Treasury Department, IRS Release Section 30C Proposed Regulations

Section 30C of the Internal Revenue Code, the Alternative Fuel Vehicle Refueling Property Credit, was substantively modified as a result of the Inflation Reduction Act (IRA). As a result, the credit is generally 30 percent of the cost of any alternative fuel refueling property placed in service by the taxpayer on or before Dec. 31. 2032.¹ To qualify, the alternative fuel refueling property must be located in an eligible census tract, generally must be depreciable, its original use must begin with the taxpayer who places it in service and it must be limited to property used in connection with storing or dispensing clean-burning fuel or electricity to a motor vehicle.

The U.S. Department of the Treasury and IRS on Sept. 19, 2024, released proposed regulations under Section 30C providing important clarity on the changes made by the IRA. The proposed regulations are open to public comment for 60 days. This Holland & Knight alert discusses some of the important clarifications in the proposed regulations.

Single Item of Property

Historically, the value of Section 30C credit was capped on a per-location basis, but as a result of the IRA, the cap of $100,000 applies on a per "single item" basis. The proposed regulations provide taxpayer-favorable rules by defining a single item of Section 30C property as either each charging port for recharging property (as relevant for electrical charging property) or each fuel dispenser for refueling property (as relevant for property that dispenses a fuel such as a transportation fuel that qualifies for the clean fuel production credit under Section 45Z of the Internal Revenue Code).

A charging port is further defined as the system within a charger that charges one motor vehicle.

Thus, if a charger has two charging ports that can each charge a vehicle simultaneously, the $100,000 limit separately applies to each charging port and its eligible Section 30C property, as defined below.

(As further discussed below under Storage Property, "single item" is also defined as each qualified alternative fuel storage property or electrical energy storage property.)

Eligible Section 30C Property

The proposed regulations also provide helpful clarity on what property can be included as alternative fuel refueling property, the cost of which is included in the calculation of the credit. Specifically, the guidance proposes defining the eligible Section 30C property as property that is functionally interdependent (the placing in service of each component is dependent upon the placing in service of each of the other components) and, if applicable, property that is integral to the overall refueling or recharging property. Property is "integral" property if it is essential property used directly in the intended function of refueling or recharging. Such property must be owned by the taxpayer otherwise claiming the Section 30C tax credit. Notably, buildings or structural components of buildings are not eligible Section 30C property. The proposed regulations outline rules for allocating eligible Section 30C property to single items for purposes of calculating the value of the tax credit. They also provide helpful examples of what property may be eligible (e.g., electrical panels), depending on the facts and circumstances.

Storage Property

The proposed rules, under certain circumstances, consider certain storage property to qualify for Section 30C. Specifically the proposed regulations provide two types of storage property: 1) qualified alternative fuel storage property and 2) electrical energy storage property. Qualified alternative fuel storage property is defined as property used for the storage of such qualified alternative fuel. Qualified alternative fuel generally refers to all clean-burning fuels, except electricity. Electrical energy storage property is property that receives, stores and delivers energy for conversion to electricity.

To be eligible, both types of storage property must be located at the point where the motor vehicle is refueled or recharged.

Prevailing Wage and Apprenticeship Requirements

To be eligible for the 30 percent credit, the taxpayer must follow the prevailing wage and apprenticeship (PWA) requirements. (See Holland & Knight's previous alert, "A Look at IRA Prevailing Wage and Apprenticeship Requirements Final Regulations Highlights," July 8, 2024.) The proposed regulations helpfully confirm that the PWA requirements apply to the qualified alternative fuel vehicle refueling project – that is, multiple properties are eligible for Section 30C if the items of property are constructed and operated on a contiguous piece of land, owned by a single taxpayer, placed in service in a single taxable year and one or more of the following factors is present:

    (1) the properties are described in one or more common environmental or other
          regulatory permits;

    (2) the properties are constructed pursuant to a single master construction
          contract; or

    (3) the construction of the properties is financed pursuant to the same loan
          agreement.

However, the proposed regulations clarify that the PWA rules are subject to the related party rule under which related taxpayers are treated as one taxpayer in determining whether multiple items of Section 30C property are treated as a single project.

Qualified Census Tracts

Importantly, to be eligible for the Section 30C credit, the alternative fuel refueling property must be placed in a qualified census tract, defined as a low-income community or a nonurban census tract. This a significant limitation of Section 30C as modified by the IRA. Regarding low-income communities, the proposed regulations note that the designation relies on definitions under Section 45D(e) of the Internal Revenue Code, which is also used for the New Markets Tax Credits. This data is updated periodically, with the most recent update occurring on Sept. 1, 2023. Taxpayers are required to use this updated information on or before Sept. 1, 2024. Alongside the proposed rules, the IRS issued Notice 2024-64, providing updated information on the mapping tool for purposes of determining whether a census tract is eligible under Section 30C.

The Holland & Knight Energy Tax Team is available for questions regarding the guidance. To receive additional analysis from the team, please subscribe to our alerts.

Notes

¹ Although available to individuals, this Holland & Knight alert focuses on the Section 30C credit as it relates to businesses as a general business credit.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.