BiodieselBiodiesel

IFTAIFTA 5th Combined Manager’s and 5th Combined Manager’s and Law Enforcement SeminarLaw Enforcement Seminar

Phoenix East/ MesaPhoenix East/ MesaArizona, September 2006Arizona, September 2006

Prepared by;Prepared by;Georges Sansfaçon Georges Sansfaçon Inspector Revenu QuebecInspector Revenu Quebec

Presented by ;Presented by ;Georges Sansfaçon Georges Sansfaçon Inspector Revenu QuebecInspector Revenu Quebec

&&David CouprieDavid CouprieFuel Tax MgrFuel Tax MgrMinistry of Finance ManitobaMinistry of Finance Manitoba

Disclaimer;Disclaimer;

The content of this presentation reflect the views of the The content of this presentation reflect the views of the author(s), who are responsible for the facts and author(s), who are responsible for the facts and accuracy of the data collected and presented herein.accuracy of the data collected and presented herein.

This document has been prepared in the sole interest This document has been prepared in the sole interest of; of; information exchangeinformation exchange during the present seminar. during the present seminar.It does not constitute a standard, specification, or It does not constitute a standard, specification, or guideline.guideline.

The IFTA L.E.C. and members assumes no liability for The IFTA L.E.C. and members assumes no liability for the contents or use thereof.the contents or use thereof.

OverviewOverview Brief descriptionBrief description DefinitionDefinition Our viewOur view Tax issuesTax issues IFTA IFTA Road side enforcementRoad side enforcement ConclusionConclusion Questions & CommentsQuestions & Comments

Brief Description ;Brief Description ;

A diesel equivalent, processed fuel derived from biological sources:A diesel equivalent, processed fuel derived from biological sources: - Waste Vegetable oils (filtered), animal fats & fish oils;- Waste Vegetable oils (filtered), animal fats & fish oils;

blended or mixed with methanol, ethanol,blended or mixed with methanol, ethanol, butanol or alcohol,( any type of alcohol)butanol or alcohol,( any type of alcohol)This will permit to brake the Carbon chains.This will permit to brake the Carbon chains.- composed of: - composed of: 10% non comestible vegetable oil10% non comestible vegetable oil

45% recycled frying oil45% recycled frying oil45% animal fat45% animal fat

This biodiesel is generally more expensive to purchase than the ordinary petroleum This biodiesel is generally more expensive to purchase than the ordinary petroleum diesel.diesel.

In the USA vegetable oil is mostly; Canola or SoyaIn the USA vegetable oil is mostly; Canola or SoyaIn Canada, they utilized mostly residues.In Canada, they utilized mostly residues.

BUT; can be made at home for much cheaper!BUT; can be made at home for much cheaper!

Definition ;Definition ; What it is;What it is;

Biodiesel is derived from plant material and other recyclable by-product Biodiesel is derived from plant material and other recyclable by-product sources.sources.

This This alternative fuelalternative fuel is expected to reduce the world’s dependency on is expected to reduce the world’s dependency on fossil fuels.fossil fuels.

To be used in a motor vehicle, biodiesel and any biodiesel blends must To be used in a motor vehicle, biodiesel and any biodiesel blends must meet approved ASTM specifications (ASTM D-6751 in the U.S. anyway).meet approved ASTM specifications (ASTM D-6751 in the U.S. anyway).

Reduces many pollutants by half that of petroleum diesel & cuts down Reduces many pollutants by half that of petroleum diesel & cuts down global warming carbon dioxide contributions by up to 78%.global warming carbon dioxide contributions by up to 78%.* Keeping in mind the promotion of cleaner and friendlier fuel for the * Keeping in mind the promotion of cleaner and friendlier fuel for the environment ( environment ( KYOTO protocolKYOTO protocol ) )

B-20 = 12 to 18 % of cut down on carbon dioxidesB-20 = 12 to 18 % of cut down on carbon dioxidesB-2B-2 = 1 to 2 % , = 1 to 2 % ,

Sample Production Process;Sample Production Process;

Types Types ofof Oil ! Oil !

Vegetable !Vegetable ! Canola! Canola!

Sunflower ! Sunflower !

Corn !Corn !

Soy !Soy !

Fish oils !Fish oils ! Animal fats !Animal fats !

