What does the Inflation Reduction Act revision mean for my business?

Article by Constellation

President Joe Biden signed the $369 billion Inflation Reduction Act (IRA) on August 16, 2022, to minimize inflation and control healthcare costs while spurring clean energy development. IRC Section 45W of the IRA adds a tax credit for qualifying electric vehicles purchased before January 1, 2033.  Under this provision, customers could be eligible for up to $7500 in tax credits when certain requirements are met.  The primary requirement is that critical battery materials are domestically sourced and that a certain percentage of the battery be manufactured in the United States. There are other requirements that must be met in order to receive tax credits. For example, the tax credit is limited to those taxpayers earning less than $300,000 for joint filers, $225,000 for a head of household, and $150,000 for a single filer.  In addition, tax credits are limited to electric vehicles with a MSRP of $55,000 or less and $80,000 for vans, SUVs, and trucks.  The Treasury Department is responsible for developing the rules governing implementation of the tax credits

However, in late December 2022, the Biden administration delayed proposing rules for new tax incentives for electric vehicles, following strong pushback from European and Asian allies that the subsidy program discriminated against their companies.  As a result, elements of the regulations still need defining, including exactly which countries have free-trade agreements with the U.S.  In addition, the U.S. and EU have set up a task force that will work toward resolving a dispute over EV battery sourcing requirements that the EU claims discriminate against foreign manufacturers.

The Treasury Department has stated that, as a result of the delay, the critical mineral and battery sourcing requirements do not yet apply and may not be resolved until March 2023. Any taxpayer that would otherwise qualify under the IRA will be eligible for the tax credit without the need for complying with the battery-sourcing requirement. In other words, the taxpayer will receive the full tax credit regardless of where the battery materials were sourced. However, vehicles ordered or purchased prior to, but placed in service after Treasury and the IRS issue this proposed March 2023 guidance, will be subject to the critical mineral and battery component requirements.

Constellation will continue to inform you of the latest updates to the implementation of the IRA and help you create and implement a sustainability plan for your company.

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