II

107TH CONGRESS

1ST SESSION S. 1058

To amend the Internal Revenue Code of 1986 to provide tax relief for

farmers and the producers of biodiesel, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 19, 2001

Mr. HUTCHINSON (for himself and Mr. DAYTON) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

tax relief for farmers and the producers of biodiesel,

and for other purposes.

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

3 SECTION 1. SHORT TITLE; ETC.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Biodiesel Renewable Fuels Act’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to or a repeal of a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. CREDIT FOR BIODIESEL USED AS FUEL.

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 (relating to business related cred6 its) is amended by inserting after section 40 the following

7 new section:

8 ‘‘SEC. 40A. BIODIESEL USED AS FUEL.

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

10 the biodiesel fuels credit determined under this section for

11 the taxable year is an amount equal to the biodiesel mix12 ture credit.

13 ‘‘(b) DEFINITION OF BIODIESEL MIXTURE CRED14 IT.—For purposes of this section—

15 ‘‘(1) BIODIESEL MIXTURE CREDIT.—

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

17 credit of any taxpayer for any taxable year is

18 the sum of the products of the biodiesel mixture

19 rate for each blend of qualified biodiesel mix20 ture and the number of gallons of the blend of

21 the taxpayer for the taxable year.

22 ‘‘(B) BIODIESEL MIXTURE RATE.—For

23 purposes of subparagraph (A), the biodiesel

24 mixture rate shall be—
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1 ‘‘(i) the applicable amount for a B–1

2 blend,

3 ‘‘(ii) 3.0 cents for a B–2 blend, and

4 ‘‘(iii) 20.0 cents for a B–20 blend.

5 ‘‘(C) BLENDS.—For purposes of this

6 paragraph—

7 ‘‘(i) B–1 BLEND.—The term ‘B–1

8 blend’ means a qualified biodiesel mixture

9 if at least 0.5 percent but less than 2.0

10 percent of the mixture is biodiesel.

11 ‘‘(ii) B–2 BLEND.—The term ‘B–2

12 blend’ means a qualified biodiesel mixture

13 if at least 2.0 percent but less than 20 per14 cent of the mixture is biodiesel.

15 ‘‘(iii) B–20 BLEND.—The term ‘B–20

16 blend’ means a qualified biodiesel mixture

17 if at least 20 percent of the mixture is bio18 diesel.

19 ‘‘(D) APPLICABLE AMOUNT.—For pur20 poses of this paragraph, the term ‘applicable

21 amount’ means, in the case of a B–1 blend, the

22 amount equal to 1.5 cents multiplied by a frac23 tion the numerator of which is the percentage

24 of biodiesel in the B–1 blend and the denomi25 nator of which is 1 percent.
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1 ‘‘(2) QUALIFIED BIODIESEL MIXTURE.—

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

3 biodiesel mixture’ means a mixture of diesel

4 and biodiesel which—

5 ‘‘(i) is sold by the taxpayer producing

6 such mixture to any person for use as a

7 fuel; or

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

9 producing such mixture.

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

11 BUSINESS, ETC.—Biodiesel used in the produc12 tion of a qualified biodiesel mixture shall be

13 taken into account—

14 ‘‘(i) only if the sale or use described

15 in subparagraph (A) is in a trade or busi16 ness of the taxpayer; and

17 ‘‘(ii) for the taxable year in which

18 such sale or use occurs.

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

20 ELIGIBLE.—No credit shall be allowed under

21 this section with respect to any casual off-farm

22 production of a qualified biodiesel mixture.

23 ‘‘(c) COORDINATION WITH EXEMPTION FROM EX24 CISE TAX.—The amount of the credit determined under

25 this section with respect to any biodiesel shall, under regu-
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1 lations prescribed by the Secretary, be properly reduced

2 to take into account any benefit provided with respect to

3 such biodiesel solely by reason of the application of section

4 4041(n) or section 4081(f).

5 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur6 poses of this section—

7 ‘‘(1) BIODIESEL DEFINED.—

8 ‘‘(A) IN GENERAL.—The term ‘biodiesel’

9 means the monoalkyl esters of long chain fatty

10 acids derived from vegetable oils for use in

11 compressional-ignition (diesel) engines. Such

12 term shall include esters derived from vegetable

13 oils from corn, soybeans, sunflower seeds, cot14 tonseeds, canola, crambe, rapeseeds, safflowers,

15 flaxseeds, and mustard seeds.

16 ‘‘(B) REGISTRATION REQUIREMENTS.—

17 Such term shall only include a biodiesel which

18 meets the registration requirements for fuels

19 and fuel additives established by the Environ20 mental Protection Agency under section 211 of

21 the Clean Air Act (42 U.S.C. 7545).

22 ‘‘(2) BIODIESEL MIXTURE NOT USED AS A

23 FUEL, ETC.—

24 ‘‘(A) IMPOSITION OF TAX.—If—
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1 ‘‘(i) any credit was determined under

2 this section with respect to biodiesel used

3 in the production of any qualified biodiesel

4 mixture, and

5 ‘‘(ii) any person—

6 ‘‘(I) separates the biodiesel from

7 the mixture, or

8 ‘‘(II) without separation, uses the

9 mixture other than as a fuel,

10 then there is hereby imposed on such per11 son a tax equal to the product of the bio12 diesel mixture rate applicable under sub13 section (b)(1)(B) and the number of gal14 lons of the mixture.

