Effective April 18, 2023

On March 31, the U.S. Department of the Treasury and the Internal Revenue Service released proposed guidance which, effective April 18, 2023, will significantly change the electric vehicle tax credits available under Section 30D of the Internal Revenue Code as established in the new clean vehicle provisions of last year’s Inflation Reduction Act. In particular, the IRS guidance will put in place new critical mineral and battery component content requirements that EVs must meet to qualify for the full $7,500 tax credits under Section 30D.

The IRS’s proposed guidance has been filed for public review and will be published in the Federal Register on April 17, 2023. For dealers, these new requirements will mean two key things:

• First, beginning on April 18, 2023, the number of EV make/models that are potentially eligible for a Section 30D credit will likely be dramatically reduced from the current pool of eligible vehicles available for sale.
  
  
• Second, for those vehicles that may qualify for a Section 30D credit under the proposed guidance, there will be only two possible credit amounts: $3,750 or $7,500. Until April 18, potential Section 30D credits will continue to vary but will typically be for $7,500.

Dealers may recall that the Inflation Reduction Act of 2022 established critical mineral and battery component requirements which must be met for a consumer to receive the full $7,500 tax credit toward the purchase of an eligible vehicle. Vehicles placed-in-service on or after April 18, 2023, will be subject to these rules.

• To meet the critical mineral requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the critical minerals contained in the battery (beginning at 40 percent in 2023 and increasing at annual increments to 80 percent in 2027) must be extracted or processed in the United States or a country with which the United States has a free trade agreement or be recycled in North America.
• To meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components (beginning at 50 percent for 2023 and increasing in annual increments to 100 percent in 2029) must be manufactured or assembled in North America. 

Last year’s Act set vehicle price caps and consumer income eligibility requirements. Vehicles eligible for the clean vehicle credit must undergo final assembly in North America and must not exceed a Manufacturer’s Suggested Retail Price of $80,000 for a van, pickup truck, or sport utility vehicle, or $55,000 for any other vehicle. The program has income caps of $300,000 for married couples, $225,000 for heads of households, and $150,000 for others.

Manufacturers are now working to determine how the new proposed guidance applies to the EVs they manufacture. Given the guidance’s complexity, this process could take some time. Beginning April 18, FuelEconomy.gov will contain a list of eligible clean vehicles that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit, including the amount of the credit.

Accordingly, dealerships offering new EVs for sale are cautioned against providing customers with seller report forms, or otherwise representing the potential value of a Section 30D tax credit for a given make/model, without first consulting with their manufacturers on the impact of this proposed IRS guidance. Dealers are encouraged to avail themselves of the information on FuelEconomy.gov as well.

All the pertinent IRS information regarding this subject matter can be found here.  Dealers may find the IRS’ recently updated Fact Sheet 2023-08.pdf helpful answering questions.

Please contact Sara Bruce at sbruce@oada.com or 614.923.2243 or Matt Chacey at 614.923.2232 or mchacey@oada.com for assistance.