Propane-fueled forklifts catch a (tax) break

Proponents of propane fuel like to point out its benefits for forklifts: It lets them maintain consistent power, it enables them to travel at higher speeds than trucks using other energy sources (under certain conditions), and it's cleaner than gasoline and diesel, they say.

Now advocates can add "lower fuel costs" to the list of benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 included a propane fuel tax credit of 50 cents per gallon through Dec. 31, 2011. The credit is retroactive to Jan. 1, 2010, but there's a catch: To receive the retroactive credit, forklift fleet operators must register with the Internal Revenue Service as an "alternative fueler" and file a one-time claim no later than Aug. 1, 2011, says Brian Feehan, vice president of the Propane Education and Research Council (PERC). Filers can claim 2011 fuel credits at the end of the year.

The law authorizes the tax credit for on- and off-road vehicles that transport loads and have propane-fueled internal combustion engines. The IRS has specifically identified forklifts as eligible, Feehan said in an interview. It's a benefit worth pursuing, he added. "Fifty cents per gallon can add up to a significant amount."

The credit is applied differently to on- and off-road equipment: Forklift operators receive the credit directly, but whoever dispenses the fuel for on-road vehicles gets the tax break. That is, if your delivery vans fuel up at a public station instead of at your own facility, the station operator can claim the credit.

The propane fuel credit is not new. It had been in place (under another law) for three years but expired in 2009; it was then renewed in December 2010, but only for one year. The short timeline, Feehan said, was designed to align the expiration of propane's tax incentives with those of other alternative fuels.

Will Congress extend the 50-cent credit past the end of 2011? Feehan says it's hard to predict, but he believes the main arguments in favor of alternative fuels—reduced dependence on foreign oil and cleaner air—have not gone away and, if anything, are even stronger now than when the credit was first introduced.

Information about the new tax law's propane fuel provisions is available from the National Propane Gas Association. The IRS forms—Form 637 (for registering as an alternative fueler) and Form 4136 (for filing tax credit claims)—are available here.

We should note that the information in this article does not constitute tax advice. Be sure to consult your tax advisor before taking any action.