[Biofuels_Interest_Group] Bond and Motor Fuels Tax

[Matthew Rudolf]

Okay everybody,
I have been crawling through this with a fine tooth comb since last  
Friday so that when I finally reported back to everybody I would have  
some useful information to share with everyone.  I'm not a tax  
lawyer, I'm a homebrewer, so pouring through these statutes is  
horribly painful for me, but hopefully this information will provide  
some clarity.  This email will eventually be refined into a reference  
for the new law, and for now here is the deal regarding the two new  
laws as best as I can piece it together.

First of all, S540 (the bond requirement):
The requirement to post a $2000 bond in order to remit road tax has  
been lifted for all biodiesel producers whose "average expected  
annual tax liability under this Article, as determined by the  
Secretary, is at least two thousand dollars ($2,000)".  Currently  
North Carolina motor fuels tax for biodiesel is $0.297/gal.  $2000  
divided by $0.297 = 6734 gallons of biodiesel.  This means that if  
you produce under 6734 gallons of biodiesel per year, you do NOT need  
to post a bond in order to remit the motor fuels tax to the North  
Carolina Department of Revenue, Motor Fuels Tax Division.  The amount  
of road taxes due changes from time to time, and you can always check  
the current NC motor fuels road tax at: http://www.dor.state.nc.us/ 
taxes/motor/rates.html

Second of all, S1272 (the wavier of motor fuels tax):
This is an interesting one because it came completely out of the  
blue.  First of all, as Jurgen pointed out it did indeed morph from  
an attempt to change the definition of biodiesel to more correctly  
represent what biodiesel really is (ie. the ASTM spec).  Currently,  
according to the North Carolina State Statutes for motor fuels (see:  
http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/ 
ByArticle/Chapter_105/Article_36C.html) Biodiesel is defined as  
"Biodiesel. – Any fuel or mixture of fuels derived in whole or in  
part from agricultural products or animal fats or wastes from these  
products or fats."
Reading this, two things come to mind:
First off, this is an absolutely terrible definition of biodiesel,  
and secondly, according to this definition SVO would be considered  
biodiesel as far as the NC Dept. of Revenue is concerned.

At the last minute S1272 somehow morphed into a law that has exempted  
"Biodiesel that is produced by an individual for use in a private  
passenger vehicle registered in that individual's name" from paying  
motor fuels tax.  This means that individual homebrewers (and SVOers  
under the current NC definition of biodiesel) do not need to pay  
motor fuels taxes at all, so the bond wavier mentioned above is a  
moot point for them.  However, interestingly, this does not apply to  
cooperatives, since the definition is very clear that this exemption  
is for individuals, not business entities.  That said, if a biodiesel  
producer cooperative makes under the 6734 gallons per year, they no  
longer need to post a bond (see above), even though they still need  
to pay road tax.  The motor fuels tax exemption law goes into effect  
October 1, 2007.

Obviously this is wonderful and exciting news, however, why did the  
DOR decide to completely change their course from altering the  
definition to exempting homebrewers from road tax?  In fact, there is  
a rumor that Conocophillips has been talking to the DOR about getting  
the same biodiesel tax breaks for their "biodiesel" that they produce  
on a massive scale through a thermal depolymerization process and  
then blending it in their current diesel fuel.  This issue was  
discussed on an earlier thread on the BIG list, or you can get more  
information at: http://www.biodiesel.org/news/07clicktrhrus/ 
20070416_renewablediesel.shtm
A potential problem if we don't change the definition of biodiesel to  
reflect the ASTM D6751 spec is that companies may take advantage of  
tax credits that were specifically designed to benefit biodiesel  
producers.  Therefore, although the current definition is  
advantageous to SVOers it is important that we continue to push to  
update the definition.    I know SVOers are going to cringe, but we  
need to continue to push to update this definition.

Finally, as far as the Feds are concerned one, you still need to pay  
the IRS your fuel tax on a quarterly basis if you are a homebrewer.   
We are working on updating the taxes section of our website to  
include information on how to file with the Feds, or you can give us  
a call at Piedmont Biofuels and in exchange for becoming a member we  
can help get you set up to file with the IRS.  SVOers, unfortunately,  
are still out of luck, as I still believe the EPA is not going to  
consider SVO a legal fuel for use in the United States.  See the  
following link: http://www.epa.gov/smartway/growandgo/documents/ 
factsheet-biodiesel.htm

Hope this helps clear things up a bit.

Regards,
Matt


Matthew Rudolf
Executive Director
Piedmont Biofuels
www.biofuels.coop
919-533-0172