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‘‘(B) SMALL
ETHANOL
PRODUCER
CRED-
IT.—For purposes of this subsection, the term
‘small ethanol producer credit’ means the credit
allowable under subsection (a) by reason of sec-
tion 40(a)(3).’’.
(B) CONFORMING AMENDMENTS.—Subclause
(II) of section 38(c)(2)(A)(ii), as amended by
section 301(b)(2) of the Job Creation and Worker
Assistance Act of 2002, and subclause (II) of sec-
tion 
38(c)(3)(A)(ii), 
as 
added 
by 
section
301(b)(1) of such Act, are each amended by in-
serting ‘‘or the small ethanol producer credit’’
after ‘‘employee credit’’.
(4) SMALL
ETHANOL
PRODUCER
CREDIT
NOT
ADDED BACK TO INCOME UNDER SECTION 87.—Sec-
tion 87 (relating to income inclusion of alcohol fuel
credit) is amended to read as follows:
‘‘SEC. 87. ALCOHOL FUEL CREDIT.
‘‘Gross income includes an amount equal to the sum
of—
‘‘(1) the amount of the alcohol mixture credit de-
termined with respect to the taxpayer for the taxable
year under section 40(a)(1), and
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‘‘(2) the alcohol credit determined with respect to
the taxpayer for the taxable year under section
40(a)(2).’’.
(c) CONFORMING AMENDMENT.—Section 1388 (relat-
ing to definitions and special rules for cooperative organi-
zations) is amended by adding at the end the following new
subsection:
‘‘(k) CROSS REFERENCE.—For provisions relating to
the apportionment of the alcohol fuels credit between cooper-
ative organizations and their patrons, see section
40(g)(6).’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 2006. ALL ALCOHOL FUELS TAXES TRANSFERRED TO
HIGHWAY TRUST FUND.
(a) IN GENERAL.—Section 9503(b)(4) (relating to cer-
tain taxes not transferred to Highway Trust Fund) is
amended—
(1) by adding ‘‘or’’ at the end of subparagraph
(C),
(2) by striking the comma at the end of subpara-
graph (D)(iii) and inserting a period, and
(3) by striking subparagraphs (E) and (F).
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(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxes imposed after September 30,
2003.
SEC. 2007. INCREASED FLEXIBILITY IN ALCOHOL FUELS
TAX CREDIT.
(a) ALCOHOL
FUELS
CREDIT
MAY
BE
TRANS-
FERRED.—Section 40 (relating to alcohol used as fuel) is
amended by adding at the end the following new subsection:
‘‘(i) CREDIT MAY BE TRANSFERRED.—
‘‘(1) IN
GENERAL.—A taxpayer may transfer
any credit allowable under paragraph (1) or (2) of
subsection (a) with respect to alcohol used in the pro-
duction of ethyl tertiary butyl ether through an as-
signment to a qualified assignee. Such transfer may
be revoked only with the consent of the Secretary.
‘‘(2) QUALIFIED
ASSIGNEE.—For purposes of
this subsection, the term ‘qualified assignee’ means
any person who—
‘‘(A) is liable for taxes imposed under sec-
tion 4081,
‘‘(B) is required to register under section
4101, and
‘‘(C) obtains a certificate from the taxpayer
described in paragraph (1) which identifies the
amount of alcohol used in such production.
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‘‘(3) REGULATIONS.—The Secretary shall pre-
scribe such regulations as necessary to insure that
any credit described in paragraph (1) is claimed once
and not reassigned by a qualified assignee.’’.
(b) ALCOHOL FUELS CREDIT MAY BE TAKEN AGAINST
MOTOR FUELS TAX LIABILITY.—
(1) IN GENERAL.—Subpart C of part III of sub-
chapter A of chapter 32 (relating to special provisions
applicable to petroleum products) is amended by add-
ing at the end the following new section:
‘‘SEC. 4104. CREDIT AGAINST MOTOR FUELS TAXES.
‘‘(a) ELECTION TO USE CREDIT AGAINST MOTOR
FUELS TAXES.—There is hereby allowed as a credit against
the taxes imposed by section 4081, any credit allowed under
paragraph (1) or (2) of section 40(a) with respect to alcohol
used in the production of ethyl tertiary butyl ether to the
extent—
‘‘(1) such credit is not claimed by the taxpayer
or the qualified assignee under section 40(i) as a
credit under section 40, and
‘‘(2) the taxpayer or qualified assignee elects to
claim such credit under this section.
‘‘(b) ELECTION IRREVOCABLE.—Any election under
subsection (a) shall be irrevocable.
