alternative fuels
Purpose
Provides a combination of tax incentives and financial assistance to encourage the use of
alternative fuel vehicles (AFVs).
Background
The state's current alternative fuel program has two components, the mandatory government
section purchase or conversion of vehicles to alternative fuels and the private sector tax incentives
to encourage both individuals and businesses to purchase or convert alternative fuel vehicles. The tax
incentives for the private sector are in the form of either an income tax credit or an income tax
deduction. The individual and corporate income tax credit for the purchase, lease or conversion of
an AFV is currently $1000 and is set to expire after 2001. The current individual income tax
deduction is capped at $10,000 for the purchase of a new AFV and at $5,000 for the conversion of
an AFV. The corresponding corporate deduction is capped at $5,000 for the purchase of a new AFV
and $3,000 for the conversion of an AFV. H.B. 2696 proposes various increases to these existing
incentives and creates several new tax incentives, including an exemption from the transaction
privilege and use taxes for the sale of new AFVs and for the sale of equipment used to convert
vehicles to alternative fuels. Additionally, a new income tax credit is authorized that is based on a
percentage of the incremental cost of purchasing or leasing a new AFV, and which rewards the
purchase of the AFV with the lowest emissions. H.B. 2696 also authorizes a new income tax credit
for the construction and operation of an AFV fueling station.
Additionally, in 1996 legislation was passed in the Seventh Special Session on air quality
(Laws 1996, Seventh Special Session, Chapter 6), that created the Arizona clean air fund (ACAF)
to be funded by a combination of revenue sources, including the bingo lottery games, appropriations,
gifts and unexpended monies from other air quality program funds. The ACAF, which is administered
by the Department of Commerce Energy Office, can be used to provide up to$100,000 grants to
establish alternative fuel delivery systems that are accessible to the general public and up to $1000
grants for individuals and small businesses to purchase and install alternative fuel delivery systems for
their own use. Grants can also be made from the ACAF to assist municipalities and school districts
to convert their vehicles to alternative fuels, as required by law. H.B. 2696 provides for additional
uses of the ACAF including reducing the costs of converting or acquiring AFVs and AFV equipment,
public awareness programs and training of persons who service AFVs.
FACT SHEET
H.B. 2696
Page
The fiscal impact of H.B. 2696, as estimated by the Joint Legislative Budget Committee Staff,
is a loss to the general fund of $1.8 million in FY 1998-1999 and a $4.2 million loss in FY 1999-2000.
Provisions
1. Exempts, from the retail and personal property rental classifications and use taxation, AFVs and alternative fuel conversion equipment. (Effective beginning January 1, 1999.)
2. Authorizes corporate and individual income taxpayers to take both the AFV and equipment subtraction and credits for AFVs and equipment.
3. For tax years 1998 through 2001, increases, from $1,000 to $2,000, the individual and corporate income tax credits for the purchase, lease or conversion of a dedicated AFV or purchase of a dedicated alternative
fuel delivery system. The maximum credit for a bi-fueled
AFV remains at $1,000
4. For tax years 1998 through 2001, authorizes nonrefundable individual and corporate income tax credits for expenses associated with constructing or operating an alternative fuel fueling
station. The amount of the credit for a public-accessible station or a station dispensing
renewable fuel is 50 per cent of the costs incurred, up to $400,000. For other stations, the
credit is the lesser of 25 per cent of the costs incurred or $200,000.
5. For tax years 1999 through 2011, authorizes nonrefundable individual and corporate income tax credits for the purchase or lease (for at least three years) of original equipment
manufactured AFVs. The amount of the credit ranges from 50 to 90 per cent of the
incremental cost above the cost of a conventionally fueled vehicle, based on the emissions
levels.
6. For tax years 2012 through 2019, authorizes nonrefundable individual and corporate income tax credits for the purchase or lease (for at least three years) of original equipment
manufactured AFVs. The amount of the credit ranges from 25 to 75 per cent of the
incremental cost above the cost of a conventionally fueled vehicle, based on the emissions
levels.
7. Allows a five-year carry forward of unused original equipment manufactured AFV credit amounts.
8. Specifies that the original equipment manufactured AFV credit is only available if the vehicle is EPA certified as a low emissions vehicle and that the taxpayer is responsible for maintaining
documentation of the incremental cost differential.
9. Increases, from $5,000 to $10,000, the maximum corporate income tax subtraction for the purchase of a new AFV. (This conforms to the individual income tax subtraction.)
10. Increases, from $3,000 to $5,000, the maximum corporation income tax subtraction for the conversion to an AFV. (This conforms to the individual income tax subtraction.)
11. Limits the corporate income tax subtraction for AFVs and equipment to the incremental cost of the AFVs above the cost of the same conventionally fueled vehicle.
12. For purposes of tax incentives, limits the definition of "alternative fuel" as it relates to alcohol fuels that contain less than 85 per cent alcohol. The limitation excludes vehicles that begin
using alcohol fuels after the effective date of the act.
13. For purposes of tax incentives, expands the definition of "alternative fuel" to include an emulsion of water-phased hydrocarbon fuel that contains at least 20 per cent water and that
complies with one of three specified EPA standards (e.g., A-55), and a combination of at least
70 per cent alternative fuel and not more than 30 per cent petroleum based fuel for an engine
that meets the EPA low emission vehicle (LEV) standard.
14. Eliminates the AFV certification program administered by the Department of Commerce Energy Office (EO).
15. Increases the amount of the grant available from the Arizona clean air fund (ACAF) for the purchase and installation of an AFV delivery system by individuals or small businesses from
$1,000 to $2,000.
16. Allows the use of monies from the ACAF to reduce the costs of acquiring or converting AFVs and equipment. Allows the expenditure of monies from the
clean air fund for public
awareness programs for alternative fuels and training of persons involved in alternative fuel
activities.
17. Allows the EO to certify AFVs and equipment converted or purchased in previous tax years if the taxpayer provides appropriate documentation and the EO accepts the documentation.
18. Stipulates that the lottery revenues that were to come from the on-line bingo games to fund the ACAF are to come from the new three number games instead. (Not less than 29% of the
revenues from these games up to a maximum of $10 million in combination with the 21% of
the instant bingo game revenues.)
19. Replaces the required government AFV sticker with an AFV license plate. Exempts governmental AFVs from the AFV special plate fee.
20. Requires state agencies that use alcohol fueled AFVs to demonstrate to the Director of DOA that the fuel for the vehicle is available within a ten mile radius of the primary home base for
that vehicle.
21. Specifies that the highway signs authorizing use of the high occupancy vehicle (HOV) lane by AFVs regardless of the number of passengers in the AFV , are to be at least as big as the
HOV signs themselves and shall utilize the same design as the AFV special license plate.
22. Makes technical and conforming changes.
23. Provides for a general effective date.
House Action
GRSR 2/20/98 DPA 6-0-0-5
Third Read 4/14/98 DPA 51-3-6-0
Prepared by Senate Staff
April 21, 1998
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