The amendments to Section 30D enacted in the Inflation Reduction Act radically changed key components of the scheme by altering the credit eligibility criteria.

The Treasury Department recently issued a notice of proposed rulemaking providing guidance on the electric vehicle tax credit contained in Section 30D of the Internal Revenue Code.[1] The notice provides guidance on the amendments to Section 30D enacted in the Inflation Reduction Act of 2022.[2]

Background

Section 30D was originally enacted in the Energy Improvement and Extension Act of 2008 to provide a credit for the purchase of certain qualifying electric vehicles.[3] Since its initial enactment, Section 30D has been amended a number of times. The prior iteration of Section 30D provided an EV credit of up to $7,500, composed of a $2,500 base credit for the qualifying electric vehicle and additional amounts up to $5,000 based on the vehicle’s battery capacity.

The amendments to Section 30D enacted in the Inflation Reduction Act radically changed key components of the scheme by altering the credit eligibility criteria. In order to be eligible for the EV credit, the vehicle must be a “New Clean Vehicle,” which requires, amongst other things, that final assembly occur in North America.[4] The full amount of the credit remains $7,500, with $3,750 tied to compliance with certain battery critical minerals requirements and $3,750 tied to certain battery component requirements.

To comply with the critical minerals requirements, the critical minerals contained in the battery must either (i) be extracted or processed in the United States or in a country with which the United States has a qualifying free trade agreement in effect, or (ii) have been recycled in North America.[5] To comply with the component requirements, a certain percentage of the value of components contained in the battery must be manufactured or assembled in North America.[6]

Proposed Guidance

The notice is primarily concerned with defining and clarifying the new eligibility and credit determination criteria.

Final Assembly Must Be in North America

The proposed regulations provide guidance on determining a vehicle’s location of final assembly. The location of final assembly means either the vehicle’s plant of manufacture as reported in the vehicle identification number or the final assembly point reported on the label affixed to the vehicle.

Critical Mineral Requirement

The notice provides a three-step procedure to determine the percentage of critical minerals used in a car’s battery. The procedure requires (i) determining the procurement chain of each critical mineral, (ii) ensuring that the critical minerals were either extracted or processed in the United States or in any country with which the United States has a free trade agreement, or else recycled in North America, and (iii) determining the battery’s qualifying critical mineral content.

Battery Component Requirement

The notice provides a four-step procedure to determine whether a car meets the battery component requirements. The procedure requires (i) determining whether each battery component was manufactured or assembled in North America, (ii) determining the incremental value of each battery component, (iii) determining the total incremental value of the battery components and (iv) calculating the qualifying battery component content.

The enactment of the amendments to Section 30D and the implementation of the eligibility criteria contained in the notice are initially anticipated to reduce the number of electric vehicles that qualify for the EV credit.

For More Information

If you have any questions about this Alert, please contact Charles A. Ognibene, Elisa Walker, any of the attorneys in our Transportation, Automotive and Logistics Industry Group or the attorney in the firm with whom you are regularly in contact.

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