least 30 miles using only battery power.
Between July 15, 2015, and March 31, 2017, there have been 3,520 titles issued to individuals and other entities that have benefited from the preference.
Indirect beneficiaries are automobile dealers who sell or lease qualifying vehicles. The tax preference reduces the price of vehicles, especially when paired with available federal tax credits and other manufacturer or dealer offers.
Estimated beneficiary savings in 2017-19 Biennium are $14.8 million
JLARC staff estimate direct beneficiary savings of $3.9 million in Fiscal Year 2016 and $14.8 million for the 2017-19 Biennium.
The preference is currently scheduled to expire when the first of these occur: 7,500 qualifying vehicles are titled in Washington, since July 15, 2015, or July 1, 2019.
JLARC staff estimated the beneficiary savings using Department of Licensing data on qualifying new titles. It is unclear if the savings will increase or continue at the pace they did for the first nine months of Fiscal Year 2017.
If they do continue at the same pace, the total number of new titles could reach the 7,500 target to end the preference by the middle of Fiscal Year 2019.
Qualifying Vehicle Sales
State Sales Tax (includes 0.3% vehicles sales tax)
2015-17 7/1/15-6/30/17 2016
2017-19 7/1/17-6/30/19 2018
$157,758,000
Note: Fiscal Year 2016 began July 15, 2015.
Source: JLARC staff analysis of: Department of Revenue tax return deduction detail for clean alternative vehicles, Fiscal Years 2015; Department of Licensing new AFV title data FY 2016 and July 1 – March 31, 2017. No estimated growth in 2018 or 2019 due to uncertainty in marketplace.
Without the tax preference, beneficiaries would pay sales or use tax, but impact on AFV use is uncertain
If the tax preference was allowed to expire, purchasers of qualifying AFVs and plug-in hybrids would pay sales or use tax on the full cost of the vehicle.
The impact of the preference on sales of qualifying vehicles is unknown. Many other issues influence whether consumers decide to purchase these vehicles.
States offer varying types of incentives to encourage use of clean alternative fuels and vehicles
Most states and the District of Columbia provide incentives to encourage use of alternative fuels and vehicles. The U.S. Department of Energy maintains an Alternative Fuel Data Center, tracking incentive programs offered in each state.
Only Washington and New Jersey provide sales and use tax exemptions for new purchases and leases of clean alternative fuel vehicles (AFVs).
States use a variety of other tools to encourage AFV adoption, including: income tax credits, rebates, grants, low interest loans, HOV lane access, free parking, reduced or exempted vehicle registrations, and emissions test exemptions.
Exemptions—Vehicles using clean alternative fuels and electric vehicles, exceptions—Quarterly transfers. (Contingent expiration date.)
[ 2016 1st sp.s. c 32 § 2; 2015 3rd sp.s. c 44 § 408; 2010 1st sp.s. c 11 § 2; 2005 c 296 § 1.]
Effective date—2016 1st sp.s. c 32: "This act takes effect July 1, 2016." [ 2016 1st sp.s. c 32 § 4201
Tax preference performance statement—2016 1st sp.s. c 32: "This section is the tax preference performance statement for the tax preferences contained in sections 2 and 3 of this act. The performance statement is only intended to be used for subsequent evaluation of the tax preference. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.
(4) In order to obtain the data necessary to perform the review in subsection (3) of this section, the department of licensing must provide data needed for the joint legislative audit and review committee analysis. In addition to the data source described under this subsection, the joint legislative audit and review committee may use any other data it deems necessary." [ 2016 1st sp.s. c 32 § 1.]
Effective date—2005 c 296: "This act takes effect January 1, 2009." [ 2005 c 296 § 5200
RCW 82.12.809
(1)(a) Except as provided in subsection (4) of this section, the provisions of this chapter do not apply in respect to the use of new passenger cars, light duty trucks, and medium duty passenger vehicles, which (i) are exclusively powered by a clean alternative fuel or (ii) use at least one method of propulsion that is capable of being reenergized by an external source of electricity and are capable of traveling at least thirty miles using only battery power.
(b) Beginning with purchases made or lease agreements signed on or after July 1, 2016, the exemption in this section is only applicable for up to thirty-two thousand dollars of a vehicle's purchase price or the total lease payments made plus the purchase price of the leased vehicle if the original lessee purchases the leased vehicle before the expiration of the exemption as described in RCW 82.08.809(6).