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

16 law, including penalties, shall, insofar as appli17 cable and not inconsistent with this section,

18 apply in respect of any tax imposed under sub19 paragraph (A) as if such tax were imposed by

20 section 4081 and not by this chapter.

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

22 TRUSTS.—Under regulations prescribed by the Sec23 retary, rules similar to the rules of subsection (d) of

24 section 52 shall apply.
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1 ‘‘(e) ELECTION TO HAVE BIODIESEL FUELS CREDIT

2 NOT APPLY.—

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

4 have this section not apply for any taxable year.

5 ‘‘(2) TIME FOR MAKING ELECTION.—An elec6 tion under paragraph (1) for any taxable year may

7 be made (or revoked) at any time before the expira8 tion of the 3-year period beginning on the last date

9 prescribed by law for filing the return for such tax10 able year (determined without regard to extensions).

11 ‘‘(3) MANNER OF MAKING ELECTION.—An elec12 tion under paragraph (1) (or revocation thereof)

13 shall be made in such manner as the Secretary may

14 by regulations prescribe.’’

15 (b) CREDIT TREATED AS PART OF GENERAL BUSI16 NESS CREDIT.—Section 38(b) is amended by striking

17 ‘‘plus’’ at the end of paragraph (14), by striking the period

18 at the end of paragraph (15) and inserting ‘‘, plus’’, and

19 by adding at the end the following:

20 ‘‘(16) the biodiesel fuels credit determined

21 under section 40A.’’

22 (c) CONFORMING AMENDMENTS.—

23 (1) Section 39(d) is amended by adding at the

24 end the following:
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1 ‘‘(11) NO CARRYBACK OF BIODIESEL FUELS

2 CREDIT BEFORE JANUARY 1, 2003.—No portion of

3 the unused business credit for any taxable year

4 which is attributable to the biodiesel fuels credit de5 termined under section 40A may be carried back to

6 a taxable year beginning before January 1, 2003.’’

7 (2) Section 196(c) is amended by striking

8 ‘‘and’’ at the end of paragraph (9), by striking the

9 period at the end of paragraph (10), and by adding

10 at the end the following:

11 ‘‘(11) the biodiesel fuels credit determined

12 under section 40A.’’

13 (3) The table of sections for subpart D of part

14 IV of subchapter A of chapter 1 is amended by add15 ing after the item relating to section 40 the fol16 lowing new item:

‘‘Sec. 40A. Biodiesel used as fuel.’’

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning after

19 December 31, 2001.

20 SEC. 3. REDUCTION OF MOTOR FUEL EXCISE TAXES ON

21 BIODIESEL MIXTURES.

22 (a) IN GENERAL.—Section 4081 (relating to manu23 facturers tax on petroleum products) is amended by add24 ing at the end the following new subsection:
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1 ‘‘(f) BIODIESEL MIXTURES.—Under regulations pre2 scribed by the Secretary—

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

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

5 tax under subsection (a) shall be the otherwise appli6 cable rate reduced by the biodiesel mixture rate (if

7 any) applicable to the mixture.

8 ‘‘(2) TAX PRIOR TO MIXING.—

9 ‘‘(A) IN GENERAL.—In the case of the re10 moval or entry of diesel fuel for use in pro11 ducing at the time of such removal or entry a

12 qualified biodiesel mixture, the rate of tax

13 under subsection (a) shall be the otherwise ap14 plicable rate, reduced by the amount deter15 mined under subparagraph (B).

16 ‘‘(B) APPLICABLE REDUCTION.—For pur17 poses of subparagraph (A), the amount deter18 mined under this subparagraph is an amount

19 equal to the biodiesel mixture rate for the quali20 fied biodiesel mixture to be produced from the

21 diesel fuel, divided by a percentage equal to 100

22 percent minus the percentage of biodiesel which

23 will be in the mixture.

24 ‘‘(3) DEFINITIONS.—For purposes of this sub25 section, any term used in this subsection which is
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1 also used in section 40A shall have the meaning

2 given such term by section 40A.

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

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

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

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 4041 is amended by adding at the

8 end the following new subsection:

9 ‘‘(n) BIODIESEL MIXTURES.—Under regulations pre10 scribed by the Secretary, in the case of the sale or use

11 of a qualified biodiesel mixture (as defined in section

12 40A(b)(2)), the rates under paragraphs (1) and (2) of

13 subsection (a) shall be the otherwise applicable rates, re14 duced by any applicable biodiesel mixture rate (as defined

15 in section 40A(b)(1)(B)).’’.

16 (2) Section 6427 is amended by redesignating

17 subsection (p) as subsection (q) and by inserting

18 after subsection (o) the following new subsection:

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

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

21 by section 4081 at a rate not determined under section

22 4081(f) is used by any person in producing a qualified

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

24 is sold or used in such person’s trade or business, the Sec25 retary shall pay (without interest) to such person an
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1 amount equal to the per gallon applicable biodiesel mix2 ture rate (as defined in section 40A(b)(1)(B)) with respect

3 to such fuel.’’.

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall take effect on January 1, 2002.

6 SEC. 4. HIGHWAY TRUST FUND HELD HARMLESS.

7 There are hereby transferred (from time to time)

8 from the funds of the Commodity Credit Corporation

9 amounts equivalent to the reductions that would occur

10 (but for this section) in the receipts of the Highway Trust

11 Fund by reason of the amendments made by this Act.

12 Such transfers shall be made on the basis of estimates

13 made by the Secretary of the Treasury and adjustments

14 shall be made to subsequent transfers to reflect any errors

15 in the estimates.

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