Our view ;Our view ;

Certain jurisdictions have programs supporting Certain jurisdictions have programs supporting this new fuel usage,this new fuel usage,

Identifying those manufacturers Identifying those manufacturers ??; ;

- vegetable oil producers- vegetable oil producers

- conversion and recycling of animal fat- conversion and recycling of animal fat

*Are these manufacturers to be considered *Are these manufacturers to be considered eventually as fuel tax collectors eventually as fuel tax collectors ( i.e. Refineries )( i.e. Refineries )

Our view ;Our view ; ( continued )( continued ) Who are they ?Who are they ?

Where is the product being delivered ?Where is the product being delivered ?

Who is buying ?Who is buying ?

Do these buyers report their purchases?Do these buyers report their purchases?

How would this affect the audit or assessment if no How would this affect the audit or assessment if no control found.control found.

* Unless alerted by road side enforcement personnel !* Unless alerted by road side enforcement personnel !

Our view ;Our view ; ( continued )( continued )

Have follow ups on ; deliveries,Have follow ups on ; deliveries,quantities or volume of production?quantities or volume of production?

Implement stricter control from manufacturer to Implement stricter control from manufacturer to wholesaler, storage facilities ? wholesaler, storage facilities ?

What control exist for possible tax evasion ?What control exist for possible tax evasion ?

Legislation; Legislation; LawsLaws will be required to have new will be required to have new provisions or modifications for enforcement provisions or modifications for enforcement where violations may occur.where violations may occur.

Tax Issues ;Tax Issues ;

Jurisdictions offering tax rebates for bio use !Jurisdictions offering tax rebates for bio use !

Rates ; Rates ; $$$ %%% ???$$$ %%% ??? Advantages Advantages vs.vs. Disadvantages ! Disadvantages ! Same as dyed fuel for off road use ?Same as dyed fuel for off road use ?

A carrier from this jurisdiction stepping out into A carrier from this jurisdiction stepping out into an other ifta jurisdiction, is their a double tax an other ifta jurisdiction, is their a double tax loss??loss??- grant given at source if Co. has received one!- grant given at source if Co. has received one!- tax reimbursement to other ifta jurisdiction !- tax reimbursement to other ifta jurisdiction !

Tax Issues ;Tax Issues ; ( continued )( continued )

Possible scenarios :Possible scenarios : What happens if carrier is caught by road side What happens if carrier is caught by road side

enforcement using home made biodiesel, enforcement using home made biodiesel, no purchase records available?no purchase records available?* What penalties will there be for such a user ?* What penalties will there be for such a user ?

People will try more and more to get home People will try more and more to get home made biodiesel than trying to travel and made biodiesel than trying to travel and use; use; dyed fueldyed fuel or or farm fuel farm fuel ! !

* It's detection is not standardized * It's detection is not standardized or regulated yet by many jurisdiction. or regulated yet by many jurisdiction. 

Tax Issues ;Tax Issues ; ( continued )( continued )

Bio10 ; means that there is 10 % of bio mixed with 90 % Bio10 ; means that there is 10 % of bio mixed with 90 % diesel diesel

Bio20 . means that there is 20 % of bio mixed with 80 % Bio20 . means that there is 20 % of bio mixed with 80 % diesel .diesel .

If the biodiesel fuel is sold from legal manufacturer to consumer; If the biodiesel fuel is sold from legal manufacturer to consumer; OKOK

If fuel is produced If fuel is produced HOMEMADE ? ; HOMEMADE ? ; The % of proportion of mix can represent the % of tax The % of proportion of mix can represent the % of tax lossloss ! . ! .

** If road side enforcement haven't reported anything, ** If road side enforcement haven't reported anything,

WELL -$ -$ -$ -$ -$ -$ WELL -$ -$ -$ -$ -$ -$ !! Unless you have a crystal ball !Unless you have a crystal ball !

