Alternative Fuel Excise Tax Credit
NOTE: This incentive originally expired on December 31, 2016, but was retroactively extended through December 31, 2017, by Public Law 115-123.
A tax incentive is available for alternative fuel that is sold for use or used as a fuel to operate a motor vehicle. A tax credit in the amount of $0.50 per gallon is available for the following alternative fuels: natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass. For propane and natural gas sold after December 31, 2015, the tax credit is based on the gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE). For taxation purposes, one GGE is equal to 5.75 pounds (lbs.) of propane and 5.66 lbs. of compressed natural gas. One DGE is equal to 6.06 lbs. of liquefied natural gas.
For an entity to be eligible to claim the credit they must be liable for reporting and paying the federal excise tax on the sale or use of the fuel in a motor vehicle. Tax exempt entities such as state and local governments that dispense qualified fuel from an on-site fueling station for use in vehicles qualify for the incentive. Eligible entities must be registered with the Internal Revenue Service (IRS). The incentive must first be taken as a credit against the entity's alternative fuel tax liability; any excess over this fuel tax liability may be claimed as a direct payment from the IRS. The tax credit is not allowed if an incentive for the same alternative fuel is also determined under the rules for the ethanol or biodiesel tax credits.
Under current law, this tax credit is applicable to fuel sold or used through December 31, 2017. The U.S. Department of the Treasury (Treasury) will issue guidance for how to submit claims by March 11, 2018. Claims may be submitted for a 180-day period beginning no later than 30 days after Treasury issues guidance, and claims will be paid no later than 60 days after receipt. (Reference Public Law 115-123, Public Law 114-113, and 26 U.S. Code 6426)
Point of Contact
Excise Tax Branch
U.S. Internal Revenue Service Office of Chief Counsel
Phone: (202) 317-6855