Cities can take advantage of new federal EV tax credits. Here’s how

Guest article by Emily Pape, senior associate for the Electrification Coalition. She can be reached at epape@electrificationcoalition.org.

Many cities are eager to electrify their fleets but are struggling to do so because of the costs. While private fleets have long enjoyed federal tax credits for electrification, cities have not — until recently.

The Inflation Reduction Act’s elective pay provision allows public and nonprofit entities to receive certain tax credits as a direct payment. Cities can access these credits for electric vehicles (EVs) and charging stations despite being tax-exempt entities.

This year’s filing deadline is May 15, 2024. However, extensions are available. Cities that have never filled out a tax form receive an automatic, paperless deadline extension until Nov. 15, 2024. Cities that have filed a tax form must electronically submit Form 8868 before May 15, 2024, to receive an extension. If you miss the deadline, don’t worry — you will still be able to claim the tax credits for qualified projects put into service in future years.

How much can my city qualify for?

City fleet electrification is an underacknowledged and underutilized stepping stone to zero emissions. Among the incentives cities can now access are the 45W and 30C electric vehicle and infrastructure tax credits. Starting with the 2023 tax year, these tax credits reimburse eligible applicants for up to $7,500 for light-duty vehicles, $40,000 for all other vehicles, and $100,000 for charging stations.

Cities can receive these tax credits for any eligible vehicles and charging infrastructure purchased and put into service after Dec. 31, 2022. Armed with this knowledge, cities can plan for future vehicle and infrastructure investments, with the added benefits of increasing charging access across their communities while improving local air quality.

How it works

To claim these tax credits, cities must complete a pre-file registration with the IRS and then submit a tax return. Cities can adopt a tax year based on the calendar or fiscal year.

To claim tax credits on a tax return, the project must have been put into service during that year. Once the project is complete and the city has identified the appropriate tax credit for the project, the city should then determine a tax year.

Before filing for any tax credits, cities must first complete pre-filing registration with the IRS. This requires information like the city’s mailing address and banking information, the credits the city plans to claim, and specific information about each credit and project. This process begins by creating a Clean Energy Business Account. The city will need a separate pre-filing registration number for each facility or property, including supporting documentation.

You can save an application as a work in progress. However, you cannot change the submitted registration form until the IRS returns it.

After pre-filing registration is complete and the IRS has returned registration numbers for each project, the city should file a tax return by the due date. This is usually the 15th day of the fifth month following the end of its tax year. Cities should provide the registration numbers for each project they would like to claim a credit for and make a valid direct pay election using Form 990-T. This will allow the city to receive payment as a refund for the credit amount.

The city will receive payment after the IRS processes the return, which can happen in as little as 45 days. Both the Electrification Coalition and the IRS have more information about the elective pay process on their websites.

Big picture

California has some of the worst air quality in the nation, alongside increasingly powerful wildfires and floods. Electrification can help by reducing the effects of climate change and air pollution. Electrification is also key to ending dependence on oil, with benefits stretching from national security to economic growth.

Many California cities have already begun to electrify their fleets. Rancho Cucamonga recently introduced an electric firetruck, joining Los Angeles as the first cities in the country to make the switch. LA also has plans to electrify its entire 10,000-plus vehicle fleet by 2035 and debuted several electric street sweepers last year. Santa Rosa has four electric buses in its 29-bus transit fleet, with funding for 17 more. And Chino has specifically cited improving air quality as a motivation for electrifying its city fleet, highlighting the benefits that electrification can have on its entire community.

Californians have made significant progress toward transportation electrification. Last year, a quarter of all passenger vehicles sold in the state were electric or otherwise zero-emission, up from 12.4% in 2021. While this rate of adoption is impressive, there is still a long way to go if the state is to meet its 2045 carbon neutrality goal. Cities are key to meeting that goal, as are federal opportunities like the elective pay provision.