I 
108TH CONGRESS 
1ST SESSION H. R. 1279
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 
MARCH 13, 2003
Mr. HULSHOF (for himself, Mr. POMEROY, Mr. LEWIS of Kentucky, Mr. KEN-
NEDY of Minnesota, Mr. WELLER, Mr. LIPINSKI, Mrs. EMERSON, Mr. 
SKELTON, Mr. SHIMKUS, Mr. BERRY, Mr. RYUN of Kansas, Mr. MCIN-
TYRE, Mr. JOHNSON of Illinois, Mr. PAYNE, Mr. REHBERG, Mr. 
COSTELLO, Mr. HOSTETTLER, Mr. PETERSON
of Minnesota, Mr. 
LAHOOD, Mr. ROSS, Mr. LEACH, Mr. ANDREWS, Mr. BEREUTER, Mr. 
GILCHREST, and Mr. ETHERIDGE) 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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. INCENTIVES FOR BIODIESEL. 
(a) CREDIT FOR BIODIESEL USED AS A FUEL.—
(1) IN GENERAL.—Subpart D of part IV of 
subchapter A of chapter 1 of the Internal Revenue
Code of 1986 (relating to business related credits) is 
amended by inserting after section 40 the following 
new section: 
‘‘SEC. 40A. 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 mix-
ture credit. 
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CRED-
IT.—For purposes of this section—
‘‘(1) BIODIESEL MIXTURE CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel mixture 
credit of any taxpayer for any taxable year is 
an amount equal to the biodiesel mixture rate 
for each gallon of biodiesel used by the taxpayer 
in the production of a qualified biodiesel mix-
ture. 
‘‘(B) BIODIESEL
MIXTURE
RATE.—For 
purposes of subparagraph (A), the biodiesel 
mixture rate is 1 cent for each whole percent-
age point (not exceeding 20 percentage points) 
of biodiesel in the mixture. 
‘‘(2) QUALIFIED BIODIESEL MIXTURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
biodiesel mixture’ means a mixture of diesel 
and biodiesel 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 used in 
the production of a qualified biodiesel mix-
ture 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
BIO-
DIESEL.—Biodiesel used in the production 
of a qualified biodiesel mixture shall be 
taken into account only if the taxpayer de-
scribed in subparagraph (A) obtains a cer-
tification from the producer of the bio-
diesel which identifies the product pro-
duced. 
‘‘(C) CASUAL OFF-FARM PRODUCTION NOT 
ELIGIBLE.—No credit shall be allowed under 
this section with respect to any casual off-farm 
production of a qualified biodiesel mixture. 
‘‘(c) COORDINATION WITH EXEMPTION FROM EX-
CISE TAX.—The amount of the credit determined under 
this section with respect to any biodiesel shall, under regu-
lations prescribed by the Secretary, be properly reduced 
to take into account any benefit provided with respect to 
such biodiesel 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
DEFINED.—The term ‘bio-
diesel’ 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 vege-
table oils from corn, soybeans, sunflower seeds, cot-
tonseeds, canola, crambe, rapeseeds, safflowers, 
flaxseeds, rice bran, and mustard seeds.
‘‘(2) 
REGISTRATION
REQUIREMENTS.—The 
term ‘biodiesel’ shall only include a biodiesel which 
meets—
‘‘(A) the registration requirements for 
fuels and fuel additives established by the Envi-
ronmental Protection Agency under section 211 
of the Clean Air Act (42 U.S.C. 7545), and 
‘‘(B) the requirements of the American So-
ciety of Testing and Materials D6751. 
‘‘(3) 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 used 
in the production of any qualified biodiesel 
mixture, and 
‘‘(ii) any person— 
‘‘(I) 
separates 
such 
biodiesel 
from the mixture, or 
‘‘(II) without separation, uses the 
mixture other than as a fuel, 
then there is hereby imposed on such per-
son a tax equal to the product of the bio-
diesel mixture rate applicable under sub-
section (b)(1)(B) and the number of gal-
lons 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. 
