School Bus Companies — Are You Leaving Money on the Table?

By Michael J. Andriola, CPA and Elisha M. Brestovansky, CPA, MBA

New York State’s school bus fleets are required to be all electric by 2035, as established by the State Budget passed in April 2022. Electric buses can be expensive; there are, however, numerous funding incentives and credits available to make the transition more cost effective.

Tax Credits Available

Two tax credits are available for electric school buses, including the:

• Commercial Clean Vehicle Credit under Internal Revenue Code (IRC) Section 45W (see our article here).
• Alternative Fuel Vehicle Refueling Property Credit under IRC Section 30C.

Both tax credits are claimed on income tax returns via Form 8936 and Form 8911, respectively.

IRS guidance is still needed to determine the incremental cost threshold portion of the credit limitation; it appears, however, that electric school buses would likely be eligible for the full IRC 45W tax credit of $40,000 per vehicle since the cost of a new electric school bus is far in excess of the cost of a comparable gas/diesel-powered bus.

The IRC 30C credit focuses on refueling property, electric vehicle (EV) chargers. The IRC 30C credit is either:

• Six percent up to a maximum credit of $100,000 on qualified refueling property subject to depreciation.
• 30 percent up to a maximum credit of $100,000 for businesses that meet prevailing wage and apprenticeship requirements.

The requirements of the IRC 30C credit include all of the following:

• The property must be placed in service during the tax year in the U.S. or U.S. territories.
• The property must have an original use that began with the taxpayer.
• If not business or investment use property, the property must be installed on property used as a main home.
• The refueling property must be placed in service in an eligible census tract that is a low-income community but is not designated as an urban area.

Other Sources of Funding

Other sources of funding for the procurement of electric buses are also available, including:

• Vouchers – Works similarly to coupons, where the vendor deducts the value of the voucher from sale price at the time of purchase.
• Rebates – Awards redeemed after purchase.
• Grants – Funds received prior to purchase of buses; applications are, however, more extensive and are made on a competitive basis, usually through governmental sources.

Some examples of other funding available in New York State include:

• U.S. Environmental Protection Agency (EPA) Clean School Bus Program Grants & Rebates (2022-2026)
• EPA Clean Heavy-Duty Vehicle Grant (2024)
• Department of Energy Renew America’s Schools Price Grant (2024)
• Joint Utilities of NY: Medium & Heavy Duty EV Make-Ready Pilot Rebate
• New York School Bus Incentive Program Voucher

Each of these funding sources has different eligibility requirements, applicant types and types of buses that are eligible.

Observations and Practical Considerations

It is important to note that bus companies may experience significant costs on charging stations and utility infrastructure – as well as sales tax, title costs and other fees. Most of these additional costs may not be covered by vouchers, rebates and grants, and so it is important that school bus companies plan for these additional costs up-front.

Another significant consideration for IRC 30C credit for chargers is the apprenticeship/prevailing wage requirement and the census tract requirement.

School bus companies will need to make sure that the contractors performing the construction and installation work for the EV chargers meet the apprenticeship and prevailing wage requirements as determined by the Department of Labor. In addition, the location of the EV chargers must be in a low-income community or rural area, which are defined by census tracts. If the location of the EV chargers is not located in an eligible census tract, then the chargers will not be eligible for the IRC 30C 30 percent credit at all.

Lastly, it is also important to note the benefits of accelerated tax depreciation that can be utilized after grants, rebates, vouchers and tax incentives. Bonus depreciation and possibly IRC Section 179 depreciation may be utilized and cannot be “double-dipped” with other incentives.

If bus companies utilize additional funding sources discussed previously along with tax credit, one simplified example of the potential cash outlay for the purchase of 10 Type C EV buses may be as follows:

Note: *Sales tax on EV Chargers is on equipment only — estimated cost at $46k per charger.

The above estimated net out of pocket amount is subject to regular Modified Accelerated Cost Recovery System (MACRS) depreciation depending on when the buses and charger are placed in service and may also be subject to Section 179 accelerated depreciation if other requirements are met, which may reduce costs even further.

In addition, it may be possible to “stack” other incentives such as the New York School Bus Incentive Program vouchers and bonuses. For the EV chargers, it may also be possible to attain utility incentives through the Make-Ready Pilot Rebate Program, but those incentives differ by utility provider.

Overall, in this simplistic example, bus companies would have an estimated cash outlay or financing need for $1,946,350. This cost may further be reduced by tax credits of $761,230 and by bonus depreciation of $474,048, thus bringing total costs down from over $6M to $711,072.

In summary, electric school buses and related infrastructure costs are much higher than the gas and diesel-powered alternatives. However, they are usually cheaper to maintain over the useful life and have lower fueling costs. Through the benefit of vouchers, rebates, grants and tax credits, the cost of electric school buses and infrastructure costs can be brought down significantly whereby the net tax cost is an estimated 10 to 15 percent of initial cost.

Contact Us

If you have any questions about the electric vehicle funding or credits, contact your PKF O’Connor Davies client service team or:

Michael J. Andriola, CPA
Partner
mandriola@pkfod.com | 908.967.6815

Elisha M. Brestovansky, CPA, MBA
Director
ebrestovansky@pkfod.com | 845.670.7140

PKF O’Connor Davies provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.