Tax Issues ;Tax Issues ; ( continued )( continued )

The following is a brief summary as to how biodiesel works in Ontario.The following is a brief summary as to how biodiesel works in Ontario.  For biodiesel the legislation provides that pure biodiesel is exempt from For biodiesel the legislation provides that pure biodiesel is exempt from tax, however the non-biodiesel portion of the blend remains subject to tax, however the non-biodiesel portion of the blend remains subject to tax.   Where there is a 20/80 blend there would be tax on the 80% of the tax.   Where there is a 20/80 blend there would be tax on the 80% of the blended fuel.  Technically there is no refund on the biodiesel portion as no blended fuel.  Technically there is no refund on the biodiesel portion as no tax was paid. However, under IFTA the carrier would have to show all fuel tax was paid. However, under IFTA the carrier would have to show all fuel and distance and pay the full tax as part of their reporting and and distance and pay the full tax as part of their reporting and subsequently submit a refund claim.  The refund claims for tax paid on subsequently submit a refund claim.  The refund claims for tax paid on biodiesel by an IFTA carrier would be limited by the proportion of distance biodiesel by an IFTA carrier would be limited by the proportion of distance travelled in Ontario to the total distance travelled during the claim period.travelled in Ontario to the total distance travelled during the claim period.

To date, they have not received a request for a refund of the biodiesel To date, they have not received a request for a refund of the biodiesel portion.  Their "Application for Refund" provides information on how to portion.  Their "Application for Refund" provides information on how to complete the refund application form and includes a worksheet.  They list complete the refund application form and includes a worksheet.  They list biodiesel as an exemption on the IFTA exemption database and provide a biodiesel as an exemption on the IFTA exemption database and provide a note on the IFTA Tax Rate Matrice regarding refundsnote on the IFTA Tax Rate Matrice regarding refunds:  

Tax Issues ;Tax Issues ; ( continued )( continued )

The following is a brief summary for Quebec;The following is a brief summary for Quebec;

Biodiesel is taxable being considered as an alternative fuel. Biodiesel is taxable being considered as an alternative fuel.

Tax reimbursement is available if purchased “ Pure “ Tax reimbursement is available if purchased “ Pure “

If mixed to other fuel, no Tax refund.If mixed to other fuel, no Tax refund.Tax exempt if not used as fuel,Tax exempt if not used as fuel,

One company presently producing at 50% capacity, actual production of; One company presently producing at 50% capacity, actual production of; 140, 000,000 gal ( approx 3,000,000 barrels) of Bio100140, 000,000 gal ( approx 3,000,000 barrels) of Bio100

98% exported of which 90% into USA; bulk carriers, ,tanker cars98% exported of which 90% into USA; bulk carriers, ,tanker cars

Limits in production are due to storage facility. Their competition is from localLimits in production are due to storage facility. Their competition is from localIndividuals ‘ Recyclers for home made use” Individuals ‘ Recyclers for home made use”

Tax Issues ;Tax Issues ; ( continued )( continued )The following is a brief summary for New Brunswick; The following is a brief summary for New Brunswick; 

At present, the use of alternative fuels remains relatively low in NB At present, the use of alternative fuels remains relatively low in NB and as a result tax policy continues to treat alternative fuels the and as a result tax policy continues to treat alternative fuels the same as all other conventional fuels.same as all other conventional fuels.

There has not been any indication as yet that tax policy will be There has not been any indication as yet that tax policy will be used as a means of promoting the industry, i.e. through reductions used as a means of promoting the industry, i.e. through reductions in tax rates. However, it does remain as a possibility, and as such in tax rates. However, it does remain as a possibility, and as such creates serious concerns from a tax administration perspective.creates serious concerns from a tax administration perspective.

Certainly, a key concern would be how to account for fuel taxes Certainly, a key concern would be how to account for fuel taxes on an IFTA return if a carrier is burning fuel that contains a bio-fuel on an IFTA return if a carrier is burning fuel that contains a bio-fuel component that is taxed differently among IFTA jurisdictions' component that is taxed differently among IFTA jurisdictions'

Tax Issues ;Tax Issues ; ( continued )( continued )The following is a brief summary for Manitoba;The following is a brief summary for Manitoba; Effective March 1st 2007, Manitoba introduced a 5 year tax exemption for Effective March 1st 2007, Manitoba introduced a 5 year tax exemption for Manitoba-produced biofuel.  It is exempt from both sales tax and motive Manitoba-produced biofuel.  It is exempt from both sales tax and motive fuel tax.fuel tax.Only biofuel that meets the American Association for Testing and Only biofuel that meets the American Association for Testing and Materials D-6751 standard qualifies for the exemption.Materials D-6751 standard qualifies for the exemption.

