A tax credit is available for qualified light-duty HEVs placed in service after December 31, 2005. The Internal Revenue Service (IRS) must first acknowledge the manufacturers’ certifications of qualified HEVs and credit amounts, which are determined using a formula that accounts for improved fuel economy and lifetime fuel savings potential.The credit begins to phase out in the second quarter following the calendar quarter in which at least 60,000 of a manufacturer’s qualifying HEVs and/or lean burn passenger automobiles and light trucks have been sold. See the IRS Qualified Hybrid Vehicles Web site for the current list of qualified vehicles, credits, phase-out schedules, and required forms. This tax credit expires December 31, 2010.

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The Oregon Department of Energy offers two income tax credits for AFVs and HEVs, one for residents and one for business owners. Oregon residents are eligible for a Residential Energy Tax Credit, which provides credits of up to $1,500 toward the purchase of qualified AFVs and HEVs; currently, flexible fuel vehicles are not eligible. A credit of up to $750 is also available for the cost of converting vehicles to operate on an alternative fuel.

Oregon business owners who invest in new HEVs for business use are eligible for a Business Energy Tax Credit of up to 35% of the incremental cost of the HEV. Business owners without an Oregon tax liability, non-profit organizations, and public entities may choose to transfer their tax credit eligibility to a business or individual with an Oregon tax liability in exchange for a cash payment equal to the pass-through rate at the time of application. Business owners with a tax liability may also choose to transfer their tax credit.

(Reference Oregon Revised Statutes 316.116, 469.160-469.180, and 801.375)

Beginning January 1, 2009, new passenger cars, light-duty trucks, and medium-duty passenger vehicles that are dedicated AFVs are exempt from the state sales and use tax. Qualified vehicles must operate exclusively on natural gas, propane, hydrogen, or electricity, meet the California motor vehicle emissions standards effective January 1, 2005, and comply with the rules of the Washington Department of Ecology. In addition, all new passenger cars, light-duty trucks, and medium-duty passenger vehicles that utilize hybrid electric technology and have a U.S. Environmental Protection Agency estimated highway fuel economy of at least 40 miles per gallon are exempt from state sales and use tax. This tax exemption expires January 1, 2011.

(Reference Revised Code of Washington 82.08.809 and 82.08.813)