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‘‘(c) REQUIRED STATEMENT.—Any return claiming a
credit pursuant to an election under this section shall be
accompanied by a statement that the credit was not, and
will not, be claimed on an income tax return.
‘‘(d) REGULATIONS.—The Secretary shall prescribe
such regulations as necessary to avoid the claiming of dou-
ble benefits and to prescribe the taxable periods with respect
to which the credit may be claimed.’’.
(2) CONFORMING AMENDMENT.—Section 40(c) is
amended by striking ‘‘or section 4091(c)’’ and insert-
ing ‘‘section 4091(c), or section 4104’’.
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart C of part III of subchapter A of
chapter 32 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 4104. Credit against motor fuels taxes.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on and after the date of the enact-
ment of this Act.
SEC. 2008. INCENTIVES FOR BIODIESEL.
(a) CREDIT FOR BIODIESEL USED AS A FUEL.—
(1) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related
credits), as amended by this Act, is amended by in-
serting after section 40A the following new section:
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‘‘SEC. 40B. BIODIESEL USED AS FUEL.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
biodiesel fuels credit determined under this section for the
taxable year is an amount equal to the biodiesel mixture
credit.
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT.—
For purposes of this section—
‘‘(1) BIODIESEL MIXTURE CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel mixture
credit of any taxpayer for any taxable year is
the sum of the products of the biodiesel mixture
rate for each qualified biodiesel mixture and the
number of gallons of such mixture of the tax-
payer for the taxable year.
‘‘(B) BIODIESEL MIXTURE RATE.—For pur-
poses of subparagraph (A), the biodiesel mixture
rate for each qualified biodiesel mixture shall
be—
‘‘(i) in the case of a mixture with only
biodiesel V, 1 cent for each whole percentage
point (not exceeding 20 percentage points)
of biodiesel V in such mixture, and
‘‘(ii) in the case of a mixture with bio-
diesel NV, or a combination of biodiesel V
and biodiesel NV, 0.5 cent for each whole
percentage point (not exceeding 20 percent-
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age points) of such biodiesel in such mix-
ture.
‘‘(2) QUALIFIED BIODIESEL MIXTURE.—
‘‘(A) IN GENERAL.—The term ‘qualified bio-
diesel mixture’ means a mixture of diesel and
biodiesel V or biodiesel NV which—
‘‘(i) is sold by the taxpayer producing
such mixture to any person for use as a
fuel, or
‘‘(ii) is used as a fuel by the taxpayer
producing such mixture.
‘‘(B) SALE OR USE MUST BE IN TRADE OR
BUSINESS, ETC.—
‘‘(i) IN GENERAL.—Biodiesel V or bio-
diesel NV used in the production of a quali-
fied biodiesel mixture shall be taken into
account—
‘‘(I) only if the sale or use de-
scribed in subparagraph (A) is in a
trade or business of the taxpayer, and
‘‘(II) for the taxable year in which
such sale or use occurs.
‘‘(ii) CERTIFICATION
FOR
BIODIESEL
V.—Biodiesel V used in the production of a
qualified biodiesel mixture shall be taken
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into account only if the taxpayer described
in subparagraph (A) obtains a certification
from the producer of the biodiesel V which
identifies the product produced.
‘‘(C) CASUAL OFF-FARM PRODUCTION NOT
ELIGIBLE.—No credit shall be allowed under this
section with respect to any casual off-farm pro-
duction of a qualified biodiesel mixture.
‘‘(c) COORDINATION WITH EXEMPTION FROM EXCISE
TAX.—The amount of the credit determined under this sec-
tion with respect to any biodiesel V shall, under regulations
prescribed by the Secretary, be properly reduced to take into
account any benefit provided with respect to such biodiesel
V solely by reason of the application of section 4041(n) or
section 4081(f).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) BIODIESEL V DEFINED.—The term ‘biodiesel
V’ means the monoalkyl esters of long chain fatty
acids derived solely from virgin vegetable oils for use
in compressional-ignition (diesel) engines. Such term
shall include esters derived from vegetable oils from
corn, soybeans, sunflower seeds, cottonseeds, canola,
crambe, rapeseeds, safflowers, flaxseeds, rice bran, and
mustard seeds.
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‘‘(2) BIODIESEL NV DEFINED.—The term ‘bio-
diesel nv’ means the monoalkyl esters of long chain
fatty acids derived from nonvirgin vegetable oils or
animal fats for use in compressional-ignition (diesel)
engines.
