Independent Ethanol Producers in Florida Have the Legal Right to Receive Blender’s Tax Credit

Posted on September 5, 2009. Filed under: Blender's Tax Credit, Job Creation, Rural Development | Tags: |

State’s “Farm-to-Fuel” initiative lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009

The issue is whether an independent ethanol producer that produces fuel ethanol in the State of Florida has a legal right to be a blender of fuel ethanol with unblended gasoline, and receive the $0.45 per gallon Blender’s Tax Credit, when the fuel ethanol and unblended gasoline are blended in the State of Florida if such independent ethanol producer has been licensed or authorized by the Department of Revenue as a blender.

Relevant Federal Legislation
A. The American Jobs Creation Act of 2004
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (P.L. 108-357).

Effective January 1, 2005, the American Jobs Creation Act of 2004 established a new system for federal taxation of ethanol blends. The major changes are as follows:

• Eliminates the reduced rate of excise tax for gasohol blends containing 10%, 7.7%, and 5.7% ethanol, and instead, provides a 51 cents-per-gallon excise tax credit for each gallon of ethanol blended with gasoline. The new excise tax credit system is called the “Volumetric Ethanol Excise Tax Credit” (VEETC). In January, 2009, the excise tax credit was reduced to 45 cents-per-gallon for each gallon of ethanol blended with gasoline.
• Requires blenders to pay the full rate of tax (18.4 cents per gallon) on each gallon of a gasoline-ethanol mixture, but currently provides a 45 cents-per-gallon tax credit or refund for each gallon of ethanol used in the mixture.
• Allows blenders having excise tax liability to apply the excise tax credit against the tax imposed on the gasoline-ethanol mixture. For blenders having limited or no motor fuel excise tax liability, a refund may be claimed. IRS is required to provide refunds within 45 days, or if a claim is filed electronically, the refund must be paid within 20 days, or interest will accrue.
• Deposits all gasohol excise taxes into the Highway Trust Fund, and pays for the credit out of the General Fund.

B. Internal Revenue Code
Excise Tax. Section 4081 of the Internal Revenue Code of 1986, as amended (the “Code”), imposes an excise tax on the removal of a taxable fuel from a refinery or terminal, entry of a taxable fuel into the United States, and sale of a taxable fuel, not previously taxed upon removal or entry. “Taxable fuel” for this purpose includes gasoline, diesel fuel and kerosene.

Excise Tax Credit. Section 6426 of the Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

Relevant Florida Statutes
206.01 Definitions. – As used in this chapter:
(1) “Department” means the Department of Revenue.
(30) “Blender” means any person who blends any product with motor or diesel fuel and who has been licensed or authorized by the department as a blender.

286.29 Climate-friendly public business. – The Legislature recognizes the importance of leadership by state government in the area of energy efficiency and in reducing the greenhouse gas emissions of state government operations. The following shall pertain to all state agencies when conducting public business:
(5) All state agencies shall use ethanol and biodiesel blended fuels when available. State agencies administering central fueling operations for state-owned vehicles shall procure biofuels for fleet needs to the greatest extent practicable. (emphasis added)

526.202 Legislative findings. – The Legislature finds it is vital to the public interest and to the state’s economy to establish a market and the necessary infrastructure for renewable fuels in this state by requiring that all gasoline offered for sale in this state include a percentage of agriculturally derived, denatured ethanol. The Legislature further finds that the use of renewable fuel reduces greenhouse gas emissions and dependence on imports of foreign oil, improves the health and quality of life for Floridians, and stimulates economic development and the creation of a sustainable industry that combines agricultural production with state-of-the-art technology.

