The New Year brings several important tax changes affecting the use of natural gas as a transportation fuel. Most notably, there is the favorable change in treatment of LNG that will see the federal excise tax rate go from 24.3 cents per LNG gallon to 24.3 cents per diesel gallon equivalent (DGE), a reduction of more than 17 cents since the LNG rate previously was effectively 41 cents per DGE. The new LNG rate is effective January 1, 2016 per Public Law 114-41 (HR 3236). Congress enacted this change back in July as part of the short term highway funding bill. The same bill also amended the CNG tax to specify that a gasoline gallon equivalent (GGE) of CNG means 5.66 pounds of natural gas; the IRS previously imposed the CNG rate of 18.3 cents based on a GGE of 126.67 cubic feet. The change was supported by retailers who had wanted the tax unit to align with the GGE unit used by the National Conference on Weights and Measures.
In 2016, taxpayers also will benefit from the extension of the 50 cent fuel credit for CNG and LNG, and the extension of the tax credit for natural gas refueling property. Congress extended the incentives on December 18 as part of the Consolidated Appropriations Act, 2016 (PL 114-113, HR 2029). Both incentives also are retroactively available for 2015, so taxpayers who sold CNG or LNG, or installed new fueling equipment in 2015 will be able to claim the credits.
The fuel credit for CNG and LNG remains unchanged for 2015 and is 50 cents per GGE of CNG and per liquid gallon of LNG. However, the LNG fuel credit starting on January 1, 2016 changes to 50 cents per DGE so that it aligns with the unit used for taxing LNG. The infrastructure credit is 30 percent or $30,000 in the case of business property or $1,000 in the case of fueling property that is installed by a home owner for personal use.
The IRS has yet to release guidance or revised forms detailing these changes. However, NGVAmerica expects the IRS to release updates before the end of January. The key forms will include Form 720 Quarterly Federal Excise Tax Return, Form 8911 Alternative Fuel Vehicle Refueling Property Credit, and Form 8849 Claim for Refund of Excise Taxes, Schedule 3 Certain Fuel Mixtures and Alternative Fuel Credit. As has been the practice in past years, the IRS is expected to issue guidance instructing that all 2015 fuel credit claims be filed as part of a one-time filing due sometime in the summer of 2016.
More information about these incentives will soon be available on the updated sections of the NGVAmerica website.