In this Emerging Issues Commentary, Gail H. Morse and Alexandra E. Dowling of Jenner & Block’s Chicago office discuss federal and state tax incentives for fuel efficient and alternative fuel vehicles. Among the incentives considered are (1) federal tax credits for alternative motor vehicles and (2) credits against state income tax otherwise imposed for a certain percentage of the cost of purchasing an alternative fuel or low-emissions vehicle. They also examine the prospective efficacy of such tax incentives, including the facts that not all alternative fuels are viable alternatives to gasoline and diesel and that the current federal tax credit system rewards purchases of larger vehicles.

Ms. Morse and Ms. Dowling conclude with some practice pointers, proposing, for example, that the alternative fuels industry encourage Congress to increase investment in alternative fuel projects. Note that this article is a companion piece to the authors’ earlier commentary, entitled Federal and State Tax Incentives for Renewable Energy, 2008 Emerging Issues 221, which reviewed tax incentives for the fossil fuel industry.

“Prices at the gas pump are at a historical high and show no signs of abating in the near future,” the authors write.  “Although some of the presidential candidates proposed a tax holiday for gasoline purchases, economists and other policy analysts do not support such a step as short term solution.  However, as the Chairman of the Ways and Means Committee, Charles B. Rangel (D-NY) said, I think all of America is looking for the Congress to do something because our present energy policy is not working.

"Recent Congressional attempts to do something have focused on tax incentives shifting the U.S. energy policy toward clean, renewable energy from domestic sources,” Ms. Morse and Ms. Dowling write.  “In late May 2008, Congress passed the Food, Conservation, and Energy Act, commonly known as the Farm Bill (which included tax incentives for alternative energy programs), the House passed the Renewable Energy and Job Creation Act (H.R. 6049), and House Republicans introduced bills that expanded tax credits for alternative energy development.

“However, due to the difficulty of getting Republican and White House support for measures that satisfy the pay-go rules, the increased fervor may not result in any real changes, but rather the same piecemeal one-year extensions that have historically dampened investment by renewable energy producers,” they say.

Subscribers to www.Lexis.com may read much more about this issue by purchasing Ms. Morse and Ms. Dowling's entire expert commentary at Jenner & Block: Update on 2008 Energy Tax Legislation.