526.203 Renewable fuel standard. –
(1) DEFINITIONS. – As used in this act:
(a) “Blender,” “importer,” “terminal supplier,” and “wholesaler” are defined as provided in s. 206.01.
(b) “Blended gasoline” means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the department. The fuel ethanol portion may be derived from any agricultural source.
(c) “Fuel ethanol” means an anhydrous denatured alcohol produced by the conversion of carbohydrates that meets the specifications as adopted by the department.
(d) “Unblended gasoline” means gasoline that has not been blended with fuel ethanol and that meets the specifications as adopted by the department.
(2) FUEL STANDARD. – Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS. – The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender. (emphasis added)

526.207 Studies and reports. –
(1) The Florida Energy and Climate Commission shall conduct a study to evaluate and recommend the life-cycle greenhouse gas emissions associated with all renewable fuels, including, but not limited to, biodiesel, renewable diesel, biobutanol, and ethanol derived from any source. In addition, the commission shall evaluate and recommend a requirement that all renewable fuels introduced into commerce in the state, as a result of the renewable fuel standard, shall reduce the life-cycle greenhouse gas emissions by an average percentage. The commission may also evaluate and recommend any benefits associated with the creation, banking, transfer, and sale of credits among fuel refiners, blenders, and importers. (emphasis added)
(2) The Florida Energy and Climate Commission shall submit a report containing specific recommendations to the President of the Senate and the Speaker of the House of Representatives no later than December 31, 2010.

526.302 Legislative findings and intent. – The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.

Market Reality
Currently, oil companies refuse to sell unblended gasoline to prospective independent ethanol producers in Florida. As a result, the sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. The farmers/landowners, independent ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.

Not a single drop of fuel ethanol is produced in the State of Florida. One reason for the lack of development of a fuel ethanol industry may be attributed to the fact that oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline in Florida. This monopoly is apparently supported by the Florida Energy & Climate Commission (“FECC”) which recently rejected a proposal by an independent ethanol producer to use variable blending pumps in Florida.

If independent ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends, broad-based rural economic development and job creation for Floridians.

Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive. The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.


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Why Big Oil Should Not be Allowed to Monopolize the Blender’s Tax Credit

Posted on April 20, 2009. Filed under: Blender's Tax Credit, Field-to-Pump | Tags: , , , , , , |

Why Big Oil Should Not be Allowed to Monopolize the Blender’s Tax Credit

By Brian J. Donovan

Renergie

April 20, 2009

 

The issue is whether state legislatures should allow oil companies, or affiliates of oil companies, to have a monopoly on blending fuel ethanol with unblended gasoline.

 

The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.”  Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956.  The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales.  The blender’s tax credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.

 

The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.

 

It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

 

If U.S. ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends.

 

The benefits of allowing ethanol producers to blend and directly market ethanol blends to the consumer are the following:

(a) Rural economic development and job creation would be maximized. Increased investments in plants and equipment would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed. On average, an ethanol plant supports 45 full-time jobs and nearly 700 jobs throughout the entire economy;

(b) The resulting increase in local and state tax revenues would provide funds for improvements to the community and to the region; and

(c) Federal and state renewable energy technology grants for ethanol would not be required. The blender’s tax credit and the market would reward the ethanol producer/blender.

 

In 2008, ExxonMobil reported the largest annual profit in U.S. history. ExxonMobil’s annual profit jumped 11%, or $5.2 billion, to $45.2 billion on the back of record oil prices. ExxonMobil returns most of its profit to shareholders, distributing about $40 billion in 2008 in the form of share buybacks and dividends. Chevron was also up more than $5 billion for the year, to $23.9 billion. A substantial portion of Chevron’s increase came in a fourth-quarter jump in its profits for refining and marketing of gasoline and other fuels.

 

Currently, oil companies are refusing to sell unblended gasoline to ethanol producers. The sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. As a result, the farmers/landowners, ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created. 

 

State legislatures should not permit only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.

 

Rural development and job creation, not the maximization of oil company annual profits, should be the focus of our state legislatures.

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan and Mr. Michael J. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

 


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    The Blender’s Tax Credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool. The issue is whether an oil company or refiner, or an affiliate of such oil company or refiner, has a monopoly on blending fuel ethanol with unblended gasoline.

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