WASHINGTON - A tax deduction for gasoline-electric hybrid vehicles, blessed by the Internal Revenue Service last week, falls short of what industry leaders say is needed to boost sales of environmentally friendly cars and trucks.
The IRS decision, announced Tuesday, May 21, means a buyer of a Toyota Prius or a Honda Insight or Civic Hybrid may claim a tax deduction - not a tax credit - of as much as $2,000. Typical taxpayers using the deduction would reduce their tax bills by about $300 to $700.
Toyota Motor Sales U.S.A. Inc. already had been encouraging Prius buyers to claim the deduction, which was enacted in 1992, primarily to promote alternative fuels.
Honda North America Inc. thought the law wasn't clear about hybrid vehicles and sought the IRS ruling, said Honda Vice President Ed Cohen.
The IRS said it also had received "numerous inquiries" from taxpayers about how to determine eligibility.
Toyota, Honda and most other automakers have been lobbying for heftier tax credits, which would save buyers of fuel-cell powered vehicles as much as $8,000 and those who purchase hybrids as much as $4,000.
They say the breaks are needed to get large numbers of consumers to pay the higher prices they must charge for vehicles with advanced powertrains.
The Bush administration endorsed tax credits with its proposed budget for fiscal 2003. The House and Senate passed energy bills with tax credit provisions, but the bills are headed for a conference committee, and their fate remains uncertain.
The Big 3 are planning to have their first hybrids in the market within two years. The first fuel cell-powered vehicles also may be in showrooms by 2004.
The clean-fuels tax deduction was to start being phased out this year. Congress passed a two-year extension, and President Bush signed it. Now the maximum deduction will be $2,000 through the end of 2003. It would then be phased out by the end of 2006 if not extended again.