Biodiesel and Ethanol incentives

Washington State provides a variety of tax incentives to encourage the development of in-state production facilities, distribution services and retail sales facilities for biodiesel and ethanol fuels.

Definitions:

• "Alcohol fuel" means any alcohol made from a product other than petroleum or natural gas, which is used alone or in combination with gasoline or other petroleum products for use as a fuel for motor vehicles, farm implements and machines or implements of husbandry. For incentives applicable to distribution and retail sale of alcohol fuel, the fuel must be at least 85% of the volume of the fuel being sold or distributed.
• "Biodiesel fuel" means a mono alkyl ester of long chain fatty acids derived from vegetable oils or animal fats for use in compression-ignition engines and that meets the requirements of the American Society of Testing and Materials (ASTM) specification D6751 in effect as of January 1, 2003.
• "Biodiesel feedstock" means oil that is produced from an agricultural crop for the sole purpose of ultimately producing biodiesel fuel.
  

Business and Occupation (B&O) Tax Rate Reduction and Exemption

Special B&O tax rate provisions apply to the manufacturing and to the retail sale and distribution of biodiesel and alcohol fuels.

Manufacturing: The tax rate for manufacturers of alcohol fuel, biodiesel fuel or biodiesel feedstocks has been reduced from 0.484% to 0.138%. The lower rate does not apply to the manufacture of biodiesel fuel blends. The value of such products should be reported on Line 5 of the Combined Excise Tax Return.
Sale and Distribution: Amounts received from the retail sale or distribution of alcohol and biodiesel fuel are exempt from the B&O tax. Only income attributable to the pure biodiesel fuel portion of a blend is exempt.

Expiration Date: July 1, 2009

Property Tax and Leasehold Excise Tax Exemption

Qualifying buildings, equipment and land used in the manufacturing of alcohol fuel, biodiesel fuel, or biodiesel feedstocks are exempt from state and local property and leasehold taxes for a period of 6 years.

• Qualifying real and personal property: All buildings, machinery, equipment, and other personal property which is used primarily for the manufacturing of alcohol fuel, biodiesel fuel and/or biodiesel feedstock, the land upon which this property is located, and land that is reasonably necessary in the manufacturing process, but not land necessary for growing of crops.The property must be operational and must be used primarily for manufacturing alcohol fuel, biodiesel fuel or biodiesel feedstocks. The buildings and equipment must be new and not have existed before July of 2003.
• For manufacturing facilities that produce other products in addition to alcohol fuel, biodiesel fuel or biodiesel feedstocks, the property exemption will be computed on a ratio based on the annual value of the alcohol fuel, biodiesel and/or biodiesel feedstock as compared to the annual value of all other products produced.
• Application process: Application for the exemption must be made by November 1. Application for property tax exemption is made through the local county assessor. Application for leasehold excise tax exemption is made through the Department of Revenue.

Expiration Date: July 1, 2009

Sales and Use Tax Deferral/Exemption

Certain investments in buildings, equipment and labor are eligible for the deferral of state and local sales and use taxes. These incentives apply to the manufacturing of alcohol fuel, biodiesel fuel, and biodiesel feedstocks and to the retail sale and distribution of alcohol fuel and biodiesel fuel.

Manufacturing: Eligible projects are the manufacturing of alcohol fuel, biodiesel fuel, and biodiesel feedstocks.  Investments eligible for sales and use tax deferral/exemption are:

• Construction of new structures, and expansion or renovation of existing structure for the purpose of increasing floor space or production capacity, including plant offices and warehouses or other facilities for the storage of raw materials or finished goods.
• New industrial and research fixtures, equipment and support facilities that are integral to the manufacturing.
• Includes labor and services rendered in the planning, installation, and construction.
• Projects located in Spokane and neighboring counties are eligible for the incentives.

Retail Sale and Distribution: The purchase of machinery and equipment and the construction of facilities used directly for the retail sale of alcohol fuel or biodiesel fuel are exempt from retail sales and use tax. The purchase of fuel delivery vehicles and labor and service charges related to such vehicles are exempt from retails sales and use tax, provided 75% of the fuel distributed by them is alcohol fuel, biodiesel fuel or a biodiesel fuel blend. Structures and machinery and equipment that are also used for purposes other than the retail sale of biodiesel and alcohol fuel blends are exempt only on the portion directly associated with the retail sale of biodiesel or alcohol fuel blends.

Process:

• Application for deferral of taxes must be made before initiation of the construction of the investment project or acquisition of equipment or machinery. The state shall rule on the application within 60 days.
  Deferred taxes need not be repaid (a tax exemption is granted) if the recipient meets all requirements for seven calendar years.
• Persons taking the exemptions must provide the vendor with a properly completed Buyer’s Retail Sales Tax Certificate REV 27 0032e to document the tax exempt nature of the sale.
• Persons taking the deduction and the exemptions must also keep records necessary to verify their eligibility.

Expiration Date: July 1, 2009

Other biofuels legislation:

Renewable Fuels Standards for Biodiesel and Ethanol

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