To amend the Internal Revenue Code of 1986 to allow a credit for biodiesel fuel.

February 11, 2003

Mrs. LINCOLN (for herself, Mr. Grassley, Mr. Hagel, Mr. Dayton, Mr. Durbin, Mr. Harkin, Mr. Coleman, and Mr. Johnson) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to allow a credit for biodiesel fuel.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Biodiesel Promotion Act of 2003'.

SEC. 2. INCENTIVES FOR BIODIESEL.

(a) CREDIT FOR BIODIESEL USED AS A FUEL-

(1) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business related credits) is amended by inserting after section 40 the following new section:

`SEC. 40A. BIODIESEL USED AS FUEL.

`(a) GENERAL RULE- For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the biodiesel mixture credit.

`(b) DEFINITION OF BIODIESEL MIXTURE CREDIT- For purposes of this section--

`(1) BIODIESEL MIXTURE CREDIT-

`(A) IN GENERAL- The biodiesel mixture credit of any taxpayer for any taxable year is the sum of the products of the biodiesel mixture rate for each qualified biodiesel mixture and the number of gallons of such mixture of the taxpayer for the taxable year.

`(B) BIODIESEL MIXTURE RATE- For purposes of subparagraph (A), the biodiesel mixture rate for each qualified biodiesel mixture shall be--

`(i) in the case of a mixture with only biodiesel V, 1 cent for each whole percentage point (not exceeding 20 percentage points) of biodiesel V in such mixture, and

`(ii) in the case of a mixture with biodiesel NV, or a combination of biodiesel V and biodiesel NV, 0.5 cent for each whole percentage point (not exceeding 20 percentage points) of such biodiesel in such mixture.

`(2) QUALIFIED BIODIESEL MIXTURE-

`(A) IN GENERAL- The term `qualified biodiesel mixture' means a mixture of diesel and biodiesel V or biodiesel NV which--

`(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

`(ii) is used as a fuel by the taxpayer producing such mixture.

`(B) SALE OR USE MUST BE IN TRADE OR BUSINESS, ETC-

`(i) IN GENERAL- Biodiesel V or biodiesel NV used in the production of a qualified biodiesel mixture shall be taken into account--

`(I) only if the sale or use described in subparagraph (A) is in a trade or business of the taxpayer, and

`(II) for the taxable year in which such sale or use occurs.

`(ii) CERTIFICATION FOR BIODIESEL V- Biodiesel V used in the production of a qualified biodiesel mixture shall be taken into account only if the taxpayer described in subparagraph (A) obtains a certification from the producer of the biodiesel V which identifies the product produced.

`(C) CASUAL OFF-FARM PRODUCTION NOT ELIGIBLE- No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.

`(c) COORDINATION WITH EXEMPTION FROM EXCISE TAX- The amount of the credit determined under this section with respect to any biodiesel V shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such biodiesel V solely by reason of the application of section 4041(n) or section 4081(f).

`(d) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) BIODIESEL V DEFINED- The term `biodiesel V' means the monoalkyl esters of long chain fatty acids derived solely from virgin vegetable oils for use in compressional-ignition (diesel) engines. Such term shall include esters derived from vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds.

`(2) BIODIESEL NV DEFINED- The term `biodiesel NV' means the monoalkyl esters of long chain fatty acids derived from nonvirgin vegetable oils or animal fats for use in compressional-ignition (diesel) engines.

`(3) REGISTRATION REQUIREMENTS- The terms `biodiesel V' and `biodiesel NV' shall only include a biodiesel which meets--

`(i) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

`(ii) the requirements of the American Society of Testing and Materials D6751.

`(4) BIODIESEL MIXTURE NOT USED AS A FUEL, ETC-

`(A) IMPOSITION OF TAX- If--

`(i) any credit was determined under this section with respect to biodiesel V or biodiesel NV used in the production of any qualified biodiesel mixture, and

`(ii) any person--

`(I) separates such biodiesel from the mixture, or

`(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the biodiesel mixture rate applicable under subsection (b)(1)(B) and the number of gallons of the mixture.

`(B) APPLICABLE LAWS- All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) as if such tax were imposed by section 4081 and not by this chapter.