On biodiesel blends (less than 100% biofuel) only the diesel fuel portion of On biodiesel blends (less than 100% biofuel) only the diesel fuel portion of the blend will be subject to motive fuel tax.  For example, if 100 litres of the blend will be subject to motive fuel tax.  For example, if 100 litres of B20 are purchased, motive fuel tax only applies on the 80 litres diesel fuel B20 are purchased, motive fuel tax only applies on the 80 litres diesel fuel included in the blend and the 20 litres of biofuel is exempt.included in the blend and the 20 litres of biofuel is exempt.

Biodiesel imported into Manitoba from outside jurisdictions will be taxed at Biodiesel imported into Manitoba from outside jurisdictions will be taxed at the same rate as diesel fuel.  Imported biodiesel that is 99.99 biofuel the same rate as diesel fuel.  Imported biodiesel that is 99.99 biofuel and .01% diesel will be taxed at the diesel rate.and .01% diesel will be taxed at the diesel rate.

Manitoba will suffer the loss suffered under IFTA for biofuels Manitoba will suffer the loss suffered under IFTA for biofuels manufactured and purchased in Manitoba and used in other jurisdictions.  manufactured and purchased in Manitoba and used in other jurisdictions.  Manitoba will pay the full tax rate as though the product was 100% diesel, Manitoba will pay the full tax rate as though the product was 100% diesel, and will suffer the double tax loss.  Qualified vehicles from outside and will suffer the double tax loss.  Qualified vehicles from outside Manitoba that come in to the province will be expected to pay based on Manitoba that come in to the province will be expected to pay based on the full diesel rates.  Manitoba will not have a rebate program in place for the full diesel rates.  Manitoba will not have a rebate program in place for those circumstances.those circumstances.

Tax Issues ;Tax Issues ; ( continued )( continued )The following is a brief summary from PA;

Pennsylvania taxes biodiesel the same as they tax diesel, regardless of Pennsylvania taxes biodiesel the same as they tax diesel, regardless of mixture. If the taxpayer introduces a mixture mixture. If the taxpayer introduces a mixture

of (soy-mostly) biodiesel into the diesel, they tax that amount of (soy-mostly) biodiesel into the diesel, they tax that amount introducedintroduced (imposing their diesel tax of $.381/gal.) (imposing their diesel tax of $.381/gal.)

They are seeing producers starting to take off (3) and smaller users They are seeing producers starting to take off (3) and smaller users making their own as well.making their own as well.

Where they envision fraud, will be in the blend, as users will be able to Where they envision fraud, will be in the blend, as users will be able to

purchase from blenders and producers variable blend ratiospurchase from blenders and producers variable blend ratios. .

Tax Issues ;Tax Issues ; ( continued )( continued )The following is a brief summary from MD;

There is one biodiesel production facility that just opened mid-July with a capacity There is one biodiesel production facility that just opened mid-July with a capacity of 40,000 barrels per year. It is already being modified to increase production to of 40,000 barrels per year. It is already being modified to increase production to 300,000 barrels per year.300,000 barrels per year.

There is a "producers" incentive to construct and operate this type of alternative There is a "producers" incentive to construct and operate this type of alternative fuel facility.fuel facility.

There are NO State or Federal tax breaks or incentives for biodiesel.There are NO State or Federal tax breaks or incentives for biodiesel.

No blend greater than B-20 should be used in winter months without proper No blend greater than B-20 should be used in winter months without proper winterizing of the fuel with an appropriate additive. It will gel resulting in engine winterizing of the fuel with an appropriate additive. It will gel resulting in engine operability problems.operability problems.