(2) The definitions in RCW 82.08.809 apply to this section.
(3) A taxpayer is not liable for the tax imposed in RCW 82.12.020 on the use, on or after the expiration of the exemption as described in RCW 82.08.809(6), of a passenger car, light duty truck, or medium duty passenger vehicle that is exclusively powered by a clean alternative fuel or uses at least one method of propulsion that is capable of being reenergized by an external source of electricity and is capable of traveling at least thirty miles using only battery power, if the taxpayer used such vehicle in this state before the expiration of the exemption as described in RCW 82.08.809(6), and the use was exempt under this section from the tax imposed in RCW 82.12.020.
(4)(a) For vehicles identified in subsection (1)(a) of this section purchased on or after July 1, 2016, and before the expiration of the exemption as described in RCW 82.08.809(6), or for leased vehicles identified in subsection (1)(a) of this section for which the lease agreement was signed on or after July 1, 2016, and before the expiration of the exemption as described in RCW 82.08.809(6), a vehicle is not exempt from use tax as described under subsection (1)(b) of this section if, at the time the tax is imposed for purchased vehicles or at the inception of the lease for leased vehicles, the lowest manufacturer's suggested retail price, as determined in rule by the department of licensing pursuant to chapter 34.05 RCW, for the base model is more than forty-two thousand five hundred dollars.
(b) For vehicles identified in subsection (1)(a) of this section purchased on or after July 15, 2015, and before July 1, 2016, or for leased vehicles identified in subsection (1)(a) of this section for which the lease agreement was signed on or after July 15, 2015, and before July 1, 2016, a vehicle is not exempt from use tax if the fair market value of the vehicle exceeds thirty-five thousand dollars at the time the tax is imposed for purchased vehicles, or at the inception of the lease for leased vehicles.
(c) For leased vehicles for which the lease agreement was signed before July 1, 2015, lease payments are exempt from use tax as described under subsection (1)(a) of this section regardless of the vehicle's fair market value at the inception of the lease.
(5) On the last day of January, April, July, and October of each year, the state treasurer, based upon information provided by the department, must transfer from the multimodal transportation account to the general fund a sum equal to the dollar amount that would otherwise have been deposited into the general fund during the prior calendar quarter but for the exemption provided in this section. Information provided by the department to the state treasurer must be based on the best available data. For purposes of this section, the first transfer for the calendar quarter after July 15, 2015, must be calculated assuming only those revenues that should have been deposited into the general fund beginning July 1, 2015.
(6)(a) The exemption provided under this section does not apply to the use of new passenger cars, light duty trucks, and medium duty passenger vehicles, or lease payments due on such vehicles, if the date of sale of the vehicle from the seller to the buyer occurred or the lease agreement was signed after the expiration of the exemption as provided in RCW 82.08.809(6).
(b) All leased vehicles that qualified for the exemption before the expiration of the exemption must continue to receive the exemption as described under subsection (1)(b) of this section on lease payments due through the remainder of the lease.
(c) Nothing in this subsection (6) may be construed to allow an exemption under this section for the purchase of a qualifying vehicle by the original lessee of the vehicle after the expiration of the exemption.
[ 2016 sp.s. c 32 § 3; 2015 3rd sp.s. c 44 § 409; 2010 1st sp.s. c 11 § 3; 2005 c 296 § 3.]
Effective date—Tax preference performance statement—2016 sp.s. c 32: See notes following RCW 82.08.809.
Tax preference performance statement—2015 3rd sp.s. c 44 §§ 408 and 409: See note following RCW 82.08.809.
Effective date—2005 c 296: See note following RCW 82.08.809.
Legislative Auditor recommends reviewing the tax preference before the final expiration date if the target for vehicle titles is not yet met
The Legislature should review the sales and use tax preference for clean alternative fuel vehicles in the 2019 legislative session if the number of qualifying vehicles titled in Washington has not reached 7,500.
The preference reduces the price of the sale or lease agreement for qualifying new alternative fuel vehicles. However, it is unknown the extent the preference is impacting sales. Other factors also influence vehicle purchasing decisions.
As of March 31, 2017, 3,520 qualifying vehicles were titled, which is 47 percent of the 7,500 target. If this trend continues, the target will be met before the final expiration date. If that target is not met, the preference will expire on July 1, 2019.
Legislation required:	To be determined (preference expires July 1, 2019).
If applicable, available December 2017.