[Congressional Record Volume 140, Number 60 (Monday, May 16, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 16, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mrs. BOXER:
  S. 2117. A bill to amend the Internal Revenue Code of 1986 to exclude 
from the application of the luxury automobile excise tax the value of 
components required for a vehicle to be powered by clean-burning fuel, 
and for other purposes; to the Committee on Finance.


                luxury tax repeal on clean fuel vehicles

  Mrs. BOXER. Mr. President, almost 45 million people still live in 
counties exceeding the smog standard. More than 90 percent of my fellow 
Californians live in areas which do not meet Federal healthy air 
standards and over two-thirds of this pollution comes from mobile 
sources, primarily cars and trucks. In fact, according to the South 
Coast Air Quality and Management District, children in the Los Angeles 
air basin suffer a 15-percent reduction in lung function by age 12 
because of exposure to smog.
  Transportation accounts for 70 percent of carbon monoxide [CO] 
emissions, and highway vehicles are the largest single source. The U.S. 
transportation sector emits per capital more carbon dioxide, carbon 
monoxide, and nitrogen oxides than any other country.
  We must do all that we can to promote clean-burning fuels, such as 
natural gas, electricity, and hydrogen. That is why today I am 
introducing legislation to provide a further incentive to market clean-
fuel vehicles and provide a better environment for our citizens. This 
legislation will provide relief from the automobile excise tax for 
clean-fuel vehicles to encourage more Americans to purchase clean cars.
  Specifically, the legislation will exclude the value of components 
required for a vehicle to be powered by clean-burning fuel--the 
incremental cost of the vehicle--from the luxury tax imposed by section 
4001 of the Internal Revenue Code. Clean-burning fuel means, as defined 
under the National Energy Policy Act of 1992; natural gas, liquefied 
natural gas, liquefied petroleum gas, hydrogen, electricity, and any 
other fuel at least 85 percent of which is one or more of the 
following: methanol, ethanol, any other alcohol, or ether.
  Section 4001 of the Internal Revenue Code imposes a tax on the first 
retail sale of any passenger vehicle equal to 10 percent of the amount 
by which the vehicle's sales price exceeds $30,000, the current tax 
threshold.
  The assessment of this tax against early clean-fuel vehicles, which 
only exceed the luxury tax threshold because of the significant 
additional costs involved in the use of electricity or other 
alternative sources as a vehicle fuel, is inconsistent with our 
national policy to support and encourage alternative fuel 
transportation. The tax on clean fuel vehicles is also inconsistent 
with the favorable tax treatment afforded electric and other clean fuel 
vehicles under the provisions of the Energy Policy Act of 1992. For 
example, a 10-percent tax credit up to $4,000 is available on the 
purchase of an electric vehicle, but that same vehicle can then be 
subject to the luxury tax.

  The code does not provide a basis for distinguishing between an 
automobile that exceeds the luxury tax cost threshold because of 
special equipment or performance characteristics and an automobile that 
exceeds the threshold solely because it operates on a nonconventional 
fuel source, such as electricity. Because of the new technologies 
involved and the lack of economies of scale in low-volume production, 
initially the price of some clean-fuel vehicles will exceed the luxury 
tax threshold. For example, Chrysler recently announced that it would 
offer an electric minivan for about $40,000. The vehicle would be 
subject to a luxury tax of about $1,000.
  This tax falls most heavily on the electric vehicle [EV], which is 
the only practical form of transportation that has zero emissions. 
Efforts to assure a successful commercial launch for new electric 
vehicle technologies require that market demand for EV's be created. 
Demonstration programs, including programs funded by industry and 
industry-government cost shared programs as authorized in the Energy 
Policy Act of 1992, are an important part of the EV commercialization 
effort, designed to increase user familiarity with electric vehicles to 
stimulate market demand. With respect to early EV demonstration 
programs that are in the process of being implemented today, the high 
costs already being borne by vehicle users would be further exacerbated 
by the imposition of the luxury tax.
  Early electric vehicles which have none of the features typically 
associated with luxury automobiles. Until the technology evolves, EVs 
are unlikely to be equipped with many of the optional features 
characteristic of luxury vehicles. Rather than being high-performance 
vehicles, the range and performance characteristics of early EV's are 
likely to be more limited than even those of conventional, nonluxury 
vehicles. Adding a luxury tax thus imposes an added economic burden on 
a customer who has already made sacrifices in choosing an electric 
vehicle. Because in some cases this cost burden will be significant, 
the luxury tax threatens to penalize consumers of initial EV's, and to 
delay or deter EV market development efforts.
  In the longer term, for the market to accept EV's, the ultimate costs 
of electric vehicles will have to be competitive with comparable 
conventionally fueled vehicles, which are unlikely to exceed the luxury 
tax threshold. Therefore, the consumer-ready EV will likely not 
continue to trigger luxury tax concerns. But prices will continue to be 
high while market demand is small, and if the imposition of a luxury 
tax dampens demand or delays or limits the effectiveness of early 
commercial demonstration programs, the pace at which EV prices will 
decline is likely to be slowed.

