Tax break for biodiesel advances in South Dakota

| 1/31/2008

The South Dakota Senate approved a bill that would provide a tax break for biodiesel use. A separate effort to repeal a tax break on ethanol use failed.

At the request of Gov. Mike Rounds, senators unanimously approved a bill Jan. 24 that would reduce the fuel tax on diesel that contains at least 5 percent biodiesel by 2 cents per gallon. The fuel tax applied to regular gasoline and diesel now is 22 cents per gallon. The bill – SB148 – would trim the per-gallon tax on biodiesel to 20 cents.

The per-gallon tax on ethanol already is 20 cents.

Rounds said he wants to provide the same incentive for ethanol use to truckers and other consumers of diesel. Offering the discounted tax rate for biodiesel would encourage production of the fuel made mostly from soybeans, he said.

Tax breaks would not start until biodiesel facilities in South Dakota reach a capacity of 20 million gallons annually and produce at least 10 million gallons annually. The tax break would end once production reached about 40 million gallons annually.

The price tag for the incentive would be about $800,000.

While the tax break for biodiesel moves to the House for further consideration, a separate effort to eliminate the 2-cent tax break for ethanol purchases has failed.

The Senate Taxation Committee voted 6-3 to kill the bill – SB110. Senate Appropriations Committee chairman Jerry Apa, R-Lead, said he offered the measure because of concern about creating more revenue from fuel taxes to help fund road and bridge work.

The South Dakota Transportation Department has estimated that the state faces a $27 million shortfall in revenue. A 2-cent increase in the ethanol tax rate could put another $4 million into the state’s highway fund, The Argus Leader reported.

To view other legislative activities of interest for South Dakota in 2008, click here.

– By Keith Goble, state legislative editor