I 

108TH CONGRESS 

1ST SESSION H. R. 1942

To amend the Internal Revenue Code of 1986 to provide tax incentives 

for the use of biodiesel as a fuel. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 1, 2003

Mr. PETERSON of Minnesota (for himself and Mr. LUCAS of Kentucky) introduced the following bill; which was referred to the Committee on Ways 

and Means, and in addition to the Committee on Agriculture, for a period 

to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee 

concerned 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

tax incentives for the use of biodiesel as a fuel.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. INCENTIVES FOR BIODIESEL. 

4 (a) CREDIT FOR BIODIESEL USED AS A FUEL.—

5 (1) IN GENERAL.—Subpart D of part IV of 

6 subchapter A of chapter 1 of the Internal Revenue 

7 Code of 1986 (relating to business related credits) is 
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1 amended by inserting after section 40 the following 

2 new section: 

3 ‘‘SEC. 40A. BIODIESEL USED AS FUEL. 

4 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

5 the biodiesel fuels credit determined under this section for 

6 the taxable year is an amount equal to the biodiesel mix7 ture credit. 

8 ‘‘(b) DEFINITION OF BIODIESEL MIXTURE CRED9 IT.—For purposes of this section—

10 ‘‘(1) BIODIESEL MIXTURE CREDIT.—

11 ‘‘(A) IN GENERAL.—The biodiesel mixture 

12 credit of any taxpayer for any taxable year is 

13 an amount equal to the biodiesel mixture rate 

14 for each gallon of biodiesel used by the taxpayer 

15 in the production of a qualified biodiesel mix16 ture. 

17 ‘‘(B) BIODIESEL MIXTURE RATE.—For 

18 purposes of subparagraph (A), the biodiesel 

19 mixture rate is 1 cent for each whole percent20 age point (not exceeding 20 percentage points) 

21 of biodiesel in the mixture. 

22 ‘‘(2) QUALIFIED BIODIESEL MIXTURE.—

23 ‘‘(A) IN GENERAL.—The term ‘qualified 

24 biodiesel mixture’ means a mixture of diesel 

25 and biodiesel which—
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1 ‘‘(i) is sold by the taxpayer producing 

2 such mixture to any person for use as a 

3 fuel, or 

4 ‘‘(ii) is used as a fuel by the taxpayer 

5 producing such mixture. 

6 ‘‘(B) SALE OR USE MUST BE IN TRADE OR

7 BUSINESS, ETC.—

8 ‘‘(i) IN GENERAL.—Biodiesel used in 

9 the production of a qualified biodiesel mix10 ture shall be taken into account—

11 ‘‘(I) only if the sale or use de12 scribed in subparagraph (A) is in a 

13 trade or business of the taxpayer, and 

14 ‘‘(II) for the taxable year in 

15 which such sale or use occurs. 

16 ‘‘(ii) CERTIFICATION FOR BIO17 DIESEL.—Biodiesel used in the production 

18 of a qualified biodiesel mixture shall be 

19 taken into account only if the taxpayer de20 scribed in subparagraph (A) obtains a cer21 tification from the producer of the bio22 diesel which identifies the product pro23 duced. 

24 ‘‘(C) CASUAL OFF-FARM PRODUCTION NOT

25 ELIGIBLE.—No credit shall be allowed under 
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1 this section with respect to any casual off-farm 

2 production of a qualified biodiesel mixture. 

3 ‘‘(c) COORDINATION WITH EXEMPTION FROM EX4 CISE TAX.—The amount of the credit determined under 

5 this section with respect to any biodiesel shall, under regu6 lations prescribed by the Secretary, be properly reduced 

7 to take into account any benefit provided with respect to 

8 such biodiesel solely by reason of the application of section 

9 4041(n) or section 4081(f). 

10 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur11 poses of this section—

12 ‘‘(1) BIODIESEL DEFINED.—The term ‘bio13 diesel’ means the monoalkyl esters of long chain 

14 fatty acids derived from—

15 ‘‘(A) vegetable oils, 

16 ‘‘(B) feedstocks from livestock and poultry 

17 byproducts, or 

18 ‘‘(C) recaptured cooking oils and greases, 

19 for use in compressional-ignition (diesel) engines. 

20 ‘‘(2) REGISTRATION REQUIREMENTS.—The 

21 term ‘biodiesel’ shall only include a biodiesel which 

22 meets—

23 ‘‘(A) the registration requirements for 

24 fuels and fuel additives established by the Envi-
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1 ronmental Protection Agency under section 211 

2 of the Clean Air Act (42 U.S.C. 7545), and 

3 ‘‘(B) the requirements of the American So4 ciety of Testing and Materials D6751. 

5 ‘‘(3) BIODIESEL MIXTURE NOT USED AS A

6 FUEL, ETC.—

7 ‘‘(A) IMPOSITION OF TAX.—If—

8 ‘‘(i) any credit was determined under 

9 this section with respect to biodiesel used 

10 in the production of any qualified biodiesel 

11 mixture, and 

12 ‘‘(ii) any person— 

13 ‘‘(I) separates such biodiesel 

14 from the mixture, or 

15 ‘‘(II) without separation, uses the 

16 mixture other than as a fuel, 

17 then there is hereby imposed on such per18 son a tax equal to the product of the bio19 diesel mixture rate applicable under sub20 section (b)(1)(B) and the number of gal21 lons of the mixture. 

22 ‘‘(B) APPLICABLE LAWS.—All provisions of 

23 law, including penalties, shall, insofar as appli24 cable and not inconsistent with this section, 

25 apply in respect of any tax imposed under sub-
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1 paragraph (A) as if such tax were imposed by 

2 section 4081 and not by this chapter. 

