Federal Tax Incentives: Small Ethanol Producer Tax Credit
Under current law, small ethanol producers are allowed a 10 cents per gallon, production income tax credit on up to 15 million gallons of production, annually. The credit, which is capped at $1.5 million per year per producer, is only available to small scale ethanol producers with an annual production capacity of no more than 60 million gallons per year. The credit can be claimed against the producer’s income tax liability.
The small ethanol producer tax credit helps promote and encourage small businesses and farmer cooperatives who are involved in the production of ethanol. Given that small businesses are responsible for a large portion of our nation’s job creation and economic growth, this tax credit is helping to revitalize our nation’s rural communities, expand green job opportunities an and improve our overall economy.
The Small Ethanol Producer Tax Credit (“SEPTC”) expires December 31, 2010, along with the Volumetric Ethanol Excise Tax Credit (“VEETC”). To make sure the ethanol industry continues to grow and thrive, the RFA is working closely with its friends and supporters in Congress to provide long term extension of the SEPTC and other important tax incentives.
With RFA’s help, on March 24, 2010, Congressman Earl Pomeroy (D-ND) and Congressman John Shimkus (R-IL) introduced H.R. 4940, the Renewable Fuels Reinvestment Act of 2010, which calls for a 5 year extension of the 10 cent Small Ethanol Producer Tax Credit, the 45 cent VEETC, and the Secondary Tariff on Ethanol. The bill also extends the $1.01 Cellulosic Biofuel Producer Tax Credit through 2015. The RFA is currently working closely with its friends and supporters in the Senate to have companion legislation extending VEETC and the other tax incentives introduced in that body soon.
Legislative Background
The SEPTC has been in existence for many years. It was initially introduced by Senator Bob Dole (R-KS) and passed as part of the Omnibus Budget Reconciliation Act of 1990.
While the credit was intended to provide tax incentives for small producers, the initial legislation was riddled with technical difficulties and unintended results that hampered its effectiveness. As a result, the credit had limited use during the first 15 years of its existence.
Over the last decade, significant efforts were expended by the RFA to correct and improve the technical language and address unforeseen issues surrounding farmer cooperative ownership of ethanol plants. And, with the help of our friends in Congress, the RFA’s efforts helped secure the necessary legislative improvements. First, in 2004, the Jumpstart Our Business Strength (JOBS) Act, improved the incentive by allowing the credit to be passed through to the farmer owners of a cooperative, and permitting the credit to be offset against the alternative minimum tax (AMT). Then, as part of the Energy Policy Act of 2005, Congress changed the definition of a “small ethanol producer” from 30 million gallons per year to 60 million gallons per year to reflect the changing nature of the industry. It also created a similar tax credit for small producers of agri-biodiesel.
