Counselor’s Corner JULIE CARDOSI Law Office of Julie A. Cardosi, P.C. Impact of Federal Electric Vehicle (EV) Tax Credit on EV Production and Retail Sales: Insights for Franchised New Vehicle Dealers As the automotive industry continues its march towards vehicle electrification, the role of EVs is becoming increasingly prominent. As an accelerant, state and federal governments have implemented financial incentives, including tax credits. In August 2022, the federal Inflation Reduction Act (IRA) was signed into law and among other provisions, introduced a federal tax credit for qualified EV purchases. The new federal tax credits became effective April 18, 2023. Questions remain about the potential impact of these tax credits on EV production and retail sales and the significance to franchised dealers and their customers. The federal EV tax credit has been touted as an enticement to purchase electric vehicles. The tax credit allows eligible buyers to claim up to $7,500, depending on fulfillment of certain IRA requirements. The manufacturers ascertain whether a particular vehicle qualifies depending on certain criteria, including the vehicle’s battery components and origin of manufacture, and source of minerals. A further criterion relates to the manufacturer’s suggested retail price. Additionally, to qualify for the tax credits, consumers must satisfy certain income threshold requirements, along with having an affirmative tax liability amount in the purchase year that is equal to the credit. Finally, the dealer is required to provide customers with requisite disclosures to claim the tax credit, as well as report to the Internal Revenue Service the vehicle sales at the end of each year. Some argue that the tax credit has the potential to stimulate EV production in several ways. For example, by offering a financial incentive, the tax credit reduces upfront EV manufacturing costs, encouraging investment in expansion of EV production capacities 14 Illinois Automobile Dealer News
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