The National Automobile Dealers Association (NADA) and the Alliance for Automotive Innovation (AAI) have filed a lawsuit against the US Treasury Department and the Internal Revenue Service (IRS) over the new rules for the electric vehicle (EV) tax credit. The lawsuit claims that the rules, which allow consumers to transfer the credit to dealers at the point of sale, are unlawful and harm the dealers’ interests.
The EV tax credit, which was modified by the Inflation Reduction Act (IRA) of 2022, offers up to $7,500 for buyers of new qualified plug-in electric vehicles and up to $4,000 for buyers of used clean vehicles. The credit is subject to income and price caps, and is only available for vehicles with batteries manufactured in the US or a country with a free trade agreement.
The IRA also stipulates that starting from January 1, 2024, buyers can elect to transfer the credit to dealers, who can then apply it as a rebate to the purchase price of the vehicle. The dealers must electronically submit information to the IRS about the sale and the buyer, and receive the credit within three days.
The dealers’ lawsuit, filed on October 5, 2023, in the US District Court for the District of Columbia, challenges the transferability option of the credit, arguing that it violates the Administrative Procedure Act, the Internal Revenue Code, and the US Constitution. The lawsuit alleges that the rules:
- Exceed the statutory authority of the Treasury and the IRS, as the IRA does not explicitly authorize the transfer of the credit to dealers.
- Impose unreasonable and burdensome requirements on dealers, such as collecting and verifying personal information from buyers, providing extensive disclosures, and assuming the risk of repayment if the buyers exceed the income thresholds or resell the vehicles within 30 days.
- Create unfair and discriminatory treatment of dealers, as they are subject to different rules and obligations than buyers, and are excluded from claiming the credit for commercial vehicles under Section 45W of the Internal Revenue Code.
- Infringe on the dealers’ constitutional rights, as they are deprived of due process and equal protection under the law, and are subjected to unlawful takings and searches and seizures.
The lawsuit seeks to invalidate the rules and enjoin the Treasury and the IRS from enforcing them. The lawsuit also requests a declaratory judgment that the transferability option of the credit is unlawful and unconstitutional.
Consumer advocates and environmental groups support the rules
The new rules for the EV tax credit have been welcomed by consumer advocates and environmental groups, who argue that they make the credit more accessible and effective for promoting the adoption of clean vehicles. They contend that the rules:
- Simplify and expedite the process of claiming the credit, as buyers do not have to wait until filing their tax returns to receive the benefit, and can reduce the upfront cost of the vehicle.
- Expand the eligibility and affordability of the credit, as buyers who do not have enough tax liability to offset the credit can still take advantage of it, and buyers who purchase used EVs can also qualify for the credit.
- Support the domestic battery industry and the US competitiveness in the global EV market, as the credit incentivizes the use of batteries made in the US or a country with a free trade agreement.
- Advance the environmental and public health goals of reducing greenhouse gas emissions and air pollution, as the credit encourages the transition from fossil fuel vehicles to zero-emission vehicles.
The Treasury and the IRS have not yet responded to the lawsuit, but they have previously issued proposed regulations, a revenue procedure, and frequently asked questions to provide guidance on the implementation of the rules. They have also solicited public comments on the rules, which are due by November 8, 2023.