  Due to the relatively small production of electric vehicles 
anticipated in the early demonstration phase of EV commercialization, 
the proposed exclusion of EV incremental costs from the luxury tax is 
unlikely to result in a significant decrease in revenue collections.
  Meanwhile, the advancement of electric transportation technologies 
presents opportunities for U.S. technological innovation and worldwide 
leadership. In particular, the development and advancement of electric 
vehicles offers significant opportunities for the defense and aerospace 
industries heavily impacted by reductions in defense spending. The 
electric vehicle industry could top $10 billion annually by 2005, 
creating hundreds of thousands of jobs in the United States, according 
to the California Council on Science and Technology.
  The Clean Air Act and the Energy Policy Act of 1992 mandate the 
greater use of alternative transportation fuels. The promotion of 
electric vehicles is an integral part of the effort to improve air 
quality and enhance national energy and economic security by increasing 
energy diversity in the transportation sector.
  With consumer familiarity and acceptance of electric vehicles, and 
continued technological advancements and economies of scale, the 
incremental costs of electric vehicles will decrease. Imposing a tax on 
top of any incremental cost that early purchasers are forced to bear by 
subjecting early electric vehicles to a luxury tax will send a strong 
negative signal to the marketplace that could delay or deter the 
introduction of these vehicles and the development of a self-sustaining 
market.
  Consumers will buy electric cars if we provide the right incentives. 
GM's own survey last year of 1,000 potential new car buyers in San 
Francisco and Los Angeles found that the number of people who would 
definitely or probably purchase an electric vehicle increased from 17 
to 68 percent if provided a mix of price and ownership incentives.
  This legislation repealing the luxury tax will expire on January 1, 
2005, conforming with the sunset of other tax incentives provided under 
the Energy Act. By early next century, we should be well on our way to 
a clean air future. I ask unanimous consent that the full text of the 
bill be printed in the Congressional Record at this point.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2117

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. EXCLUSION OF CLEAN-FUEL VEHICLE COMPONENTS FROM 
                   APPLICATION OF LUXURY AUTOMOBILE EXCISE TAX.

       (a) In General.--Subparagraph (B) of section 4002(d)(1) of 
     the Internal Revenue Code of 1986 (relating to determination 
     of price) is amended by striking ``and'' at the end of clause 
     (ii), and by inserting after clause (iii) the following new 
     clause:
       ``(iv) the value of--
       ``(I) any qualified clean-fuel vehicle property (within the 
     meaning of section 179A(c)) to the extent of the basis 
     described in paragraph (1)(B) of such section, or
       ``(II) any component of such passenger vehicle to the 
     extent such component enables such vehicle to qualify as a 
     qualified electric vehicle (as defined in section 
     30(c)(1)(A)), and''.
       (b) Separate Purchase of Parts and Accessories.--Paragraph 
     (3) of section 4003(a) of the Internal Revenue Code of 1986 
     (relating to separate purchase of vehicle and parts and 
     accessories therefor) is amended by striking ``or'' at the 
     end of subparagraph (B), by redesignating subparagraph (C) as 
     subparagraph (D), and by inserting after subparagraph (B) the 
     following new subparagraph:
       ``(C) the part or accessory installed--
       ``(i) is described in paragraph (1)(A) of section 179A(c) 
     with respect to a qualified clean-fuel vehicle property 
     (within the meaning of section 179A(c)), or
       ``(ii) enables the vehicle to qualify as a qualified 
     electric vehicle (as defined in section 30(c)(1)(A)), or''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales and installations occurring--
       (1) on or after the date of the enactment of this Act, and
       (2) before the earlier of--
       (A) the date the tax imposed under section 4001 of the 
     Internal Revenue Code of 1986 no longer applies, or
       (B) January 1, 2005.

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