While electric vehicle (EV) sales growth is slowing, legislative incentives and pressures from certain states and agencies are still driving the production of and investment in EVs. Consequently, auto dealerships are continuing to invest in infrastructure to support EVs, including the installation of EV charging stations at their dealership locations.
Tax Credits for EV Infrastructure & Installation
Through the passage of the Inflation Reduction Act of 2022 (IRA), Congress has continued to incentivize taxpayers to help build the infrastructure needed to support electrification by providing tax credits based on the amounts spent to install EV charging stations.
The base credit amount is 6% of the cost of the equipment and installation as long as the property is in an eligible census tract. The IRS has provided lists of eligible tracts based on 2015 and 2020 census data that can be used to verify the availability of the base credit amount. In general, the eligible tracts are located in non-urban areas or areas identified as low-income communities.
The IRA also provides for a 5x bonus credit, increasing the credit from the base of 6% to 30% if certain additional criteria are met by those performing the construction and installation of the property. These are known as the prevailing wage and apprenticeship (PWA) requirements. In general, these standards are to help ensure that the contractor is paying fair wages based on the locality of the project, and that they are supporting the industry by providing apprenticeship opportunities.
Clarify Wage & Apprenticeship Requirements Early
If your dealership plans to begin a project that may qualify for these credits, it is important that the requirements be considered at the onset of the project and included in the negotiations with the contractor. Preferably before you begin to work with a contractor, and definitely before finalizing a contract, you need to be sure to ask the following questions:
- Can your company meet the prevailing wage requirements for the location of the project?
- Can your company meet the prescribed apprenticeship requirements?
- What documentation will you provide to substantiate meeting these requirements?
As these requirements become more prevalent in the industry, dealers and contractors should know the standards and understand if they can be met. However, due to the potential increase in the project cost to fulfill these requirements, many contractors will not comply unless it is stipulated in the construction contract.
It is imperative that both the dealer and the contractor are committed to meeting the requirements as there is significant documentation that will be required from the contractor in order to substantiate the credit on the dealership’s federal tax filings.
In addition, there is a $100,000 limit on the credit that can be taken on any “single item of property,” so it is important to document each charging station in order to calculate the tax credit properly.
Include Wage & Apprenticeship Requirements in Contracts
In summary, it is important for dealerships to consider not only the location, but also the PWA requirements when planning a project that may be eligible for these tax credits. Terms may need to be included in the contract with the contractors to help ensure that they will comply with the requirements and provide the required documentation. This will enable the dealer to qualify and substantiate the available credits on their federal filings.
Whether a new store is being built, an old store is being renovated, or there is a need to add EV chargers to satisfy customer needs, following the prescribed requirements can have a significant impact on the year’s tax liability.
More detailed information on the specific requirements and required documentation is available at FAQs Answered: Prevailing Wage & Apprenticeship Requirements. If you have questions, please reach out to a professional at Forvis Mazars.