Will biodiesel tax credit be extended?

By Anduin Kirkbride McElroy | April 15, 2008
The National Biodiesel Board's legislative team is working to extend the biodiesel excise tax credit and the small agri-biodiesel producer tax credit beyond the end of this year. "Extension of the biodiesel tax incentive is the NBB's top legislative priority, and while there are certainly no guarantees in the legislative process, we are hopeful that Congress will extend the credit beyond its current Dec. 31, 2008, expiration date," said Manning Feraci, vice president of federal affairs.

There have been as many as six attempts in the U.S. Congress to tack an extension onto existing legislation, such as the Energy Independence & Security Act of 2007 and the Federal Aviation Administration Reauthorization Act of 2007. Feraci said the U.S. House has passed a two-year extension on three separate occasions, and the U.S. Senate has also approved legislation containing a two-year extension of the incentive. At press time, the extension was attached to the tax title of the Senate version of the 2007 farm bill, on which Congress has struggled to move forward.

Because the biodiesel tax credit is a tax package, it is difficult to add on to a bill. The Ways and Means Committee is the principle committee that has authority over tax legislation. A tax package was negotiated within the committee for the EISA, but it didn't make the final bill. "[Because] the administration didn't want a tax package in the energy bill, we're looking for other vehicles where the tax package will be welcome," said Amber Thurlo Pearson, NBB communications specialist.

Meanwhile, Congress and the Internal Revenue Service are considering future changes that could alter the credit's structure and how it's administered. A biodiesel work group, made up of representatives from stakeholder industries and the government, was formed in the fall of 2007 to address the complexity of administrating the biodiesel tax law provisions within the current reporting requirements of the Excise Summary Terminal Activity Reporting System (ExSTARS). One reason the process is so complex is the tax credit may go to a different source than where the tax originated. The group reported on its work at the National Biodiesel Conference in February and is forming recommendations to the IRS for electronic monthly reporting requirements. "The first step is to get biodiesel producers reporting total production available for sale in the United States," said John Love, excise tax consultant and a member of the work group. He said this is necessary in order to match reported production gallons with excise credits claimed. The monthly reporting would include biodiesel production blended and sold by each producer as B99, as well as biodiesel production sold or transferred as B100. At the conference, the work group said this would likely be developed by this fall.

Beyond that, Love said one of the primary pending legislative issues is the paraffin rule. The current U.S. Treasury regulations say if a fuel is less than 4 percent paraffin, then it's not a taxable fuel. This allows biodiesel blends up to nearly B80 to be tax exempt, yet still eligible for the blender's tax credit. "There's concern in the industry and administration that the credits are being taken but the taxes are never paid downstream," Love said. In addition to extending the tax credit, pending legislation would change the point of taxation to the first point of blending, not withstanding the 4 percent paraffin rule. Information reporting would track below-the-rack sales to the point that a 24.4-cent-per-gallon diesel fuel tax is collected or fuel enters the tax-exempt market. "Pending legislation would centralize the tax and the credit," Love said. "Because it's the same party, it's easier for the reporting system."
 
 
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