Industry News

U.S. EV Tax Credit Revised, Better Aligns with USMCA

Aug. 9, 2022
By: Chaney A. Finn

The controversial tax credit that subsidized purchases of U.S.-produced EV’s up to $7,500 has been revised to apply to clean vehicles where final assembly occurs in North America. The change to focus on North America more closely aligns with USMCA rules. The revised tax credit is for buyers whose joint income is below $300,000 or an individual taxpayer with a modified adjusted gross income of $150,000 or less. The tax credits apply to passenger cars with a list price of $55,000 or lower and light trucks, vans and SUVs with list prices of $80,000 and below, and in some instances, clean commercial vehicles. The selling dealerships will issue the tax credits for a more immediate effect opposed to waiting until tax season. The tax credits were part of the climate, tax, and health bill, previously dubbed the Build Back Better legislation, now referred to as the Inflation Reduction Act.
Representatives from Canada and Mexico previously voiced their opposition to the since-revised tax credit, arguing that it undermined provisions in the USMCA. In response to the revisions Mary Ng, Canada’s trade minister, tweeted, "We are encouraged by the recognition of the unique North American trading relationship and the tightly-integrated Canadian-U.S. supply chains."The tax credits are partially determined by the amount of critical mineral the EV battery contains that were either extracted or processed in countries that are in free trade agreements with the U.S. Additionally, the value of the battery components of an EV must be 50% North American for vehicles that come into service through 2023, then progressively increasing to 60% in 2025, 70% in 2026, 80% in 2027, 90% in 2028, and wholly North American starting in 2029. The revised criteria align with and are stricter than the USMCA provisions on EV’s.

The bill is being sent to the President after being introduced by the House of Representatives and barely passing the Senate, 51-50.  Should you have any questions on EV tax credits, please call any attorney at Barnes, Richardson & Colburn LLP.