US Farm Bill 2007 Taxation proposals

Some of the key proposals in the US Farm Bill 2007, confusingly called “HEARTLAND, HABITAT, HARVEST AND HORTICULTURE ACT OF 2007”have been made public. Hattip to Phillip Brasher at the DesMoines Register.com who writes the Cash Crops blog. Philip says there’s plenty of scope for modification he says:

“Under congressional pay-as-you-go rules, any tax cuts or spending increases have to be offset with budget cuts or tax increases”

He calculates the tax and revenue balance is about 12bn out over the lifetime of the proposals. Will that mean a dramatic reduction in the amount of support for biofuels… hum not sure.

It is rather long. But there are bound to be devils in the details, and if you’re in the business it would be helpful to see just what the competition may be getting when the bill passes, later this year or early next. I’ve copied Highlights, verbatim, an put them in block quotes under headings to help.

For Cellulosic ethanol

The proposal provides an income tax credit for up to 60 million gallons of qualified
cellulosic fuel production of the producer for the taxable year. The amount of the credit per
gallon is $1.11 less the credit amount for alcohol fuel and the credit amount for small ethanol
producers as of the date the cellulosic alcohol fuel is produced. This credit is in addition to any
credit that may be available under section 40 of the Code. A small cellulosic alcohol fuel
producer is not precluded from also claiming the alcohol or alcohol fuel mixture credit, or the
small ethanol producer credit, if the requirements for those credits are also met. For example, in
the case of a gallon of ethanol, a small producer may be able to claim 50 cents as a cellulosic
alcohol producer, plus 51 cents under the alcohol fuel mixture credit, and an additional 10 cents
as a small ethanol producer.
Cellulosic alcohol is alcohol that is produced in the United States and is derived from any
lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis.
Examples of lignocellulosic or hemicellulosic matter that is available of a renewable or recurring
basis includes dedicated energy crops and trees, wood and wood residues, plants, grasses,
agricultural residues, fibers, animal wastes and other waste materials, and municipal solid waste.

The proposals also see a change to the way that cellulosic plants are depreciated over time. The key passage is

The proposal changes the definition of qualified property. Under the proposal, qualified property includes property used solely to produce cellulosic biomass alcohol. Cellulosic biomass alcohol is defined as any alcohol produced by any process from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis.

Extension of Small Ethanol Producer Credit

The alcohol fuels credit is the sum of three credits: the alcohol mixture credit, the alcohol
credit, and the small ethanol producer credit. Generally, the alcohol fuels credit expires after
December 31, 2010.20
Taxpayers are eligible for an income tax credit of 51 cents per gallon of ethanol (60
cents in the case of alcohol other than ethanol) used in the production of a qualified mixture (the
“alcohol mixture credit”). A “qualified mixture” means a mixture of alcohol and gasoline, (or of
alcohol and a special fuel) sold by the taxpayer as fuel, or used as fuel by the taxpayer producing such mixture. The term “alcohol” includes methanol and ethanol but does not include
(1) alcohol produced from petroleum, natural gas, or coal (including peat), or (2) alcohol with a
proof of less than 150.
Taxpayers may reduce their income taxes by 51 cents for each gallon of ethanol, which is
not in a mixture with gasoline or other special fuel, that they sell at the retail level as vehicle fuel
or use themselves as a fuel in their trade or business (“the alcohol credit”). For alcohol other
than ethanol, the rate is 60 cents per gallon.
In the case of ethanol, the Code provides an additional 10-cents-per-gallon credit for up
to 15 million gallons per year for small producers. Small producers are defined generally as
persons whose production capacity does not exceed 60 million gallons per year.

Extension of Credits for Biodiesel
Under current law

The Code provides an income tax credit for biodiesel fuels (the “biodiesel fuels credit”).22
The biodiesel fuels credit is the sum of the biodiesel mixture credit, the biodiesel credit, and the
small agri-biodiesel producer credit. The biodiesel fuels credit is treated as a general business
credit. The amount of the biodiesel fuels credit is includable in gross income. The biodiesel
fuels credit is coordinated to take into account benefits from the biodiesel excise tax credit and
payment provisions discussed below

.

The credit regime outlined below extends to 2012 under the new proposal .

Biodiesel is monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet (1) the registration requirements established by the Environmental Protection Agency under section 211 of the Clean Air Act and (2) the requirements of the American Society of Testing and Materials D6751. Agri-biodiesel is biodiesel derived solely from virgin oils including oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, or animal fats. The language “including” indicates that this list is not exclusive.23 Camelina is a plant from which oil can be extracted.
Biodiesel may be taken into account for purposes of the credit only if the taxpayer
obtains a certification (in such form and manner as prescribed by the Secretary) from the
producer or importer of the biodiesel which identifies the product produced and the percentage of
the biodiesel and agri-biodiesel in the product.

Biodiesel mixture credit

The biodiesel mixture credit is 50 cents for each gallon of biodiesel (other than agribiodiesel)
used by the taxpayer in the production of a qualified biodiesel mixture. For agribiodiesel,
the credit is $1.00 per gallon. A qualified biodiesel mixture is a mixture of biodiesel
and diesel fuel that is (1) sold by the taxpayer producing such mixture to any person for use as a
fuel, or (2) is used as a fuel by the taxpayer producing such mixture. The sale or use must be in
the trade or business of the taxpayer and is to be taken into account for the taxable year in which
such sale or use occurs. No credit is allowed with respect to any casual off-farm production of a
qualified biodiesel mixture

.

