Motor Fuels Tax Minute, Episode 13

Provisions in the Inflation Reduction Act are the topics for this week’s Motor Fuels Tax Minute. Join our hosts for an overview of the newly enacted non-refundable income tax credit for biofuel production.


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Detailed Transcription of Weaver’s Motor Fuels Tax Minute, Episode 13


Emilda: Welcome to Weaver's Motor Fuel tax Minute, where we talk all things motor fuels. This week we are talking about provisions in the Inflation Reduction Act related to a newly enacted non-refundable income tax credit for biofuel production. This is called "The Clean Fuel Production Credit," and it is a credit for the production in the United States of clean transportation fuel and sustainable aviation fuel. This credit comes into effect on January 2025 and is currently set to expire at the end of 2027.


Leanne: This credit is creating some confusion for transportation fuels. There's a base credit of $0.20 per gallon, or a dollar per gallon if prevailing wage and apprentice requirements are met, and for sustainable aviation fuel, there is a base credit of $0.35 per gallon, or $1.75 per gallon if prevailing wage and apprentice requirements are met.

This is pretty straightforward, where it gets more complicated is that the actual credit amount is determined using a formula that takes into account the base credit and the GHG emissions factor. The GHG emissions factor is where things get a little tricky, particularly for claimants producing fuels with a negative CI factor.

We're seeing two viewpoints on this. One is that the negative CI scores are treated as zero emissions and the credit is capped at the dollar, or $1.75 per gallon base, or $0.20 and $0.35 if there was prevailing wage requirements aren't met, with the possibility that the credit is actually lower if the CI is higher. The second school of thought is that negative CI scores are given full weight in the calculation and the credit could therefore exceed a dollar or a $1.75 base. In some instances, if the CI score is particularly low, you could see credits $5 or $6 per gallon.

So, what does the IRA say on this? Well, we ask them, and they're not saying a lot. Right now, they've told us they're reviewing the provisions and they'll issue guidance prior to the 2025 effective date.


Emilda: Interesting. It's also important to note that this new credit can only be claimed for production that occurs in the United States. We are getting a lot of questions regarding Canadian production -- that would not be eligible for the credit. It's also important for taxpayers to consider how this new credit interplays with other credits in the same Section 45 of the tax code. A qualified facility, for purposes of the Clean Fuel Production Credit in Section 45Z, cannot be a facility eligible for the clean hydrogen credit under Section 45V, Section 48 for a clean hydrogen production facility, or the carbon oxide sequestration credit under 45Q.


Leanne: When these credits come into effect, there's a lot for taxpayers to consider. In addition to that limitation on credit eligibility, taxpayers should note that unlike the current blender credits, the new production credit is only a non-refundable income tax credit. There is no related excise tax credit that goes along with it. However, a taxpayer that doesn't have income tax liability or doesn't have a lot of income tax liability still has options. Any income tax credits that can’t be used, due to there not being enough tax liability, can be carried forward to future years. The statute also includes an interesting transferability provision where for the first time these credits can be sold where a taxpayer doesn't have enough tax for the credits generated. This is likely to create a market similar to the RIN market where RINs are sold and purchased based on needs for the renewable fuel standard.


Emilda: That's this week's motor fuels tax minute. Stay tuned next week when we discuss whether transmix containing gasoline should be incorporated into gasoline blend stocks. Thank you.

Weaver's Motor Fuels Tax Minute

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Leanne Sobel

Leanne Sobel

Director, Motor Fuels and Excise Tax Services


Leanne Sobel, J.D., has over 15 years of experience in legal tax matters. Her career focus includes federal and state tax and…

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