Electric Vehicle Tax Credit Legislation Changes the Rules for EVs

The Senate passed the Democratic “Inflation Reduction Act,” a $750 billion tax-and-spend bill, on August 7 by a vote of 51-50. This bill includes a complete revamping of the Section 30D federal electric vehicle (EV) tax credit. The legislation is scheduled to be considered by the House on Friday, August 12 and is expected to narrowly pass. President Biden has stated that he will sign the bill into law, which could occur as early as next week.

While this new EV tax credit program generally does not go into effect until January 1, 2023, this bill includes a new requirement that will be effective immediately upon enactment and could affect EVs on your lot. This requirement mandates that to qualify for a federal EV tax credit, the “final assembly” of the vehicle must occur “within North America,” i.e., the U.S., Mexico, or Canada.

The current EV tax credit rules have no such North American assembly requirement. This means that an EV which qualifies for up to a $7,500 federal tax credit today will no longer qualify as soon as the President signs this legislation, if the final assembly of that vehicle occurred outside of North America.

Importantly, under the bill, if a customer has already “entered into a written binding contract to purchase” an EV that is assembled outside of North America (or signs such a contract before the President signs the bill), the customer will still qualify for the current credit even if the vehicle is not delivered until after the legislation is signed.

According to the Alliance for Automotive Innovation, a trade association representing the nation’s automakers, the list of EVs eligible for a federal tax credit will decrease from 72 to 25 upon enactment of this bill because of this “final assembly in North America” requirement. The Alliance encourages (and NADA concurs) that dealers should contact their OEM(s) to ascertain which EVs will no longer be eligible for the credit after the President signs this new requirement into law.

Dealers should review their EV inventory to determine the impact this change in law will have on their dealership. A comprehensive summary of the new federal EV tax credit program, including new provisions that expand the credit to allow other clean vehicles to qualify, eliminates the manufacturer cap, and allows consumers to transfer the credit to the dealer at the point of sale in 2024 will be forthcoming after the President signs this legislation into law.

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