The largest tax issue (implication) on a Federal, State and Provincial basis will be The largest tax issue (implication) on a Federal, State and Provincial basis will be from those making their own 'biodiesel' fuel using formulas and hardware available from those making their own 'biodiesel' fuel using formulas and hardware available off the Internet. There is no registration, no way of knowing who is doing it nor off the Internet. There is no registration, no way of knowing who is doing it nor what volume of fuel and resulting tax is disappearing. (In the U.S., the IRS is what volume of fuel and resulting tax is disappearing. (In the U.S., the IRS is greatly concerned)greatly concerned)

As for IFTA, the problem will be (and is) different tax rates and incentives on the As for IFTA, the problem will be (and is) different tax rates and incentives on the jurisdictional level for biodiesel users. Makes no difference if straight petroleum jurisdictional level for biodiesel users. Makes no difference if straight petroleum diesel or a biodiesel blend is used in commercial motor vehicles, the same diesel or a biodiesel blend is used in commercial motor vehicles, the same 'roadway damage' is caused and there really should be no special treatment 'roadway damage' is caused and there really should be no special treatment afforded for any type fuel.afforded for any type fuel.

Road side Enforcement ;Road side Enforcement ;

What are the tools for verifying this while performing What are the tools for verifying this while performing fuel sampling?fuel sampling? Few , None !!!!!! Few , None !!!!!! ??

Presently, for a carrier using farm fuel or dyed fuel, you Presently, for a carrier using farm fuel or dyed fuel, you look at its colour, make few tests, have it analysed and look at its colour, make few tests, have it analysed and proceed. proceed. Hey RED is Red ! Hey RED is Red !

BIO has no colour, or taste or smell.BIO has no colour, or taste or smell.Can not be visually detected at road side.Can not be visually detected at road side.* In * In coldcold weather you may see a change in the fuel, weather you may see a change in the fuel,will tend to thicken even with presence of alcohol.will tend to thicken even with presence of alcohol.

P.S. Georges hasn’t had the chance yet of trying it out.P.S. Georges hasn’t had the chance yet of trying it out.

Road side Enforcement ; Road side Enforcement ; ( continued ( continued ))

Presently at road side while fuel sampling, the only methods you have;Presently at road side while fuel sampling, the only methods you have;- a good eye sight, - a good eye sight, - your nose,- your nose,- your intuition,- your intuition,- driver’s declaration on the type of fuel he is utilizing - driver’s declaration on the type of fuel he is utilizing and the % of and the % of BIO blended.BIO blended.

( i.e. If he wishes to inform you of this. )( i.e. If he wishes to inform you of this. ) OR OR

- - All of the above !All of the above !

In anticipation for this type of fuel accountability In anticipation for this type of fuel accountability PennsylvaniaPennsylvania recently recently purchased four( 4 ) portable field fuel analyzers in order to correctly purchased four( 4 ) portable field fuel analyzers in order to correctly ensure the tax is being collected/remitted on the actual blend. ensure the tax is being collected/remitted on the actual blend.

Road side Enforcement ; Road side Enforcement ; ( continued ( continued ))

If we look at what is been done in regards to dyed fuel;If we look at what is been done in regards to dyed fuel;

Sample the fuel and visual appreciation;Sample the fuel and visual appreciation;

With a premixed solution testing bottle, you perform a road side With a premixed solution testing bottle, you perform a road side test and then by its reaction, you can have an idea of the type of test and then by its reaction, you can have an idea of the type of fuel you are in the presence of.fuel you are in the presence of.

Confirmation by LAB analysis, Fastest method; infrared detectionConfirmation by LAB analysis, Fastest method; infrared detection

Again Again RED or dyed fuelRED or dyed fuel is is RED or dyedRED or dyed, , YES ! YES ! NO ! NO !

Home made Bio Kit !Home made Bio Kit !

Commercial unit !Commercial unit !

Bio Kits !Bio Kits !

Other possible source !Other possible source !

Fuel Or OIL ?????Fuel Or OIL ?????

Road side Enforcement ; Road side Enforcement ; ( continued ( continued ))

?? How many jurisdictions can presently detect while ?? How many jurisdictions can presently detect while performing road side fuel check, the presences of performing road side fuel check, the presences of biodiesel and its concentration?biodiesel and its concentration?

IF NO COLOUR is visible IF NO COLOUR is visible The final The final and/or and/or only ; - result, - solution, - alternative, only ; - result, - solution, - alternative,will be obtained by a will be obtained by a LAB analysisLAB analysis . .

The chemist will be capable of certifying the % of Bio in The chemist will be capable of certifying the % of Bio in the mixture Or any other type of fuel blend mixture.the mixture Or any other type of fuel blend mixture. * * P.S. Remember: Presence of P.S. Remember: Presence of Vegetable oilVegetable oil in diesel fuel at road side is in diesel fuel at road side is

non detectable for now. non detectable for now.

