Yesterday, President Joe Biden signed the Inflation Reduction Act of 2022 (IRA), a $750 billion slimmed-down Democratic climate, prescription drug, and tax increase bill previously known as the Build Back Better (BBB) bill. For IRA final legislative text click here.
The IRA (H.R. 5376) passed the Senate on a party-line vote on August 7 after agreement was reached between Majority Leader Chuck Schumer (D-N.Y.) and long-time BBB holdout Senator Joe Manchin (D-W.Va.). After Senate passage, the IRA was quickly passed by the House with no changes on August 12 and sent to the President.
Significantly, as passed into law, the bill does not include any of the major tax increases adverse to dealers that had been originally proposed in the BBB bill, and it preserves state dealer franchise laws despite legislative threats from direct electric vehicle (EV) sellers.
As part of the agreement that led to the IRA, the existing Section 30D EV tax credit was substantially modified. Specifically, Senator Manchin indicated he would not support EV tax credit language that did not seek to establish critical mineral and battery component supply chains in North America or with U.S. allies. The main purpose of this was to shift away from supply chains that rely on China and Russia. Senator Manchin also insisted on eligibility caps so the tax credit would no longer benefit wealthy Americans.
Lastly, the new law states that starting January 1, 2023, consumers may be eligible for a tax credit for used cars, businesses may be eligible for a new commercial clean vehicle credit, and manufacturers will no longer face the current 200,000 electric vehicle cap for the consumer tax credit. (GM, Toyota and Tesla had already exceeded the sales cap, and Ford was expected to reach the cap this year.)
Now that the law has been enacted, effective today in order for EVs to qualify for the tax credit final assembly of the vehicle must occur in North America. The Treasury Department and the Internal Revenue Service (IRS) released guidance and FAQs regarding vehicles eligible under this new requirement. Dealers can enter a Vehicle Identification Number (VIN) into a site provided by Department of Transportation to determine such eligibility.
Please click here for a Clean Vehicles Tax Credit Summary for dealers and more information below on the new final assembly requirements, other key requirements placed on the EV tax credit, and the effective dates.Treasury and the IRS will release additional information about EV tax credits under the IRA in the weeks ahead. NADA will continue to provide updates and clarifications as more information becomes available. We will also pursue opportunities to improve the EV tax credit and demonstrate that dealers are essential to advancing EVs and consumer adoption of this new market.
Chairman, NADA Legislative Affairs Committee