On
The
- FAQs (FS-2022-42) that will help consumers better understand how to access the various tax incentives for the purchase of new and used electric vehicles available beginning
January 1, 2023 . These FAQs include a link containing a list of clean vehicles that manufacturers have indicated to theIRS meet the requirements to claim the new clean vehicle tax credit. The list will be updated over the coming days and weeks, so consumers looking to purchase a new clean vehicle should consider checking it regularly. -
Notice 2023-9 sets forth the tax credit eligibility requirements for commercial clean vehicles under 14,000 pounds. The tax credit is the lesser of
$7,500 , 15% of a qualifying vehicle's cost (30% if the vehicle is not gas- or diesel-powered), or the “incremental cost” of the vehicle relative to a solely gas- or diesel-powered vehicle of comparable size and use. -
A notice of intent to propose regulations on the tax credit for new clean vehicles. This includes definitions that will provide clarity to manufacturers and buyers around the changes that took effect automatically on
January 1, 2023 , such as Manufacturer's Suggested Retail Price limits. Importantly, the notice specifies that a vehicle is considered to be “placed in service” for the purposes of the tax credit on the date the taxpayer takes possession of the vehicle, which may or may not be the same date as the purchase date.
Treasury White Paper on
In addition to the above pieces of guidance, which taxpayers could begin relying on as of
One significant pending change involves how the credit amount is calculated. Prior to when the Inflation Reduction Act's critical mineral and battery provisions become applicable, the tax credit is calculated based on a vehicle's battery capacity, with a base amount of
The critical mineral and battery component requirements in the IRA apply to vehicles placed in service after
One of the important points addressed in the White Paper is whether critical minerals extracted or processed and battery components manufactured outside of the
Critical Minerals Extracted or Processed Outside of the
According to the Treasury White Paper, companies can meet the critical mineral requirement, once applicable, if the percentage of the value of the critical minerals1 in a vehicle's battery that were extracted or processed in
If an automaker incorporates recycled critical minerals, then the critical mineral will qualify as being recycled in
If an automaker uses a newly extracted or processed critical mineral, then that critical mineral would qualify as extracted or processed in
- 50 percent or more of the value added of the critical mineral extraction steps occurred in
the United States or in any country with whichthe United States has a free trade agreement in effect; or -
50 percent or more of the value added of the critical mineral processing steps occurred in
the United States or in any country with whichthe United States has a free trade agreement in effect.
Significantly, this analysis applies for any critical mineral that is processed in one country and then reprocessed in a separate country. For example, lithium that undergoes initial processing activities in a plant in Country A and then is transferred to a plant in Country B to undergo final processing activities before being incorporated into a constituent material would be analyzed under this step together with other lithium moving through the same procurement chain.
To calculate the percentage of the value of qualifying critical minerals contained in a battery, manufacturers must sum the value of all qualifying critical minerals (determined separately for each procurement chain) contained in the battery and divide that amount by the sum of the value of all critical minerals contained in the battery. Manufacturers are permitted to determine the value of the critical minerals at any date after the final processing or recycling of the critical minerals, but that date must be uniformly applied for all critical minerals contained in the battery. Manufacturers are also permitted to average the percentage over a period of time (e.g., year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination thereof, provided that final assembly occurs within
If the percentage that results from this third step is equal to or greater than 40 percent of all critical minerals in a vehicle placed in service in 2023 after the date on which
Battery Components
Once applicable, the battery component requirement, which makes a vehicle eligible for a
- Determine whether each battery component was manufactured or assembled in
North America . A battery component is considered manufactured or assembled inNorth America if substantially all of the manufacturing or assembly activities for that battery component occur inNorth America , regardless of the location of the manufacturing or assembly activities of the components that make up the particular battery component. -
Determine the incremental value for each battery component. The resulting incremental value for the battery component will be attributable to
North America or not based on the determination made in step 14 - Determine the total value of the battery components by totaling the incremental values of each battery component determined in step 2. This total value may also be calculated by totaling the value of each battery module.
-
Calculate the percentage of the value of the battery components that were manufactured or assembled in
North America by dividing (1) the sum total of the incremental value determined in step 2 for all battery components that were manufactured or assembled inNorth America by (2) the total value of the battery components determined in step 3.
The proposed approach has been included in the White Paper to allow the industry time to provide feedback before the proposed regulations are issued. It is critical for any feedback to be submitted in January-early
Footnotes
1 The term “critical minerals,” as used throughout the White Paper, refers to the applicable critical minerals defined in Section 45X(c)(6) of the Internal Revenue Code.
2 For purposes of both the critical mineral and the battery component requirements,
3 See irs.gov for information regarding when a personal use vehicle is placed in service.
4 For battery components that may be assembled into a battery cell (e.g., cathode electrode, anode electrode, solid metal electrode, separator, liquid electrolyte, solid state electrolyte), the incremental value of such battery components would include the value of the constituent materials contained in such battery components because incremental value would subtract out only the value of other manufactured or assembled battery components, if any, that make up the battery component in question. Because constituent materials are produced by processing or recycling critical minerals - not through manufacturing or assembly - they would not be battery components.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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