S.C. tax credit for hybrid vehicles

Few car buyers seem to be aware of a South Carolina tax credit for hybrid vehicles.

This past week I was contacted by a reader who’s planning to buy a new Toyota Prius hybrid and who had some questions about property taxes on cars in South Carolina.

I explained how he could save money on property taxes by transferring the license plate from the car he’s planning to trade in — the subject of a column I wrote in May — but his call also prompted me to check on an obscure South Carolina tax credit for hybrid vehicles that few people seem to know about.

Turns out, the state’s “alternative motor vehicle credit” still exists, and that the oddly written piece of tax legislation from eight years ago just keeps getting stranger. I’ll explain why, but first, the important part.

If you buy certain new hybrid, fuel cell or lean-burn (cleaner diesel) vehicles, you can get a South Carolina tax credit — a dollar-for-dollar reduction in your state income tax liability. For a Toyota Prius, that tax credit’s worth $630, for example. For a lean-burn Volkswagen Touareg TDI, the credit would be $180.

You won’t find any of this explained in detail on the S.C. Department of Revenue’s website or in the state’s tax code.

Here’s where it gets weird.

The state tax credit was written to piggyback on a federal tax break that was created in 2005. The federal credit has since expired, but the South Carolina version lives on, relying on the old federal rules to determine which vehicles are eligible for the state tax credit, and how much the tax credit is worth.

That means you can get a state tax credit for a Toyota Prius hybrid, or any other make and model that was covered by the federal rules at the time. If you buy a hybrid vehicle that wasn’t on the federal list (because the vehicle didn’t exist at that time), the state Department of Revenue says you can still apply for the tax credit, but you will need to have the manufacturer certify that the vehicle qualified, and calculate what the federal tax credit would have been.

The federal credit is detailed in eight pages of regulations that consider vehicle weight, fuel economy and lifetime fuel saving. The Department of Revenue folks could not tell me if any manufacturer has actually provided a certification statement, but South Carolina residents have continued to receive the tax credits.

South Carolina’s tax credit varies by vehicle, and is worth 20 percent of the maximum original federal tax credit amount. The maximum state credit is $680. To learn which vehicles easily qualify, because they appear on the federal list, along with the amount of the tax credit, you would need to look up the expired federal rules. The most recent version I found is from 2008, which is online at irs.gov/uac/Alternative-Motor-Vehicle-Credit-1.

In general, if the vehicle is a gas-electric hybrid, and that make and model existed during model years 2005-2009, then it’s likely on the list. Though, actually, there’s more than one list.

The federal credit phased out for particular vehicles as purchase thresholds were met, which makes things even more complicated. For example, you won’t see a Honda Accord hybrid listed for the federal tax credit in 2009, but it was listed for 2007. The important thing is, as long as the vehicle was eligible for the federal credit at any time, it qualifies for the South Carolina credit now.

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So, there used to be a $1,300 federal tax credit for buying a 2007 Honda Accord hybrid. That means that, in South Carolina, if you buy a new Honda Accord hybrid this year, you can claim a $260 tax credit when you file your 2015 state income tax return (20 percent of $1,300).

TIP: If you bought a qualifying vehicle in the 2014 year and didn’t know about this tax credit, you could consider filing an amended state tax return for last year.

The tax credit is clearly not well-known among hybrid buyers. In 2013, just 58 South Carolina taxpayers claimed it. More people claimed the state’s tax credit for donating venison to charity that year.

South Carolina also has a tax credit for plug-in hybrid vehicles, valid through the 2016 tax year. The rules are different, but the credit can be worth up to $2,000 if you buy a vehicle, such as a Chevy Volt, that “uses an external source of energy to recharge the battery” and meets other standards. Low-speed and medium-speed vehicles don’t qualify, so no, you can’t get this tax credit for buying a golf cart.

The state has authorized only a limited amount of money each year for this tax credit, on a first-come, first-served basis yearly, so if you are buying a plug-in hybrid, you should seek tentative approval from the Department of Revenue for the tax credit ahead of time. That will tell you if the vehicle qualifies, and whether there’s funding to grant you the tax credit.

Here’s how to do that, according to SCDOR: “To obtain a tentative approval, email taxtech@dor.sc.gov using the subject heading “Tentative Credit” and include: (a) the purchaser’s name; (b) the year, make, and model of the vehicle; (c) whether the transaction is a purchase or a lease; (d) the proposed date of the purchase or lease; and (e) the address of the dealer.”