3 ‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND

4 TRUSTS.—Under regulations prescribed by the Sec5 retary, rules similar to the rules of subsection (d) of 

6 section 52 shall apply. 

7 ‘‘(e) ELECTION TO HAVE BIODIESEL FUELS CREDIT

8 NOT APPLY.—

9 ‘‘(1) IN GENERAL.—A taxpayer may elect to 

10 have this section not apply for any taxable year. 

11 ‘‘(2) TIME FOR MAKING ELECTION.—An elec12 tion under paragraph (1) for any taxable year may 

13 be made (or revoked) at any time before the expira14 tion of the 3-year period beginning on the last date 

15 prescribed by law for filing the return for such tax16 able year (determined without regard to exten17 sions).’’. 

18 (2) CREDIT TREATED AS PART OF GENERAL

19 BUSINESS CREDIT.—Section 38(b) of such Code is 

20 amended by redesignating paragraphs (4) through 

21 (15) as paragraphs (5) through (16), respectively, 

22 and by inserting after paragraph (3) the following 

23 new paragraph: 

24 ‘‘(4) the biodiesel fuels credit determined under 

25 section 40A(a),’’.
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1 (3) CONFORMING AMENDMENTS.—

2 (A) Section 39(d) of such Code is amended 

3 by adding at the end the following new para4 graph: 

5 ‘‘(11) NO CARRYBACK OF BIODIESEL FUELS

6 CREDIT BEFORE JANUARY 1, 2004.—No portion of 

7 the unused business credit for any taxable year 

8 which is attributable to the biodiesel fuels credit de9 termined under section 40A may be carried back to 

10 a taxable year beginning before January 1, 2004.’’. 

11 (B) Section 196(c) of such Code is amend12 ed by redesignating paragraphs (4) through 

13 (10) as paragraphs (5) through (11), respec14 tively, and by inserting after paragraph (3) the 

15 following new paragraph: 

16 ‘‘(4) the biodiesel fuels credit determined under 

17 section 40A(a),’’. 

18 (C) Section 6501(m) of such Code is 

19 amended by inserting ‘‘40A(e),’’ after ‘‘40(f),’’. 

20 (D) The table of sections for subpart D of 

21 part IV of subchapter A of chapter 1 of such 

22 Code is amended by inserting after the item re23 lating to section 40 the following new item:

‘‘Sec. 40A. Biodiesel used as fuel.’’.
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1 (4) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to taxable years begin3 ning after December 31, 2003. 

4 (b) REDUCTION OF MOTOR FUEL EXCISE TAXES ON

5 BIODIESEL MIXTURES.—

6 (1) IN GENERAL.—Section 4081 of such Code 

7 (relating to manufacturers tax on petroleum prod8 ucts) is amended by adding at the end the following 

9 new subsection: 

10 ‘‘(f) BIODIESEL MIXTURES.—Under regulations pre11 scribed by the Secretary—

12 ‘‘(1) IN GENERAL.—In the case of the removal 

13 or entry of a qualified biodiesel mixture, the rate of 

14 tax under subsection (a) shall be the otherwise appli15 cable rate reduced by the biodiesel mixture rate (if 

16 any) applicable to the mixture. 

17 ‘‘(2) TAX PRIOR TO MIXING.—In the case of the 

18 removal or entry of diesel fuel for use in producing 

19 at the time of such removal or entry a qualified bio20 diesel mixture, the rate of tax under subsection (a) 

21 shall be the rate determined under paragraph (1), 

22 divided by a percentage equal to 100 percent minus 

23 the percentage of biodiesel which will be in the mix24 ture. 
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1 ‘‘(3) DEFINITIONS.—For purposes of this sub2 section, any term used in this subsection which is 

3 also used in section 40A shall have the meaning 

4 given such term by section 40A. 

5 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

6 to the rules of paragraphs (6) and (7) of subsection 

7 (c) shall apply for purposes of this subsection.’’. 

8 (2) CONFORMING AMENDMENTS.—

9 (A) Section 4041 of such Code is amended 

10 by adding at the end the following new sub11 section: 

12 ‘‘(n) BIODIESEL MIXTURES.—Under regulations pre13 scribed by the Secretary, in the case of the sale or use 

14 of a qualified biodiesel mixture (as defined in section 

15 40A(b)(2)), the rates under paragraphs (1) and (2) of 

16 subsection (a) shall be the otherwise applicable rates, re17 duced by any applicable biodiesel mixture rate (as defined 

18 in section 40A(b)(1)(B)).’’. 

19 (B) Section 6427 of such Code is amended 

20 by redesignating subsection (p) as subsection 

21 (q) and by inserting after subsection (o) the fol22 lowing new subsection: 

23 ‘‘(p) BIODIESEL MIXTURES.—Except as provided in 

24 subsection (k), if any diesel fuel on which tax was imposed 

25 by section 4081 at a rate not determined under section 
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1 4081(f) is used by any person in producing a qualified 

2 biodiesel mixture (as defined in section 40A(b)(2)) which 

3 is sold or used in such person’s trade or business, the Sec4 retary shall pay (without interest) to such person an 

5 amount equal to the per gallon applicable biodiesel mix6 ture rate (as defined in section 40A(b)(1)(B)) with respect 

7 to such fuel.’’. 

8 (3) EFFECTIVE DATE.—The amendments made 

9 by this subsection shall apply to any fuel sold after 

10 December 31, 2003. 

11 (c) HIGHWAY TRUST FUND HELD HARMLESS.—

12 There are hereby transferred (from time to time) from the 

13 funds of the Commodity Credit Corporation amounts de14 termined by the Secretary of the Treasury to be equivalent 

15 to the reductions that would occur (but for this sub16 section) in the receipts of the Highway Trust Fund by 

17 reason of the amendments made by this section.

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