There are a variety of tax credits for businesses using alternative fuels. Some are state incentives but there are quite a few that are Federal. One of the Federal incentives is the Alternative Fuel Excise Credit. This credit was slated to expire at the end of 2021 but it has been extended until the end of 2024 by the Inflation Reduction Act. The extension is retroactive and includes 2022.
This credit is available for alternative fuel used (or sold for use) to operate motor vehicles. Specific fuels are eligible: liquified hydrogen, propane, natural gas, P-Series fuel, liquid fuel derived from coal (Fischer-Tropsch process), and compressed or liquified gas from biomass.
Some fuels may be familiar while others, like P-Series fuels, may not be. P-Series fuels are renewable, non-petroleum, liquid fuels that are a blend of dozens of domestically produced ingredients. The Fischer-Tropsch Process is a technique that turns a carbon source, usually coal or natural gas, into hydrocarbon chains via hydrogenation and a metal catalyst,
It is perfectly reasonable to question just how “alternative” is since several are not much cleaner than regular petroleum in their manufacture or use but that is a matter for ecologists, not tax preparers. It is also true that there are carbon-neutral options for the Fischer-Tropsch Process example at least. One controversy revolved around the pulp and paper mills taking advantage of this credit by mixing a liquor made during the kraft paper process with various fossil fuels. You can read an examination of this and a defense of the pulp and paper mills at Forest2market.com.
In addition qualifying for this credit isn’t all about the type of fuel it is about how the fuel is used and the original tax liability. Your business, for instance, has to be “liable for reporting and paying the federal excise tax on the sale or use of fuel in a motor vehicle.” If your company is eligible you also need to be registered with the IRS. The fuel used also matters; the same fuel can not be “determined under the rules for ethanol or biodiesel credits.”
Some of the businesses that can take advantage of this credit might not be obvious (see “pulp and paper mills” above) and likewise for processes employed by a business. The intricacies of this credit, and other similar credits, behoove a company to seek help from tax professionals.
You can schedule a call with Hito LLC to find out whether you qualify for this credit and other fuel-related tax credits.