To see an example of one state agency undermining the policy objectives of another, look no further than the state double taxing biodiesel when greater production of this clean-burning fuel is needed to achieve Gov. Jerry Brown’s ambitious climate change goals.
Biodiesel can reduce greenhouse emissions by at least 50 percent and often 85 percent compared to conventional diesel fuel, the equivalent of removing nearly 2 million passenger cars off the road each year. California’s goal is to reduce diesel emissions 40 percent below 1990 levels by 2030.
Yet while the California Air Resources Board champions biodiesel, the California Department of Fee and Tax Administration (formerly the Board of Equalization) forces large-scale suppliers to pay tax twice on biodiesel purchases -- even though state law clearly provides relief against this double taxation.
When a supplier purchases pure biodiesel for blending, it pays California diesel fuel tax on the purchase. Then when a supplier removes blended biodiesel from a terminal rack, it pays tax again.
California law fixes this double-taxation problem by allowing suppliers to take a credit on their diesel fuel tax returns. But the fee and tax department is resisting the law’s implementation by double taxing as much as 95 percent of biodiesel used for blending.
This led the Natural Resources Defense Council to express concern that the tax policy could lead to lower use of biodiesel and lost environmental and health benefits. This fear is real and imminent. This double taxation can add as much as 74 cents per gallon to the cost of biodiesel used for blending, driving consumers to less expensive, traditional diesel fuels that include more particulate matter, carbon monoxide, hydrocarbons and volatile organic compounds.
Biodiesel trade organizations such as ours are very concerned about the potential impact of double taxation on economic development and job creation, especially in renewable energy. Many of the state’s small business organizations and environmental groups are united that the state should encourage greater biodiesel production.
Now that Brown has eliminated the Board of Equalization and converted it into a department under his control, he has the opportunity to solve this problem.