How Public Sector Fleets Can Take Advantage of EV Tax Credits

Marty Lawson simply wanted to save the City of Oklahoma City — and its taxpayers — some money, while increasing the city fleet’s “green factor.” The Internal Revenue Service (IRS) offered a substantial $7,500 tax credit for each new plug-in electric vehicle purchase. And, in addition, a tax code provision could pave the way for public sector fleets to secure all or a portion of the credit amount.

Lawson, management specialist for Oklahoma City’s Fleet Services Division, was determined to take advantage of the tax provision for the fleet’s purchase of two Nissan Leaf sedans. The City’s fleet numbers nearly 4,000 vehicles, including 93 compressed natural gas (CNG)-powered and all-electric units.

Essentially, “the provision allows dealers to claim the tax credit on vehicle sales to tax-exempt organizations, but the credit amount must be disclosed in writing to the purchasing entity,” according to Lawson, who holds an MBA and is a Certified Automotive Fleet Manager (CAFM) candidate.

Lawson reasoned a dealership could apply a percentage of the credit amount to reducing the vehicle purchase price. A simple proposition, but not an easy process, he soon discovered.

Educating Dealers
An initial unsuccessful competitive bid revealed dealers often were misinformed, and didn’t understand the tax credit.

In addition, Lawson pointed out, “Dealers do have risks. There’s paperwork involved. And, they have to wait for the return until the next tax cycle, while passing on the credit in the sales price.”

Lawson turned to Yvonne Anderson, Central Oklahoma Clean Cities coordinator and special programs officer at the Association of Central Oklahoma Governments.

Anderson knew public sector fleets could realize some of the tax credit, but the process would take some work. She sought input from other Clean Cities coordinators and industry professionals, including Richard Battersby, CAFM, CPFP, coordinator of East Bay Clean Cities and fleet services director for the University of California, Davis, where about 48 percent of the campus on-road vehicle fleet are hybrid-electric or alternative-fuel-capable vehicles.

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Battersby was already familiar with the process of leveraging IRS clean-air vehicle tax credits, having previously negotiated price reductions for CNG Honda Civics when the IRS program applied to more than just plug-in vehicles.

“The obstacles to take advantage of the tax credit are not so much the process — filling out the paperwork — but finding dealerships that will work with public sector fleets to pass along some of the credit through the lower prices for electric vehicles,” Battersby said. “The dealer must be engaged and willing to carry the burden until the next tax reporting cycle.”

Anderson and Lawson collaborated on an approach for working with dealers. Lawson researched online tax documents, talked to industry peers, and contacted the IRS directly. “They were actually very helpful,” Anderson said.

Working from a template Battersby supplied, Lawson and Anderson developed bid specification language inviting the dealers to give the government agency the best prices, including a percentage of the tax credit.

At a second bid meeting for the Nissan Leaf purchase, Lawson said he “took a more educational approach,” clarifying dealers’ misconceptions and explaining the credit submittal process.

In the end, the bid competition elicited one dealer’s offer to return 100 percent of the tax credit amount — $7,500 per vehicle — to the City through a reduced sales price.

Going After the Tax Credit
In seeking to profit from the electric vehicle tax credit, Lawson advises fleet managers first “educate yourself about the credit and the provision allowing dealers to apply for the credit for sales to tax-exempt entities.”

To better understand the process and potential pitfalls, Battersby recommended “attend[ing] the Green Fleet Conference and other industry conferences to network with other fleet managers. Look up the Department of Energy publications and website. There are nearly 100 Clean Cities Coalitions throughout the United States. Consult your local Coalition for up-to-date information on incentive opportunities.”

The second step, according to Anderson, is educating the dealer. “In many cases, dealer government fleet sales reps aren’t even aware of the credit or the provision,” she observed.

Next, determine if the dealer is eligible for the credit. “The dealer may not have a tax liability and therefore can’t apply for the credit,” Anderson explained.

This hurdle may be addressed by suggesting the dealer research the one-year carry-back or 20-year carry-forward tax provision included in the IRS Form 3800 (General Business Credit), which may allow the dealer to apply the credit in a more tax-favorable year, said Lawson.

Finally, Lawson, Anderson, and Battersby suggest holding a competitive bid, which encourages the dealer to pass along the credit.

“In these days of unprecedented budget constraints, don’t leave serious money — in our case, $15,000 — on the table,” Lawson said.

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EV Tax Credit Available in Lease Agreements?
While public sector fleets may not find access to the electric-vehicle tax credit through many fleet leasing companies, an Iowa-based company has worked with several automakers to develop a workable arrangement.

The Renewable Energy Network for Aggregated and Integrative Systems (RENAIS) has worked with major fleet dealers, including Nissan USA and Mitsubishi Motors North America, to establish leasing programs for their all-electric car models (e.g. the Nissan Leaf and the Mitsubishi i-MiEV). The programs are available to public sector and commercial fleets.

The program factors in all price reduction advantages — including the federal tax credit and individual state alt-fuel-vehicle incentives — to provide the best monthly lease payment possible, according to RENAIS President Michael Garvin.

Especially attractive to public sector fleets is the leasing program’s budget neutral financing (BNF) model, which connects the monthly lease payment level to fuel-expense savings.

“Fleets apply the fuel savings of the latest alternative-energy vehicles to the lease payment,” Garvin said. “In that way, the new all-electric car or CNG-powered truck is paid for out of operating costs, not capital funds.”

The lease agreement is built upon data gathered in the pilot conversion with customers determining the length of the lease: one year, 18 months, or two years, Garvin explained.

“The fleet manager has only to decide if the vehicle’s expected life is greater than the terms of the lease agreement. The program requires the vehicle warranty life be at least 50-percent longer than the lease terms,” Garvin said.

The BNF program can work for electric and CNG cars as well as hydrogen-boost retrofits of diesel tractor-trailer trucks, Garvin explained. He invited fleet managers to e-mail him for more information at [email protected].