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Propane Laws and Incentives in Iowa

The list below contains summaries of all Iowa laws and incentives related to propane.

Laws and Regulations

Alternative Fuel Tax

Alternative fuels used as vehicle fuel are taxed as follows:

  • Compressed natural gas is subject to the state fuel excise tax of $0.31 per gasoline gallon equivalent, measured at 5.66 pounds (lbs.) or 126.67 cubic feet at a base temperature of 60 degrees Fahrenheit and a pressure of 14.73 lbs. per square inch;
  • Liquefied natural gas is subject to the excise tax of $0.325 per diesel gallon equivalent (DGE), measured at 6.06 lbs.;
  • Propane is subject to the excise tax of $0.30 per gallon;
  • Hydrogen is subject to the excise tax of $0.65 per DGE, measured at 2.49 lbs.; and
  • Electricity will be subject to the excise tax of $0.026 per kilowatt-hour of fuel delivered or placed into a battery or other energy storage device of an electric motor vehicle at any location in Iowa other than a residence. For electric fuel sold or dispensed for a nontaxable purpose, an exemption may be requested.

Before July 1, 2030, ethanol (E15 and higher) and biodiesel (B20 and higher) are subject to an excise tax calculated based on a distribution percentage that the Department of Revenue will determine. Additional conditions apply.

(Reference House File 976, 2025 and Iowa Code 452A.2, 452A.3, 452A.41, and 452A.86)

Alternative Fuel Vehicle Acquisition Requirements

At least 10% of new vehicles purchased by institutions under the control of the state fleet director, including the Iowa Department of Transportation, Board of Directors of Community Colleges, Board of Regents, Commission for the Blind, and Department of Corrections must be capable of operating on alternative fuels. Alternative fuels include E85, B20, natural gas, propane, solar energy, and electricity. Vehicles and trucks purchased and directly used for law enforcement and off-road maintenance work are exempt from this requirement.

The state fleet shall purchase motor vehicles and light trucks so that the average fuel efficiency of new vehicles purchased that year equals or exceeds the average fuel economy standard for the model year as established under 15 U.S.C. §2002. Motor vehicles operating using gasoline or diesel fuel shall use the highest possible classification of ethanol or biodiesel. Exemptions apply. Vehicles that use biodiesel and ethanol blends must display a brightly colored, highly visible renewable fuel sticker. Beginning July 1, 2023, and annually thereafter, the Iowa Department of Administrative Services must submit a report detailing the use of ethanol and biodiesel blends in state fleet vehicles to the governor and Iowa General Assembly.

(Reference Iowa Code 8A.360, 8A.362, 8A.368, 216B.3, 260C.19A, 262.25A, 307.21 and 904.312A)

Alternative Fuel Vehicle Conversion Registration

When a motor vehicle is modified to use a different fuel type or more than one type of fuel, the vehicle’s registered owner must notify the county treasurer of the new fuel type or alternative fuel types within 30 days. If the vehicle is able to use a special fuel, the county treasurer will issue a special fuel identification sticker.

(Reference Iowa Code 321.41)

State Incentives

Alternative Fuel Vehicle (AFV) Grants

The Iowa Economic Development Authority (IEDA) provides grants for projects that benefit Iowa ratepayers and support the implementation of the Iowa Energy Plan, including the purchase of AFVs. Eligible applicants include Iowa businesses, colleges and universities, and private and nonprofit organizations. For more information, including eligibility requirements, see the IEDA Iowa Energy Center Grant Program website. This program expires on July 31st, 2029.

(Reference Iowa Code 17A.7 and Iowa Administrative Code 261.404)

Diesel Emission Reduction Project Funding

The Iowa Department of Transportation (Iowa DOT) provides funding for the replacement, retrofit, or conversion of medium- and heavy-duty (MHD) on-road diesel vehicles with new diesel or alternative fuel vehicles. Grants are also available for off-road diesel vehicle replacements and repowers. Grants are available for MHD school buses, transit buses, and trucks. Non-road vehicles and equipment may also be eligible for funding. Eligible applicants include government, nonprofit, and private entities that own or operate diesel fleets and equipment. Additional restrictions apply. This grant program is partially funded by Iowa’s portion of the Volkswagen Environmental Mitigation Trust. For more information, including eligible vehicles, see the IowaDOT Diesel Emission Reduction Act Website.

More Laws and Incentives

To find laws and incentives for other alternative fuels and advanced vehicles, search all laws and incentives.