Southwest Energy Efficiency Project Press Release

Jun 24, 2016

Colorado has strengthened its claim to being a national leader in promoting electric vehicles with the passage of HB 1332, legislation that is designed to make the state income tax credit for electric vehicles more effective at increasing sales of the alternative fuel cars. The bill makes two major changes – simplifying the tax credit and making the credits assignable, the latter allowing them to function more like a point of sale rebate. The Washington Post and Time Magazine describe this bill as making Colorado the best state in which to buy a new electric car.

Colorado already had an income tax credit in place for EVs through 2021. The revised credit is effective Jan. 1, 2017. This, along with a suite of supportive policies, has propelled Colorado into the top 10 states for per capita EV sales. In 2015, a hard year for EV sales nationally, Colorado bucked the trend with a 10% increase in EV sales over 2014. But the changes in HB 1332 should further accelerate sales!

Colorado’s revised alternative fuel vehicle tax credit makes the credits assignable, allowing them to function more like a point-of-sale rebate.

The existing credit is up to $6,000 per car, based on a complicated formula including battery size, the cost of the car, and the level of federal tax credit received by the buyer. It was too complicated for consumers to understand – or for auto dealers to explain to customers. It also meant that people buying more expensive EVs got larger tax credits, even though research shows that tax credits have a bigger influence on consumer purchasing decisions for lower cost EVs. The average consumer ended up getting about $5,000. HB 1332 makes the credit a flat $5,000 for anyone buying an EV (including plug-in hybrids with battery size over 4 kWh), and $2,500 for anyone leasing.

The existing credit already had one unusual and very attractive feature that was maintained under HB 1332: It was fully refundable, meaning that a consumer gets the full value of the credit even if it exceeds their tax liability. But the big change in this bill is to also make the credit assignable. This means that a car buyer will have the option to sign the credit over to the car dealer or financing agency and take an immediate discount on the sticker price. Effectively, this turns the tax credit into a point of sale incentive. Research suggests that the same amount of money as a point of sale incentive will stimulate significantly more sales than a tax credit that must be claimed the following year.

The concept of an assignable tax credit in Colorado was first proposed by SWEEP in 2014. The Colorado Energy Office championed the idea, drafted legislation, and worked with a broad coalition including General Motors, Nissan, SWEEP, hydrogen and natural gas vehicle proponents and the environmental community to pass the bill with broad bipartisan support (99 of Colorado’s 100 senators and representatives voted yes!).

Other Southwest states have more work to do to increase incentives to help boost sales of electric vehicles. Utah is furthest along.

Meanwhile, other states in the Southwest have more work to do to incentivize EVs. Utah is furthest along: That state adopted a $1,500 tax credit for EVs in 2014. It helped stimulate EV sales and brought Utah’s per capita sales into the top 10 states in the nation. Civic leaders recognize EVs as an important tool to help address big air quality challenges in the Salt Lake City area. The tax credit is now in effect until the end of this year. In 2016, the legislature authorized the state’s major utility, Rocky Mountain Power, to invest up to $2 million per year in EV charging infrastructure and customer incentives for EV charging. In order to ramp up EV sales in Utah, the state should extend the tax credit at least through 2020 and make it assignable to a car dealer or finance agency.

Arizona has a somewhat unusual incentive in the form of a reduced license fee for alternative fuel vehicles. On average, this is almost $4,000 over the lifetime of each vehicle, but only a small portion of this benefit is awarded during the first year of ownership. This makes the incentive less attractive and, as a result, less effective. Converting to an upfront incentive would spur greater EV sales in Arizona.

Neither New Mexico or Nevada currently have financial incentives for EVs. We urge both to move forward on this front.

“Colorado Hits the Accelerator for Electric Vehicles!” Sweep Livewire. N.p., 7 June 2016. Web. <http%3A%2F%2Fwww.swenergy.org%2Fcolorado-hits-the-accelerator-for-electric-vehicles>.