‘‘(4) 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 elec-
tion under paragraph (1) for any taxable year may 
be made (or revoked) at any time before the expira-
tion of the 3-year period beginning on the last date 
prescribed by law for filing the return for such tax-
able year (determined without regard to exten-
sions).’’
(2) CREDIT TREATED AS PART OF GENERAL 
BUSINESS CREDIT.—Section 38(b) of such Code is
amended by redesignating paragraphs (4) through 
(15) as paragraphs (5) through (16), respectively, 
and by inserting after paragraph (3) the following 
new paragraph: 
‘‘(4) the biodiesel fuels credit determined under 
section 40A(a),’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 39(d) of such Code is amended 
by adding at the end the following new para-
graph: 
‘‘(11) NO
CARRYBACK
OF
BIODIESEL
FUELS 
CREDIT BEFORE JANUARY 1, 2004.—No portion of 
the unused business credit for any taxable year 
which is attributable to the biodiesel fuels credit de-
termined under section 40A may be carried back to 
a taxable year beginning before January 1, 2004.’’. 
(B) Section 196(c) of such Code is amend-
ed by redesignating paragraphs (4) through 
(10) as paragraphs (5) through (11), respec-
tively, and by inserting after paragraph (3) the 
following new paragraph: 
‘‘(4) the biodiesel fuels credit determined under 
section 40A(a),’’. 
(C) Section 6501(m) of such Code is 
amended by inserting ‘‘40A(e),’’ after ‘‘40(f),’’.
(D) The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such 
Code is amended by inserting after the item re-
lating to section 40 the following new item:
‘‘Sec. 40A. Biodiesel used as fuel.’’.
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2003. 
(b) REDUCTION OF MOTOR FUEL EXCISE TAXES ON 
BIODIESEL MIXTURES.—
(1) IN GENERAL.—Section 4081 of such Code 
(relating to manufacturers tax on petroleum prod-
ucts) is amended by adding at the end the following 
new subsection: 
‘‘(f) BIODIESEL MIXTURES.—Under regulations pre-
scribed by the Secretary—
‘‘(1) IN GENERAL.—In the case of the removal 
or entry of a qualified biodiesel mixture, the rate of 
tax under subsection (a) shall be the otherwise appli-
cable rate reduced by the biodiesel mixture rate (if 
any) applicable to the mixture. 
‘‘(2) TAX PRIOR TO MIXING.—In the case of the 
removal or entry of diesel fuel for use in producing 
at the time of such removal or entry a qualified bio-
diesel mixture, the rate of tax under subsection (a) 
shall be the rate determined under paragraph (1),
divided by a percentage equal to 100 percent minus 
the percentage of biodiesel which will be in the mix-
ture. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, any term used in this subsection which is 
also used in section 40A shall have the meaning 
given such term by section 40A. 
‘‘(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 of such Code is amended 
by adding at the end the following new sub-
section: 
‘‘(n) BIODIESEL MIXTURES.—Under regulations pre-
scribed by the Secretary, in the case of the sale or use 
of a qualified biodiesel mixture (as defined in section 
40A(b)(2)), the rates under paragraphs (1) and (2) of 
subsection (a) shall be the otherwise applicable rates, re-
duced by any applicable biodiesel mixture rate (as defined 
in section 40A(b)(1)(B)).’’. 
(B) Section 6427 of such Code is amended 
by redesignating subsection (p) as subsection 
(q) and by inserting after subsection (o) the fol-
lowing new subsection:
‘‘(p) BIODIESEL 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 
biodiesel mixture (as defined in section 40A(b)(2)) which 
is sold or used in such person’s trade or business, the Sec-
retary shall pay (without interest) to such person an 
amount equal to the per gallon applicable biodiesel mix-
ture rate (as defined in section 40A(b)(1)(B)) with respect 
to such fuel.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to any fuel sold after 
December 31, 2003. 
(c) HIGHWAY TRUST FUND HELD HARMLESS.—
There are hereby transferred (from time to time) from the 
funds of the Commodity Credit Corporation amounts de-
termined by the Secretary of the Treasury to be equivalent 
to the reductions that would occur (but for this sub-
section) in the receipts of the Highway Trust Fund by 
reason of the amendments made by this section.
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