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Tax Package Will Boost Iowa Biofuel Industry

Tax Package Will Boost Iowa Biofuel Industry

Iowa farm groups applaud passage of the comprehensive federal tax package by Congress last week. The new law contains a number of provisions that affect agriculture, including benefits for biofuels.

Late in the night on December 16 the U.S. House of Representatives passed a comprehensive tax package by a wide margin, voting 277 to 148 to send the bill to President Obama for his signature. Obama signed it into law December 17.

Included in the package was the retroactive extension of the biodiesel blenders tax credit through 2011. Also included was an extension of the ethanol blenders tax credit at the current rate of 45 cents per gallon through 2011.

Iowa Renewable Fuels Association executive director Monte Shaw responded: "Last night's action by the House sends a very strong bill for renewable fuels to the President for his signature. And even before that ink will dry the positive impact is being felt. IRFA has received word that biodiesel plants are already putting sales contracts in place and making the necessary arrangements to begin rehiring workers at some plants."

State policies will now be the key to putting Iowa first

Shaw continued:  "At the same time, the ethanol incentive extension should keep our Iowa ethanol plants running. An abrupt end would have caused market disruptions and likely led to ethanol plant shutdowns. Today's action sets the stage for strong renewable fuels demand. IRFA will now turn its attention to promoting state policies that put Iowa at the forefront of breaking through the E10 blend wall and jumpstarting Iowa biodiesel production."

The $858 billion tax bill extends many tax policies that would have otherwise expired at the end of 2010. "It includes a provision to extend the Volumetric Ethanol Excise Tax Credit, commonly called the blenders tax credit at its current rate of 45 cents per gallon for one year," notes Mindy Larsen Poldberg, director of government relations for the Iowa Corn Growers Association. "It also extends the 54 cent per gallon tariff on imported ethanol for one year. We thank the entire Iowa Congressional delegation for its steadfast support of ethanol policy."

Estate tax provision has two-year 35% rate, $5 million exemption

The tax package also provides a two-year 35% estate tax rate with an exemption of $5 million per person. The Iowa Corn Growers Association supported passage of this estate tax provision. Under the tax bill as passed in 2001, the estate tax was pared back year after year until it disappeared for just one year—and that was in 2010. If Congress didn't act before the end of 2010, the estate tax (beginning in 2011) would have automatically reverted back to the rates that were in place before 2001.

"Allowing estate taxes to be reinstated without a reasonable exemption rate may have put many farming operations at risk," says Poldberg. "Iowa Corn supported passage of the 35% rate and a $5 million per person exemption amount." One proposal that didn't make it through Congress was to increase the rate to 45% and decrease the exemption amount to $3.5 million.

Extends biodiesel tax incentive retroactively through 2011

Also among its many provisions, the new tax law retroactively extends the biodiesel tax credit incentive through 2011 and provides for an expedited process to claim retroactive 2010 credits. "This is an important step," says Kirk Leeds, CEO of the Iowa Soybean Association. "It's been a long road to this point. It's unfortunate that a policy that makes economic sense has been caught up in divisive politics in Washington, D.C."

"The successful passage of this bill will create more certainty for both biodiesel manufacturers and customers in 2011," Leeds adds. "In addition to being important to the biodiesel industry, the biodiesel tax incentive is important to Iowa soybean farmers as it helps provide strong demand for soybean oil."

Biodiesel is a commercially viable, renewable, low carbon diesel replacement fuel that is widely accepted in the marketplace, he notes. The fuel meets an exact commercial fuel specification (ASTM D6751) and is the only domestically produced, commercial scale fuel that qualifies as an Advanced Biofuel under the Renewable Fuels Standard.

The biodiesel tax incentive is structured in a manner that makes the fuel price competitive with conventional diesel fuel in the marketplace. The lapse of the tax incentive on December 31, 2009, has had a detrimental impact on the domestic biodiesel industry. Conversely, retroactive reinstatement and extension of the tax incentive through 2011 is widely expected to significantly increase the domestic production and use of biodiesel
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