`(5) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS- Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

`(e) ELECTION TO HAVE BIODIESEL FUELS CREDIT NOT APPLY-

`(1) IN GENERAL- A taxpayer may elect to have this section not apply for any taxable year.

`(2) TIME FOR MAKING ELECTION- An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).

`(3) MANNER OF MAKING ELECTION- An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.

`(f) TERMINATION- This section shall not apply to any fuel sold after December 31, 2005.'.

(2) CREDIT TREATED AS PART OF GENERAL BUSINESS CREDIT- Section 38(b) of the Internal Revenue Code of 1986 is amended by striking `plus' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `, plus', and by adding at the end the following new paragraph:

`(16) the biodiesel fuels credit determined under section 40A(a).'.

(3) CONFORMING AMENDMENTS-

(A) Section 39(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

`(11) NO CARRYBACK OF BIODIESEL FUELS CREDIT BEFORE JANUARY 1, 2003- No portion of the unused business credit for any taxable year which is attributable to the biodiesel fuels credit determined under section 40A may be carried back to a taxable year beginning before January 1, 2003.'.

(B) Section 196(c) of such Code is amended by striking `and' at the end of paragraph (9), by striking the period at the end of paragraph (10), and by adding at the end the following new paragraph:

`(11) the biodiesel fuels credit determined under section 40A(a).'.

(C) Section 6501(m) of such Code is amended by inserting `40A(e),' after `40(f),'.

(D) The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding after the item relating to section 40 the following new item:

`Sec. 40A. Biodiesel used as fuel.'.

(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years beginning after December 31, 2002.

(b) REDUCTION OF MOTOR FUEL EXCISE TAXES ON BIODIESEL V MIXTURES-

(1) IN GENERAL- Section 4081 of the Internal Revenue Code of 1986 (relating to manufacturers tax on petroleum products) is amended by adding at the end the following new subsection:

`(f) BIODIESEL V MIXTURES- Under regulations prescribed by the Secretary--

`(1) IN GENERAL- In the case of the removal or entry of a qualified biodiesel mixture with biodiesel V, the rate of tax under subsection (a) shall be the otherwise applicable rate reduced by the biodiesel mixture rate (if any) applicable to the mixture.

`(2) TAX PRIOR TO MIXING-

`(A) IN GENERAL- In the case of the removal or entry of diesel fuel for use in producing at the time of such removal or entry a qualified biodiesel mixture with biodiesel V, the rate of tax under subsection (a) shall be the rate determined under subparagraph (B).

`(B) DETERMINATION OF RATE- For purposes of subparagraph (A), the rate determined under this subparagraph is the rate determined under paragraph (1), divided by a percentage equal to 100 percent minus the percentage of biodiesel V which will be in the mixture.

`(3) DEFINITIONS- For purposes of this subsection, any term used in this subsection which is also used in section 40A shall have the meaning given such term by section 40A.

`(4) CERTAIN RULES TO APPLY- Rules similar to the rules of paragraphs (6) and (7) of subsection (c) shall apply for purposes of this subsection.'.

(2) CONFORMING AMENDMENTS-

(A) Section 4041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

`(n) BIODIESEL V MIXTURES- Under regulations prescribed by the Secretary, in the case of the sale or use of a qualified biodiesel mixture (as defined in section 40A(b)(2)) with biodiesel V, the rates under paragraphs (1) and (2) of subsection (a) shall be the otherwise applicable rates, reduced by any applicable biodiesel mixture rate (as defined in section 40A(b)(1)(B)).'.

(B) Section 6427 of such Code is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

`(p) BIODIESEL V MIXTURES- Except as provided in subsection (k), if any diesel fuel on which tax was imposed by section 4081 at a rate not determined under section 4081(f) is used by any person in producing a qualified biodiesel mixture (as defined in section 40A(b)(2)) with biodiesel V which is sold or used in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the per gallon applicable biodiesel mixture rate (as defined in section 40A(b)(1)(B)) with respect to such fuel.'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to any fuel sold after December 31, 2002, and before January 1, 2006.

(c) HIGHWAY TRUST FUND HELD HARMLESS- There are hereby transferred (from time to time) from the funds of the Commodity Credit Corporation amounts determined by the Secretary of the Treasury to be equivalent to the reductions that would occur (but for this subsection) in the receipts of the Highway Trust Fund by reason of the amendments made by this section.

END