Flex fuel tax folly costs WV millions

Here is yet another story of what happens when the government tries to pick economic winners and losers.

In 2011, West Virginia leaders were energized by the possibility of an economic boom based on the Marcellus Shale natural gas deposits.  The enthusiasm contributed to passage of the Alternative Fuel Motor Vehicles Tax Credit.

Bill supporters wanted to encourage West Virginians to convert cars and trucks from gasoline and diesel fuel to natural gas to coincide with the emergence of the state’s newest industry.

The legislation grandly stated that “the use of alternative fuels is in the public interest and promotes the general welfare of the people of the state insofar as it addresses serious concerns for our environment and our state’s and nation’s dependence on foreign oil as an energy source.”

The legislation was no doubt well intentioned, but we know the road to ruin is paved with just such delusions.

The first section of the legislation promised a credit of 35 percent of the purchase price up to $7,500 for vehicles that used compressed natural gas, liquefied natural gas, liquefied petroleum gas or ethanol.

However, a second part of the bill also promised the tax credit to purchasers of vehicles engineered to burn flex fuels, such as E85, which is 85 percent ethanol and 15 percent gasoline.  To qualify for the credit, the buyer did not have to use E85, only to purchase a vehicle capable of burning it.

As it turns out, not just green cars fall into that category.

For example, the 2013 Chevy Express passenger van, the Dodge Challenger, the Audi A4, the Ford Crown Victoria and the Ram Truck 1500, just to name a few, are all flex fuel vehicles.

The West Virginia Legislature caught its mistake earlier this year and changed the law.  Ironically, news coverage of the Legislature’s rollback of the costly and ineffective tax credit alerted dealers and buyers to the program, generating a rush to take advantage of it.

It was an irresistible pitch:  up to $7,500 off the taxes you owe the state just for buying a loosely-defined alternative fuel vehicle that burned regular old gasoline, and not natural gas. Additionally,  the credit could be spread over several years for those with insufficient tax liability to fully consume the tax credit in one year.

State Deputy Revenue Secretary Mark Muchow says it has cost the treasury $30 million to date in alternative fuel tax credits for tax year 2011 and 2012, but total claims for sales between January 2011 and April 14, when the program expired, could reach $100 million.

“Flex fuel vehicles are widely available and ultimately that became a budget problem,” Muchow told Metronews.  “Very little credit has actually gone out to natural gas vehicles, but about 95 percent of the cost so far (of the tax credit) has been for flex fuel vehicles.”

The surge of applications for the tax credit before it expired has contributed to a significant drop in personal income tax collections, which resulted in the state missing revenue collection estimates for the first month of the new fiscal year by $18 million.

West Virginia still has a tax credit for natural gas powered vehicles.  Even that is questionable because of the inherent economic unfairness of the government favoring one industry over another.

At least the ill-conceived flex fuel credit is gone, but not before costing the state millions.

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