US biodiesel industry responds to tax credit legislation

By Nicholas Zeman | September 18, 2009
B99 could soon be a thing of the past. That's what producers are saying will happen if the Biodiesel Tax Incentive Reform and Extension Act, a piece of legislation introduced to Congress in August by U.S. Sens. Chuck Grassley (R-IA) and Maria Cantwell (D-WA), becomes law. The National Biodiesel Board said this was a "common sense" proposal that will bring stability and reliability to the marketplace by extending the tax incentive for five years, and changing the excise tax for biodiesel from a blender to a producer credit.

As industry leaders responded to Biodiesel Magazine's questions about the proposed changes, some strongly disagreed with NBB's applause of the measure in Washington to convert from a blender excise tax credit to a producer excise tax credit. "I don't understand their wanting to change that," said one NBB member, who asked not to be named. "I don't see the sense or the advantage in it."

The source indicated that producers who sell B100 are able to keep their books clean because they don't file any claims with the Internal Revenue Service. This allows them to bill the $1 per gallon credit into their sale price and let distributors, who blend the fuel, deal with the paperwork. "It usually takes about 10 days for us to get paid by our customers," said the source. "When you're dealing with the federal government, 45 days is good."

The longer a producer has to wait to get paid, the more of its own capital it has to invest to maintain its inventory and procure feedstocks, which could be a problem imposed by a conversion of the credit. "I understand that it's a cash flow issue," said Bobby Heiser of Bulldog Biodiesel. "But most of the time we're the blender of record anyway, so we're already dealing with the IRS. The way that this change will make it easier for us will be by eliminating B99."

Management at Lake Erie Biofuels, a plant with a 45 MMgy capacity in Erie, Pa., agreed. "We sell maybe a couple of truckloads of B100 while B99 makes up almost 90 percent of our total sales," said Michael Noble, director of operations at LEB. "Changing the excise tax will be better for our customers, but it doesn't change our position."

Griffin Industries in Cold Spring, Ky., stated that it receives payments from the federal government about once a month regarding its excise tax credit benefit for selling B99. "Once you're in the system, the payments come in pretty regularly," said Jim Conway, Griffin Industries vice president of marketing and sales. "So, I don't see that as a problem."

Aaron Parrish of OceanConnect, a blender and distributor in White Plains, N.Y., said converting the credit will lessen the paper work for blenders and encourage sales. "We'll still get benefits because we'll pay less for biodiesel on the front end, and producers won't be able to bill the dollar into their sale price," he said. "So if we were buying biodiesel at $3 per gallon before and having to file a claim to get reimbursed, [but if the measure passes] we'll be buying biodiesel for $2 per gallon and we're done."

On the West Coast, Joe Gershen of Tellurian Biodiesel also expressed his support for the new measure. "The way we see it, this would basically eliminate B99, and a lot of extra work that producers are currently doing," he said. "So we're all for it. Grassley and Cantwell introduced this last week-good for them."

The only complaint was that the $1-per-gallon benefit be extended for a much longer period than five years. "It'd be better if it was 10 years," Heiser said. "But I am glad that there is a proposal to extend it for more than one year. We need stability and consistency from the government in this industry."
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