March 3, 2006 |
2006-R-0190 | |
TAX INCENTIVES FOR FOUR-WHEEL DRIVE HYBRID VEHICLES | ||
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By: Margarita Maslyukova-Malova, Legislative Fellow | ||
You asked if other states that offer tax breaks for hybrid vehicles specify different mileage standards for four-wheel drive hybrid (4WD) vehicles, or distinguish them in other ways from two-wheel drive hybrid vehicles. You also asked for representative prices of 4WD and conventional vehicles.
This report also provides information about federal law affecting hybrid sport utility vehicles (SUVs). We also briefly describe state programs we found targeting 4WD hybrid vehicles and proposed state laws that would affect them.
SUMMARY
None of the states whose tax incentives we researched had laws affecting only hybrid 4WD SUVs.
The major incentives the states provide for hybrid vehicles, including SUVs, are:
1. consumer tax benefits,
2. parking perks, and
3. authority for the hybrid car drivers to use high occupancy vehicle (HOV) lanes.
At the beginning of 2006, hybrids were available in 10 different models, ranging in price from $ 19,000 to $ 53,000. Hybrid SUVs are available in the following models: Ford Escape, Lexus RX 400, Mercury Mariner, Toyota Highlander, and Mazda Tribute 2006. Hybrid SUVs generally cost more than $ 30,000 and about $ 3,500 - $ 6,000 more per vehicle than comparable conventionally powered 4WD vehicles.
FEDERAL INCENTIVES
Federal Hybrid HOV Waiver
The 2005 Transportation Equity Act allows states to open HOV lanes to hybrid cars with a U. S. Environmental Protection Agency (EPA) rating of at least 45 miles per gallon. States may also open their HOV lanes to hybrid vehicles that achieve at least a 50% increase in fuel efficiency in the city and a 25% increase in fuel efficiency in combined city-highway miles over the non-hybrid model, regardless of the number of passengers, and as long as they meet federal emissions standards. This would allow vehicles such as the Ford Escape hybrid to qualify.
Federal Tax Credits for Advanced Vehicles
The 2005 Energy Policy Act includes new tax credits for advanced vehicle technologies ranging from $ 250 to $ 3,400, depending on the vehicle's level of fuel economy improvement. The tax credits are available from January 1, 2006 through December 31, 2010. The full tax credits will be available until a manufacturer sells 60,000 vehicles. Once a manufacturer has sold 60,000 vehicles, a one-year “phase-out” will begin after the next complete calendar quarter; 50% of the credit will be available for that manufacturer's hybrids in the first two quarters of the phase-out period and 25% in the final two quarters.
The Union of Concerned Scientists estimates the following credits for each hybrid vehicle currently sold:
Model |
Tax Credit |
2005 Ford Escape Hybrid (front-wheel drive) |
$ 2,600 |
2005 Ford Escape Hybrid (four-wheel drive) |
$ 1,950 |
2006 Mercury Mariner Hybrid (four-wheel drive) |
$ 1,950 |
2006 Toyota Highlander Hybrid (front-wheel drive) |
$ 1,950 |
2006 Toyota Highlander Hybrid (four-wheel drive) |
$ 2,200 |
2006 Lexus RX-400h (four-wheel drive) |
$ 2,200 |
STATE INCENTIVES
Sixteen of the 38 states we researched offer tax breaks or provide other incentives for hybrid vehicles. Only six states offer tax breaks for hybrid vehicles, and only Colorado specifies 4WD vehicles (see Table 1). Thirteen states are considering or have considered bills concerning hybrids that include a mileage component (see Table 2).
TABLE 1: INCENTIVES FOR HYBRID VEHICLES
Connecticut |
Prior to July 1, 2008, hybrids getting at least 40 mpg are exempt from the state's 6% sales tax (CGS §12-412 (115)). |
Colorado |
Prior to July 1, 2011, an income tax credit is available for the following hybrid models: - 2005, 2006 Ford Escape (4WD) - 2006 Lexus RX 400h - Various 2006 Toyota Highlander models - 2006 Mercury Mariner |
New Mexico |
From July 1, 2004 through June 30, 2009, hybrid vehicles with an EPA fuel economy rating of at least 27. 5 mpg are eligible for a one-time exemption from the motor vehicle excise tax. New Mexico Statutes (N. M. Stat. Ann § 7 - 14 - 6) |
Washington, D. C. |
Effective date April 15, 2005. Excise tax rates for heavy passenger hybrid vehicles or other alternative fuel vehicles (over 5,000 pounds) will increase from 7% to 8%. |
Washington |
Hybrid motor vehicles that obtain an EPA rating of at least 50 mpg during city driving are exempt from emissions control inspections (RCW 46. 16. 015). Between January 1, 2009–January 1, 2011, the retail sales tax of 6. 5 % does not apply to sales of new passenger cars, light duty trucks, and medium duty passenger vehicles that use hybrid technology and have an EPA estimated highway gasoline mileage rating of at least 40 mpg. |
West Virginia |
A tax credit for the purchase of a new hybrid vehicle which cannot exceed the following amounts: Gross Vehicle Weight Maximum Credit 10,000 pounds or less $ 3,750 10,001 to 26,000 pounds $ 9,250 More than 26,000 pounds $ 50,000 The credit is set to expire on June 5, 2006. |
Other incentives
Other state incentives include:
1. Free parking at specified locations in seven states. Hybrid vehicles in Utah must obtain 50 mpg to qualify.
2. Driving in a HOV lane in six states. In California and Florida,vehicles must get at least 45 mpg. In Virginia, 2005 Ford Escape, 2006 Ford Escape, 2006 Toyota Highlander Hybrid and the 2006 Lexus RX 400h currently qualify. Some of these states are still waiting for the federal hybrid HOV waiver from the EPA.