‘‘(3) REGISTRATION REQUIREMENTS.—The terms
‘biodiesel V’ and ‘biodiesel NV’ shall only include a
biodiesel which meets—
‘‘(i) the registration requirements for
fuels and fuel additives established by the
Environmental Protection Agency under
section 211 of the Clean Air Act (42 U.S.C.
7545), and
‘‘(ii) the requirements of the American
Society of Testing and Materials D6751.
‘‘(2) BIODIESEL MIXTURE NOT USED AS A FUEL,
ETC.—
‘‘(A) IMPOSITION OF TAX.—If—
‘‘(i) any credit was determined under
this section with respect to biodiesel V or
biodiesel NV used in the production of any
qualified biodiesel mixture, and
‘‘(ii) any person—
‘‘(I) separates such biodiesel from
the mixture, or
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‘‘(II) without separation, uses the
mixture other than as a fuel,
then there is hereby imposed on such person
a tax equal to the product of the biodiesel
mixture rate applicable under subsection
(b)(1)(B) and the number of gallons of the
mixture.
‘‘(B) APPLICABLE LAWS.—All provisions of
law, including penalties, shall, insofar as appli-
cable and not inconsistent with this section,
apply in respect of any tax imposed under sub-
paragraph (A) as if such tax were imposed by
section 4081 and not by this chapter.
‘‘(3) PASS-THRU IN THE CASE OF ESTATES AND
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of
section 52 shall apply.
‘‘(e) ELECTION TO HAVE BIODIESEL FUELS CREDIT
NOT APPLY.—
‘‘(1) IN
GENERAL.—A taxpayer may elect to
have this section not apply for any taxable year.
‘‘(2) TIME FOR MAKING ELECTION.—An election
under paragraph (1) for any taxable year may be
made (or revoked) at any time before the expiration
of the 3-year period beginning on the last date pre-
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scribed by law for filing the return for such taxable
year (determined without regard to extensions).
‘‘(3) MANNER OF MAKING ELECTION.—An elec-
tion under paragraph (1) (or revocation thereof) shall
be made in such manner as the Secretary may by reg-
ulations prescribe.’’.
‘‘(f) TERMINATION.—This section shall not apply to
any fuel sold after December 31, 2005.’’.
(2) CREDIT
TREATED
AS
PART
OF
GENERAL
BUSINESS
CREDIT.—Section 38(b), as amended by
this Act, is amended by striking ‘‘plus’’ at the end of
paragraph (15), by striking the period at the end of
paragraph (16) and inserting ‘‘, plus’’, and by add-
ing at the end the following new paragraph:
‘‘(17) the biodiesel fuels credit determined under
section 40B(a).’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 39(d), as amended by this Act,
is amended by adding at the end the following
new paragraph:
‘‘(12) NO
CARRYBACK
OF
BIODIESEL
FUELS
CREDIT BEFORE JANUARY 1, 2003.—No portion of the
unused business credit for any taxable year which is
attributable to the biodiesel fuels credit determined
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under section 40B may be carried back to a taxable
year beginning before January 1, 2003.’’.
(B) Section 196(c) is amended by striking
‘‘and’’ at the end of paragraph (9), by striking
the period at the end of paragraph (10), and by
adding at the end the following new paragraph:
‘‘(11) the biodiesel fuels credit determined under
section 40B(a).’’.
(C) Section 6501(m), as amended by this
Act, is amended by inserting ‘‘40B(e),’’ after
‘‘40(f),’’.
(D) The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amend-
ed by this Act, is amended by adding after the
item relating to section 40A the following new
item:
‘‘Sec. 40B. Biodiesel used as fuel.’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 2002.
(b) REDUCTION OF MOTOR FUEL EXCISE TAXES ON
BIODIESEL V MIXTURES.—
(1) IN
GENERAL.—Section 4081 (relating to
manufacturers tax on petroleum products) is amended
by adding at the end the following new subsection:
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‘‘(f) BIODIESEL V MIXTURES.—Under regulations pre-
scribed by the Secretary—
‘‘(1) IN GENERAL.—In the case of the removal or
entry of a qualified biodiesel mixture with biodiesel V,
the rate of tax under subsection (a) shall be the other-
wise applicable rate reduced by the biodiesel mixture
rate (if any) applicable to the mixture.
‘‘(2) TAX PRIOR TO MIXING.—
‘‘(A) IN GENERAL.—In the case of the re-
moval or entry of diesel fuel for use in producing
at the time of such removal or entry a qualified
biodiesel mixture with biodiesel V, the rate of tax
under subsection (a) shall be the rate determined
under subparagraph (B).
