Evaluating the Alternative Fuel and Community Service Tax Credits [December 2024]

The alternative fuel tax credit has rarely been used since 2007 because of statutory changes that limited its usefulness. The credit provides credits to corporations for 40% of the incremental cost of alternative fuel vehicles or 40% of fueling stations’ installation cost. The most notable amendments made to the credit since 1995 eliminated both electricity as an eligible fuel and individuals as eligible recipients. The credit’s goal appears to be to encourage alternative fuel vehicle use for economic and environmental purposes. Taxpayers have claimed the credit 612 total times for $2.2 million since 1996, but fewer than 5 total corporations have claimed it since 2014. Eliminating electricity as an eligible alternative fuel in 2007 limited the credit’s usefulness as the alternative fuel vehicle market evolved in the following years. Further, eliminating individual taxpayers’ eligibility in 2012 significantly reduced the pool of potential claimants. No other state has a credit designed as restrictively as the alternative fuel tax credit, and no literature about it exists.
 
 Commerce awarded $8.2 million in community service tax credits during 2023 and 2024 but didn’t fully document their selection decisions. The credit provides credits to individuals, corporations, banks, and insurance companies for donating to certain community service projects. Each year, Commerce awards credits to non-profit and governmental entities to distribute to project donors. The credit’s goal appears to be to encourage donations to certain types of community service projects. Since 1994, Commerce has awarded $130 million in total credits to support 811 projects. Since 2010, 10,523 total donors to selected projects have received $48 million in credits. During 2023 and 2024, Commerce awarded $8.2 million in total credits to 62 projects in 33 counties. During these years, Commerce reviewed proposed projects based on a scoring process including application materials and reviewers’ professional judgment. Commerce followed its process for scoring applications but didn’t document its eligibility checks for the 6 proposed projects from 2023 and 2024 we reviewed. We identified a few risk areas in Commerce’s application review process, but they wouldn’t have changed the award outcomes we reviewed. However, we couldn’t review how Commerce decided which of the 6 proposed projects to award credits because it didn’t document these decisions. 12 states have credits similar to the community service tax credit. Some studies we reviewed said community service tax credits increase donations and allow states to target specific needs.