IFTAIFTA ;;

Looking at a certain jurisdiction application Looking at a certain jurisdiction application form for a tax refund, It mentions: form for a tax refund, It mentions: the tax paid the tax paid on the purchase of biodiesel not mixed with on the purchase of biodiesel not mixed with another type of fuel and purchase for own use.another type of fuel and purchase for own use.

There is a provision stated that it must not There is a provision stated that it must not have been used in the propulsion of vehicles have been used in the propulsion of vehicles under the under the IFTA agreementIFTA agreement..

What control or how can this be verified ?What control or how can this be verified ?( same pattern as fuel blends )

IFTA ;IFTA ; ( continued )( continued )

What control could road side enforcement have in What control could road side enforcement have in regards to identifying jurisdictions offering or regards to identifying jurisdictions offering or participating in the promotion of biodiesel ?participating in the promotion of biodiesel ?

IFTA decals or permits could indicate jurisdiction’s IFTA decals or permits could indicate jurisdiction’s participation in such program. Have a code !participation in such program. Have a code !Example; - BIO ( Biodiesel ) Code = # 2915 in corner ( B = 2 , I = 9 , O = 15 )

- Add the capital letter “ B “ in front of the letter “ I ” of IFTA on said decal, but in a smaller size

Clearing House notificationClearing House notification or or Sighting ReportsSighting Reports ? ?Types of all modifications required ?Types of all modifications required ?

IFTA ;IFTA ; ( continued )( continued )

ProposalProposal B

Conclusion ;Conclusion ; Reminder; the purpose of IFTAReminder; the purpose of IFTA

- Uniformity in fuel tax reporting and remittals!- Uniformity in fuel tax reporting and remittals!- Simplifying tax reports and exchange of information !- Simplifying tax reports and exchange of information !- Standardized carriers identification (permits & decals)- Standardized carriers identification (permits & decals)

With the arrival of this new fuel, many are heading in With the arrival of this new fuel, many are heading in different directions, tools of detection not available, different directions, tools of detection not available, possible threat for tax evasion or loss of revenue possible threat for tax evasion or loss of revenue dollars for all jurisdiction if no standard is set in dollars for all jurisdiction if no standard is set in controlling it.controlling it.Difficulty in keeping up with the changes in new Difficulty in keeping up with the changes in new technology! technology! Are tax brakes or credits the answer ?Are tax brakes or credits the answer ?Is uniformity present at all levels in fuel tax work ! Is uniformity present at all levels in fuel tax work !

Fuel Inspection, tax audit, tax reports …… Fuel Inspection, tax audit, tax reports …… Pay out what is due or legal claim ! No more no less!Pay out what is due or legal claim ! No more no less!

References ;References ; Alternative Fuels Data CenterAlternative Fuels Data Center

(800) 423-1363(800) 423-1363www.afdc.doe.govwww.afdc.doe.gov

Clean Fuel Fleets ProgramClean Fuel Fleets Program(202) 260-2090(202) 260-2090www.epa.gov/oms/cff.htmwww.epa.gov/oms/cff.htm

Fleet Buyers Guide/National Alternative FuelsFleet Buyers Guide/National Alternative Fuels(800) DIAL-DOE(800) DIAL-DOEwww.fleets.doe.govwww.fleets.doe.gov

National Alternative Fuels HotlineNational Alternative Fuels Hotline(703) 934-3069(703) 934-3069www.afdc.doe.govwww.afdc.doe.gov

National Biodiesel BoardNational Biodiesel Board(800) 841-5849(800) 841-5849www.biodiesel.orgwww.biodiesel.org

BioenergyBioenergywww.uidaho.edu/bioenergy/BiodieselEd/publication/01.pdfwww.uidaho.edu/bioenergy/BiodieselEd/publication/01.pdf

Special thanks to:Special thanks to:

Revenue Agents members of IFTA participating Revenue Agents members of IFTA participating jurisdictions for their collaboration and information jurisdictions for their collaboration and information sharing. sharing.

QuestionsQuestions& & Comments :Comments :

Georges Sansfaçon & David CouprieGeorges Sansfaçon & David Couprie

Thank you Thank you