‘‘(B) DETERMINATION OF RATE.—For pur-
poses of subparagraph (A), the rate determined
under this subparagraph is the rate determined
under paragraph (1), divided by a percentage
equal to 100 percent minus the percentage of bio-
diesel V which will be in the mixture.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, any term used in this subsection which is also
used in section 40B shall have the meaning given
such term by section 40B.
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‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (6) and (7) of subsection
(c) shall apply for purposes of this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 4041 is amended by adding at
the end the following new subsection:
‘‘(n) BIODIESEL V MIXTURES.—Under regulations
prescribed by the Secretary, in the case of the sale or use
of a qualified biodiesel mixture (as defined in section
40B(b)(2)) with biodiesel V, the rates under paragraphs (1)
and (2) of subsection (a) shall be the otherwise applicable
rates, reduced by any applicable biodiesel mixture rate (as
defined in section 40B(b)(1)(B)).’’.
(B) Section 6427 is amended by redesig-
nating subsection (p) as subsection (q) and by
inserting after subsection (o) the following new
subsection:
‘‘(p) BIODIESEL V MIXTURES.—Except as provided in
subsection (k), if any diesel fuel on which tax was imposed
by section 4081 at a rate not determined under section
4081(f) is used by any person in producing a qualified bio-
diesel mixture (as defined in section 40B(b)(2)) with bio-
diesel V which is sold or used in such person’s trade or busi-
ness, the Secretary shall pay (without interest) to such per-
son an amount equal to the per gallon applicable biodiesel
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mixture rate (as defined in section 40B(b)(1)(B)) with re-
spect to such fuel.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to any fuel sold after
December 31, 2002, and before January 1, 2006.
(c) HIGHWAY TRUST FUND HELD HARMLESS.—There
are hereby transferred (from time to time) from the funds
of the Commodity Credit Corporation amounts determined
by the Secretary of the Treasury to be equivalent to the re-
ductions that would occur (but for this subsection) in the
receipts of the Highway Trust Fund by reason of the
amendments made by this section.
SEC. 2009. CREDIT FOR TAXPAYERS OWNING COMMERCIAL
POWER TAKEOFF VEHICLES.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits), as
amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45N. COMMERCIAL POWER TAKEOFF VEHICLES CRED-
IT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
amount of the commercial power takeoff vehicles credit de-
termined under this section for the taxable year is $250 for
each qualified commercial power takeoff vehicle owned by
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the taxpayer as of the close of the calendar year in which
or with which the taxable year of the taxpayer ends.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED COMMERCIAL POWER TAKEOFF
VEHICLE.—The term ‘qualified commercial power
takeoff vehicle’ means any highway vehicle described
in paragraph (2) which is propelled by any fuel sub-
ject to tax under section 4041 or 4081 if such vehicle
is used in a trade or business or for the production
of income (and is licensed and insured for such use).
‘‘(2) HIGHWAY VEHICLE DESCRIBED.—A high-
way vehicle is described in this paragraph if such ve-
hicle is—
‘‘(A) designed to engage in the daily collec-
tion of refuse or recyclables from homes or busi-
nesses and is equipped with a mechanism under
which the vehicle’s propulsion engine provides
the power to operate a load compactor, or
‘‘(B) designed to deliver ready mixed con-
crete on a daily basis and is equipped with a
mechanism under which the vehicle’s propulsion
engine provides the power to operate a mixer
drum to agitate and mix the product en route to
the delivery site.
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‘‘(c) EXCEPTION FOR VEHICLES USED BY GOVERN-
MENTS, ETC.—No credit shall be allowed under this section
for any vehicle owned by any person at the close of a cal-
endar year if such vehicle is used at any time during such
year by—
‘‘(1) the United States or an agency or instru-
mentality thereof, a State, a political subdivision of
a State, or an agency or instrumentality of one or
more States or political subdivisions, or
‘‘(2) an organization exempt from tax under sec-
tion 501(a).
‘‘(d) DENIAL OF DOUBLE BENEFIT.—The amount of
any deduction under this subtitle for any tax imposed by
subchapter B of chapter 31 or part III of subchapter A of
chapter 32 for any taxable year shall be reduced (but not
below zero) by the amount of the credit determined under
this subsection for such taxable year.
‘‘(e) TERMINATION.—This section shall not apply with
respect to any calendar year after 2004.’’.
(b) CREDIT MADE PART
OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit), as amended by this Act, is amended by
striking ‘‘plus’’ at the end of paragraph (22), by striking
the period at the end of paragraph (23) and inserting ‘‘,