U.S. House Passes Inflation Reduction Act Sending It To President Biden

On August 7, 2022, after a marathon all-night session, the U.S. Senate passed the Inflation Reduction Act (IRA). The final vote was 50-50, with Vice President Kamala Harris casting the tie breaking vote.

On August 12, the U.S. House passed the bill sending it to President Biden.

The IRA – a climate, health, and tax-focused reconciliation package – does not impose new taxes on small businesses (such as the proposed 3.8% tax on business income) and does not raise individual, corporate, capital gains rates, or change step up in basis.

The main cost of the bill is $360 billion for clean and traditional energy development.

Republicans offered a number of amendments during the debate on the bill in the Senate, all of which were rejected except an amendment from Senate Minority Whip John Thune (R-SD) that provides an exemption from the corporate minimum tax for certain subsidiaries of private equity firms.

The original IRA language had a $1 billion threshold; Sen. Thune’s amendment clarifies that certain subsidiaries of billion-dollar firms would not be required to pay the book tax.

Provisions regarding electric vehicles (EVs) were not changed during the amendment process.

Broadly speaking, the legislation allows for up to $7,500 for consumer tax credits, but only if the vehicle meets certain domestic content restrictions and is under $55,000 for sedans and $80,000 for pickups and SUVs.

There are also new income ceilings to access the credit — $300,000 for joint filers and $150,000 for individual filers.

EMA worked with the West Virginia Oil Marketers Association to ensure that the EV tax credit was limited to protect a cleaner green liquid fuel future.

Despite insistence from EMA, the Empire State Energy Association, National Energy & Fuels Institute, and the New York State Energy Coalition in a letter to Senate leadership, the IRA failed to include heating fuels as eligible for the clean fuel production tax credit.

The IRA does include favorable tax credit treatment for sustainable aviation fuel (SAF) which EMA argued against (see below).

EMA has three primary concerns with the Inflation Reduction Act of 2022:

— (Section 13704): Creates a new so called “clean fuels” production tax credit for transportation fuels only beginning in 2025 which would jeopardize biofuel infrastructure investments and discourage needed imports which will likely increase motor and heating fuel prices;

— (Section 13203): Lack of parity between incentives for sustainable aviation fuel (SAF) and equivalent forms of clean renewable fuels. Favorable tax treatment for SAF could disrupt and eventually eliminate the market for on and off-road biodiesel and renewable diesel by diverting limited feedstocks to SAF and lead to higher prices at the pump as well as home heating fuel prices; and

— (Section 50122): Subsidization of electric heating technology over traditional high efficiency heating equipment.

Overall, the tax implications included in the bill will have minimal effect on small business and energy marketers.

The House is expected to pass the bill today and send it to President Biden’s desk.

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