Retailers that sell enough biodiesel and ethanol can save with tax incentives offered by the state of Iowa.
Nearly everyone in the fuel and transportation industries is aware of the federal Renewable Fuel Standard (RFS), which calls for increased usage of renewable fuels in order to reduce air pollution. Less well known is the Iowa RFS — a state law that incentivizes the sale of renewable fuels instead of requiring it.
Biodiesel + ethanol = tax savings
The incentive is the Ethanol Promotion Tax Credit, but don’t let its name fool you. Biodiesel plays a big role. Fuel retailers doing business in Iowa whose combined biodiesel and ethanol sales make up a certain percentage of their gasoline sales are rewarded with an extra tax credit. The Iowa RFS schedule for the next three years is:
- Retailers that meet the threshold are eligible for a tax credit of 8 cents for every gallon of ethanol (E100) sold.
- The credit drops to 6 cents per gallon for retailers within 2% of the threshold.
- The credit is 4 cents per gallon for retailers within 4% of the threshold.
How it works
Iowa Code says the biofuel percentage is calculated by taking the total ethanol gallons plus the total biodiesel gallons and dividing by the total gasoline gallons, or E100 + B100 / total gasoline = biofuel %. Note that diesel gallons are not included. As an example, let’s say a retailer had the following sales in 2018:
- The biofuel percentage is: 372,700 (262,700 + 110,000) / 1.43 million = 26%.
The retailer in this example would be eligible for a tax credit of 8 cents for each of the 262,700 ethanol gallons, or $21,016. That comes on top of the B11, E15 and E85 tax credits and the B11 tax differential the state of Iowa offers. Without biodiesel, the biofuel percentage would be 18.3 percent, meaning the retailer would not be able to receive the Ethanol Promotion Tax Credit.
NOTE: When first claiming the tax credit, a retailer must elect to do so on a company-wide basis or site-by-site basis.
REG is here to offer our expertise.
It’s important to work with your financial or tax advisor to fully understand how the Iowa RFS and the tax incentives may affect your business. REG has a team of policy specialists who can also help you navigate the process. Contact us today to start realizing the economic benefits of biodiesel.
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