California governor signs bill to correct biodiesel tax issue

Governor of California Jerry Brown has signed into law Assembly Bill 1032 (AB1032), which corrects a tax problem with biodiesel and clears the way for a significant increase in the volume of biodiesel blended in the US state.

The bill, introduced by Assembly Member Rudy Salas and sponsored by the California Biodiesel Alliance (CBA), amends Section 60501 of the Revenue and Taxation Code by adding biodiesel to the law allowing for refunds on nontaxable fuel.

Beginning 1 January, refunds will be available through the State Board of Equalization on the portion of the non-taxable (dyed) biodiesel removed from the terminal to those that can show they have already paid tax on that fuel.

The law currently imposes an excise or ‘road’ tax on diesel fuel, and allows reimbursement for the amount of such taxes to entities who have used tax-paid fuel in certain non-taxable uses, for which the fuel is dyed red. 

The problem is that clear biodiesel is typically sold to refiners and fuel wholesalers, and then transported by truck from the production facility to fuel terminals.

Thus, biodiesel producers are required to pay the state fuel tax on their biodiesel sales, and must then charge the buyers for such taxes.

Refiners and fuel wholesalers have so far not been able to claim a refund or credit for the taxes they pay on biodiesel when it is blended with dyed diesel for non-taxable use.

‘Our industry estimates that the problem may be effectively preventing biodiesel from being blended into 15-30% of the diesel volume, depending on how much dyed diesel that terminal is handling,’ says Harry Simpson, president of Crimson Renewable Energy and CBA board member.

‘The problem affects every terminal and refinery rack in the state that is blending, or contemplating blending, biodiesel.’