What’s That: Texas Biofuels Excise Tax Exemption

In Texas, the approach to fuel taxation is backed by an exemption, unlike standard diesel motor fuels tax, which applies a flat $0.20 per gallon charge on taxable petroleum-based diesel. Texas offers an exemption for the renewable portion of biofuel blends. This approach encourages using renewable bio-blends due to the tax exemption benefits. In today’s What’s That Wednesday, we will take a deep dive into the Texas Biofuels Excise Tax Exemption to discover what exactly this tax code looks like and how it functions compared to the standard excise tax on fuels.

What is an Excise Tax?

To understand the Texas biofuels excise tax exemption, it’s helpful to start with what an excise tax entails. An excise tax is a targeted tax applied to specific products, such as fuel, alcohol, tobacco, and occasionally luxury goods. Unlike a general sales tax, which is a percentage of a product’s price, excise taxes are typically charged per unit, such as per gallon. This volume-based approach applies to the Texas biofuels excise tax exemption, where, according to the Texas Administrative Code, the biofuel components in diesel blends are exempt. This qualifies only the taxable diesel portion of a biofuel blend as subject to the excise tax.

The excise tax exemption on biodiesel blended with taxable diesel is administered and collected by the Texas Comptroller of Public Accounts. As mentioned earlier, Texas’s standard diesel excise tax is a flat $0.20 per gallon, charged on taxable petroleum-based diesel. The renewable portion is exempt from this tax if diesel is blended with biofuel. This excise tax is typically collected at the point of sale, with fuel distributors and retailers responsible for remitting it to the state. To qualify for this exemption, the blended biofuel must be clearly identified on the retail pump, storage tank, and sales invoice.

Texas Biofuels Excise Tax Exemption

In Texas, biodiesel fuel (B-100) and the biodiesel portion of blended fuels are exempt from state fuel taxes. This means that when biodiesel is mixed with petroleum diesel, the tax is only applied to the petroleum portion. These blends are labeled as B-xx, where “xx” indicates the percentage of biodiesel in the mix. For instance, B-20 consists of 20% biodiesel and 80% petroleum diesel, and the state fuel tax is only levied on the 80% petroleum diesel component. This tax exemption is a great incentive for using cleaner, renewable energy sources. By reducing the tax burden on biodiesel, Texas is encouraging the adoption of more environmentally safe fuels, which can lead to reduced greenhouse gas emissions and a smaller carbon footprint. This policy supports the biofuel industry and promotes sustainable practices and energy independence.

Commercial motor vehicles that travel across multiple U.S. states or Canadian provinces must file a single, combined report for fuel taxes (like gasoline, diesel, and natural gas) under the International Fuel Tax Agreement (IFTA). Biofuel, renewable diesel, and their blends are counted in the total fuel used, following the IFTA, to determine a fleet’s average miles per gallon. It’s assumed that this fuel is used in the state where it was bought. When biodiesel is purchased in Texas and put into IFTA-licensed vehicles, it’s considered used in Texas. Therefore, biofuel and renewable diesel bought in Texas should be included in the tax-paid gallons for Texas.

Benefits of the Texas Biofuels Excise Tax Exemption

The Texas biofuels exemption provides a great opportunity for businesses to really get the most out of their fuel purchases. This tax structure incentivizes businesses to utilize lower-carbon fuels by offering tax benefits that reduce costs, especially in comparison to regular taxable diesel. For businesses that rely on diesel fuel, this is a great way to help meet sustainability goals.

Another benefit is that the Texas Commission on Environmental Quality (TCEQ) offers grants through the Alternative Fueling Facilities Program (AFFP) for constructing or upgrading fueling facilities for alternative fuels, including biodiesel and renewable diesel. These grants can offset infrastructure costs for businesses adopting biofuels. This incentive encourages using renewable energy sources by reducing the tax burden on biofuel components, while the taxable diesel component of any blend remains taxed.

Biofuel blend mandates continue to change and impact fuel demands for fleets nationwide. Mansfield stays on top of it, so you don’t have to. Trust the Mansfield supply experts to stay abreast of the local requirements of each location so your fleets maintain compliance across every state.