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Problem:SECTION 1. SHORT TITLE.

This Act may be cited as the ''Biodiesel Promotion Act of 2003''.

SEC. 2. 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 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 taxpayer for the taxable year.
''(B) Biodiesel mixture rate.--For purposes 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
biodiesel NV, or a combination of biodiesel V
and biodiesel NV, 0.5 cent for each whole
percentage point (not exceeding 20 percentage
points) of such biodiesel in such mixture.
''(2) Qualified biodiesel mixture.--
''(A) In general.--The term 'qualified biodiesel
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 biodiesel
NV used in the production of a qualified
biodiesel mixture shall be taken into account--
''(I) only if the sale or use
described 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 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 production of a qualified
biodiesel mixture.
''(c) Coordination With Exemption From Excise Tax.--The amount of
the credit determined under this section 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 purposes 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.
''(2) Biodiesel nv defined.--The term 'biodiesel 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.
''(4) 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
''(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 applicable and
not inconsistent with this section, apply in respect of
any tax imposed under subparagraph (A) as if such tax
were imposed by section 4081 and not by this chapter.
''(5) Pass-thru in the case of estates and trusts.--Under
regulations prescribed by the Secretary, 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 prescribed by law for filing the return for
such taxable year (determined without regard to extensions).
''(3) Manner of making election.--An election under
paragraph (1) (or revocation thereof) shall be made in such
manner as the Secretary may by regulations 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) of the Internal Revenue Code of 1986 is amended
by striking ''plus'' at the end of paragraph (14), by striking
the period at the end of paragraph (15) and inserting '',
plus'', and by adding at the end the following new paragraph:
''(16) the biodiesel fuels credit determined under section
40A(a).''.
(3) Conforming amendments.--
(A) Section 39(d) of the Internal Revenue Code of
1986 is amended by adding at the end the following new
paragraph:
''(11) 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 under section 40A may be carried back to a
taxable year beginning before January 1, 2003.''.
(B) Section 196(c) of such Code 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
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
adding after the item relating 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 beginning after December 31, 2002.
(b) Reduction of Motor Fuel Excise Taxes on Biodiesel V Mixtures.--
(1) In general.--Section 4081 of the Internal Revenue Code
of 1986 (relating to manufacturers tax on petroleum products)
is amended by adding at the end the following new subsection:
''(f) Biodiesel V Mixtures.--Under regulations prescribed 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 otherwise 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 removal 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 purposes 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 biodiesel V which will be in the
mixture.
''(3) Definitions.--For purposes of this subsection, 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 the Internal Revenue Code of
1986 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 40A(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 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 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 biodiesel mixture (as defined in section 40A(b)(2)) with
biodiesel V which is sold or used in such person's trade or business,
the Secretary shall pay (without interest) to such person an amount
equal to the per gallon applicable biodiesel mixture 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, 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 reductions that would occur (but for this subsection) in the
receipts of the Highway Trust Fund by reason of the amendments made by
this section.
Solution:
Biodiesel Promotion Act of 2003 - Amends the Internal Revenue Code to establish a biodiesel fuels credit.