TABLE 2: STATES WITH PENDING LEGISLATION
Florida |
S. 868 would give a $ 500 sales tax exemption on any hybrid vehicle that qualifies for a federal tax credit. It would also restrict the current hybrid HOV benefit to vehicles that obtain 40 mpg or more. |
Iowa |
S. F. 121 would give a $ 500 tax credit on the purchase of a new automobile with an EPA-estimated city fuel economy of 30 mpg or above. This bill died in committee on January 9, 2006. |
Illinois |
The governor has proposed a $ 500 tax credit for buyers who purchase vehicles that meet a standard of 35 miles per gallon for gas or diesel vehicles and 25 mpg for flexible-fuel hybrid vehicles. |
Maine |
LD 305 would exempt from the sales tax 100% of the sale or lease price of a new hybrid gasoline-electric vehicle. This bill also places a 5% surcharge on the purchase or lease for more than one year of a vehicle that does not attain at least 27. 5 mpg. The surcharge does not apply to commercial motor vehicles. |
Maryland |
H. B. 212 would establish a credit equal to 50% of the motor vehicle excise tax for qualified electric and hybrid vehicles titled in the state from July 1, 2006, to June 30, 2009. Eligible vehicles must get 35 mpg if they weigh 3,700 pounds or below; 30 mpg if they are above 3,700 pounds. There are also a number of technology thresholds that help to determine the extent of the credit. |
Massachusetts |
Under S. B. 2220, for the years 2006-2010, individuals who purchase a hybrid vehicle could receive a number of incentives, including (1) an income tax deduction of $ 2000, (2) a waiver for the initial $ 27. 50 application fee for the fast lane transponder, (3) a waiver of emissions inspections for hybrids getting at least EPA-estimated 50 mpg city. |
TABLE 2: Continued | |
Minnesota |
HF1171 and SF1227 would exempt certain hybrids from the motor vehicle sales tax. The bill also defines fuel-efficient vehicles by weight class and mileage ratings. |
Ohio |
H. B. 453 would establish a state tax credit for new hybrid vehicle purchases. Hybrid vehicles getting 40 mpg or better according to EPA estimates would receive a $ 3,000 tax credit. Hybrid vehicles getting under 40 mpg would receive a $ 2,000 tax credit. |
Pennsylvania |
H. B. 969 would exempt the owners of hybrid electric vehicles, electric vehicles, and zero-emission vehicles from the annual registration fee. It also would exempt hybrid electric vehicles that obtain 40 mpg in the city from required emission inspection. |
Rhode Island |
H. B. 5263 would exempt from sales and use taxes, the sale, storage use, or other consumption of motor vehicles and related equipment exclusively powered by a clean alternative fuel, and the sale of any passenger car utilizing hybrid technology that has an estimated highway gasoline mileage rating of at least 40 mpg. |
Texas |
H. B. 1156 would reduce the sales and use tax rate of 6. 25 % for new hybrid motor vehicles, depending on their city fuel economy ratings. If a hybrid has a city fuel economy of at least 15 mpg but less than 30 mpg, the tax rate would be 4. 6 %. If a hybrid has a city fuel economy of at least 30 mpg but less than 45 mpg, then the tax rate would be 3. 125 %. If a hybrid has a city fuel economy of at least 45 mpg but less than 60 mpg, then the tax rate would be 1. 56 %. There is no tax for a hybrid vehicle with a city fuel economy of 60 mpg. |
Wisconsin |
A. B. 546 and S. B. 252 would create a sales tax exemption of up to $ 1,000 on the purchase of a hybrid automobile that has an EPA-estimated combined city/highway mileage rating of at least 40 mpg. A. B. 745 would create a state income tax credit for the amount of sales and use taxes paid in the taxable year on the purchase of fuel efficient hybrid motor vehicles. (Hybrid SUVs such as Ford Escape hybrid, Honda Accord hybrid, Lexus RX 400h and Toyota Highlander hybrid would not be eligible since their combined city/highway mileage is below the 40 mpg threshold. ) |
Wyoming |
H. B. 0116 would allow an owner of a vehicle that achieves a fuel economy of 50 mpg or more to pay only 25 % of the registration fees. This bill did not pass in the 2005 legislative session. |
HYBRID SUV PRICES AND MILEAGE
Table 3 shows the price and mileage differences between hybrid and conventional SUVs.
TABLE 3: PRICES AND MILEAGE FOR HYBRID AND CONVENTIONAL SUVS
Model |
Manufacturer's Suggested Retail Price |
Mileage |
Ford Escape hybrid |
$ 29,140 |
33-36 city/29- 39 highway; 31 comb. |
Ford Escape Limited |
$ 27,295 |
…22 highway |
Lexus RX 400 hybrid |
$ 45,355 |
33 city/28 highway; 29 comb. |
Lexus RX 400 |
$ 37,400 |
20 city/25 highway |
Toyota Highlander 4WD hybrid |
$ 34,430 |
31 city/27 highway; 29 comb. |
Toyota Highlander 4 cylinder |
$ 25,930 |
21 city/25 highway |
Toyota Highlander Limited hybrid |
$ 39,290 |
31 city/27 highway; 29 comb. |
Toyota Highlander Limited |
$ 31,860 with 3d row |
V6 18 city/24 highway |
Mercury Mariner hybrid |
$ 29,225 |
33 city/29 highway; 31 comb. |
Mercury Mariner |
$ 23,130 |
20 city/24 highway |
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