Zeroing Out Tax Benefits For Hybrid Owners

Zeroing Out Tax Benefits For Hybrid Owners

Cash-strapped counties and other local authorities are looking for ways to make additional money, and one emerging target involves repealing incentives that they granted for hybrid vehicle purchases. In Loudoun County, VA, the Board of Supervisors voted to increase the licensing fees on hybrid vehicles to $1 per $100 of assessed value. The move repeals an earlier incentive that set the tax rate on environmentally friendly vehicles to $0.01 per $100 of assessed value.

Hybrid drivers will still get a little break. The cost to register a non-hybrid vehicle is $4.20 per $100 of assessed value. By comparison, a new hybrid that is valued at $25,000 will cost the hybrid driver $250 to register, while the owner of a non-hybrid car of the same value will pay a $1,050 registration tax.

Before the vote, the commissioners considered a proposal that would put the registration costs of hybrid vehicles on par with those of non-hybrid vehicles. Some Board of Supervisors members objected to subsidizing hybrid drivers. That motion failed, but the more expensive hybrid registration rate passed and is expected to generate about $600,000 in new revenue each year.

Federal tax incentives for purchasers of hybrid vehicles made by the Ford Motor Company will also begin to sunset. Owners of qualifying Ford vehicles placed into service before March 31 may claim a $3,400 tax credit. For vehicles that hit the roads after March 31, 2009, a $1,700 credit will be available, and after October 1, 2009, no federal tax incentives will remain for purchasers of Ford hybrid vehicles.

The deadlines put the Blue Oval into somewhat of a sticky situation. The company is promoting the full $3,400 tax incentive as reason to buy one of Ford's newly introduced Ford Fusion/Mercury Milan hybrids, rated at 41 mpg in the city. Unfortunately, Ford isn't committing to have the vehicles in driveways by March 31, meaning that most buyers of the vehicle will have to settle for a $1,700 credit.

Ford is encouraging buyers to order and place deposits on new Fusion/Milan models to preserve the $3,400 tax incentive, but IRS rules say that a tax credit is applied to the vehicle on the date it is "placed into service." The IRS hasn't clarified whether a deposit on a vehicle qualifies as being placed into service, but many tax experts think that the company's interpretation of the tax code won't pass muster on April 15, 2010.