Biodiesel credit

The biodiesel credit is 50 cents for each gallon of biodiesel which is not in a mixture with
diesel fuel (100 percent biodiesel or B-100) and which during the taxable year is (1) used by the
taxpayer as a fuel in a trade or business or (2) sold by the taxpayer at retail to a person and
placed in the fuel tank of such person’s vehicle. For agri-biodiesel, the credit is $1.00 per gallon.
Small agri-biodiesel producer credit
The Code provides a small agri-biodiesel producer income tax credit, in addition to the
biodiesel and biodiesel fuel mixture credits. The credit is a 10-cents-per-gallon credit for up to
15 million gallons of agri-biodiesel produced by small producers, defined generally as persons
whose agri-biodiesel production capacity does not exceed 60 million gallons per year. The agribiodiesel
must (1) be sold by such producer to another person (a) for use by such other person in
the production of a qualified biodiesel mixture in such person’s trade or business (other than
casual off-farm production), (b) for use by such other person as a fuel in a trade or business, or,
(c) who sells such agri-biodiesel at retail to another person and places such ethanol in the fuel
tank of such other person; or (2) used by the producer for any purpose described in (a), (b), or
(c).

Biodiesel mixture excise tax credit

The Code also provides an excise tax credit for biodiesel mixtures.24 The credit is 50
cents for each gallon of biodiesel used by the taxpayer in producing a biodiesel mixture for sale
or use in a trade or business of the taxpayer. In the case of agri-biodiesel, the credit is $1.00 per gallon. A biodiesel mixture is a mixture of biodiesel and diesel fuel that (1) is sold by the
taxpayer producing such mixture to any person for use as a fuel, or (2) is used as a fuel by the
taxpayer producing such mixture. No credit is allowed unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer of the biodiesel that identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.
Payments with respect to biodiesel fuel mixtures
If any person produces a biodiesel fuel mixture in such person’s trade or business, the
Secretary is to pay such person an amount equal to the biodiesel mixture credit.26 To the exten
the biodiesel fuel mixture credit exceeds the section 4081 liability of a person, the Secretary is to pay such person an amount equal to the biodiesel fuel mixture credit with respect to such
mixture.27 Thus, if the person has no section 4081 liability, the credit is refundable.

Small Fossil-Free Alcohol Producer Credit

The alcohol fuels credit is the sum of three credits: the alcohol mixture credit, the alcohol credit, and the small ethanol producer credit.
Taxpayers are eligible for an income tax credit of 51 cents per gallon of ethanol (60
cents in the case of alcohol other than ethanol) used in the production of a qualified mixture (the
“alcohol mixture credit”). A “qualified mixture” means a mixture of alcohol and gasoline, (or of
alcohol and a special fuel) sold by the taxpayer as fuel, or used as fuel by the taxpayer producing such mixture. The term “alcohol” includes methanol and ethanol but does not include
(1) alcohol produced from petroleum, natural gas, or coal (including peat), or (2) alcohol with a
proof of less than 150.
Taxpayers may reduce their income taxes by 51 cents for each gallon of ethanol, which is
not in a mixture with gasoline or other special fuel, that they sell at the retail level as vehicle fuel
or use themselves as a fuel in their trade or business (“the alcohol credit”). For alcohol other
than ethanol, the rate is 60 cents per gallon.
The proposal adds a new component to the alcohol fuels credit, the small fossil-free
alcohol producer credit. The credit provides an additional 25-cents-per-gallon credit for up to 60
28 The alcohol fuels credit is unavailable when, for any period before January 1, 2011, the tax
rates for gasoline and diesel fuels drop to 4.3 cents per gallon.
29 In the case of any alcohol (other than ethanol) with a proof that is at least 150 but less than
190, the credit is 45 cents per gallon (the “low-proof blender amount”). For ethanol with a proof that is at least 150 but less than 190, the low-proof blender amount is 37.78 cents.
38 million gallons of alcohol produced at a fossil-free facility during the calendar year for small
producers. Small producer is defined generally as a producer whose fossil free alcohol
production capacity does not exceed 60 million gallons per year. A fossil-free facility is one at
which 90 percent of the fuel. The credit terminates after December 31, 2012.

, , , , , , , , , , , ,

One Response to US Farm Bill 2007 Taxation proposals

  1. David B. Benson 12 October, 2007 at 4:15 pm #

    Off-topic, but here is a copy of an e-mail which I sent to various individuals and organizations within the U.S.A:

    Subject: S. 1884, The Harvest Energy Act of 2007

    Senator Ken Salazar’s Harvest Energy Act of 2007 is now
    before the Senate Agriculture, Nutrition and Forestry
    Committee. In essense, it supports the production and
    use of biochar (agrichar).

    See

    http://biopact.com/2007/10/towards-carbon-negative-bioenergy-us.html

    for more details and a link to the act.

    This is the first piece of legislation which offers serious
    potential as a part of global warming mitigation, in my opinion.

    As of yesterday, this important legislation had no co-sponors.
    Please take appropriate action which leads towards numerous
    co-sponsorships.

    Thank you,
    David

Leave a Reply