Relating to fuel taxation by extending tax credits for E-85 and E-15 gasoline, and biodiesel, and extending sales tax refunds for biodiesel production

Description

House File 1053 extends tax credits and refunds for biofuels. The Bill does the following:

• Extends the ability of a retail dealer to claim both the E-15 Plus Gasoline Promotion Tax Credit and the E-85 Gasoline Promotion Tax Credit in the same tax year (TY) from TY 2025 through TY 2028.
• Decreases the rate of the E-15 Plus Gasoline Promotion Tax Credit from nine cents per gallon to four and one-half cents per gallon for calendar year (CY) 2028.
• Specifies the E-15 Plus Gasoline Promotion Tax Credit is nonrefundable in CY 2028.
• Extends the eligibility of a retail dealer to claim the E-15 Plus Gasoline Promotion Tax Credit against the individual income tax and corporate income tax from TY 2025 through TY 2028.
• Ensures the availability of the E-15 Plus Gasoline Promotion Tax Credit for an entire tax year for a retail dealer whose tax year does not align with the repeal date of the applicable tax credit.
• Increases the rate of sales and use tax refunds for the Biodiesel Production Credit from four cents per gallon to four and one-half cents per gallon.

Background

The E-15 Plus Gasoline Promotion Tax Credit was authorized in 2011 Iowa Acts, chapter 113 (Motor Fuels — Regulation, Dispensing, and Tax Credits and Refunds Act), and is available to retail dealers of gasoline that sell E-15 gasoline (defined as 15.0% ethanol content) or higher, but not classified as E-85 gasoline. The credit is equal to $0.09 per gallon refundable against the individual income tax and corporate income tax, and total claims were $3.1 million in FY 2024, according to the Iowa Department of Revenue’s (IDR’s) March 2025 Contingent Liabilities Report. More information is available in the Fiscal Topic Tax Credit: E-15 Gasoline Promotion Tax Credit.

The Biodiesel Production Credit is authorized under Iowa Code section 423.4(9) and is available to qualified producers of biodiesel in the form of a refundable sales tax refund of $0.04 per gallon on no more than 25 million gallons of biodiesel produced in the State. According to the IDR, $4.4 million in Biodiesel Production Credit exemptions was claimed on tax forms in FY 2024. More information is available in the Fiscal Topic Tax Credit: Biodiesel Production Credit.

The Bill amends 2011 Iowa Acts, chapter 113 (Motor Fuels — Regulation, Dispensing, and Tax Credits and Refunds Act), as amended by 2016 Iowa Acts, chapter 1106 (Renewable Fuel Tax Credits and Refunds Act), and 2022 Iowa Acts, chapter 1067 (Renewable Fuels Act), to allow full-year credit availability for retail dealers whose tax year does not align with the repeal date of an applicable tax credit for biofuels.

Assumptions

• According to the IDR, the biofuel retailer tax credits use the 2023 Motor Fuel Gallons Annual Report as base year data, while the rate of growth is based on information from the U.S. Energy Information Administration (EIA).
• According to the IDR, actual 2024 quarterly refund returns are used as base year data for the Biodiesel Production Credit.
• Estimates related to biodiesel refund timing are based on historical patterns, with the second, third, and fourth quarters of the first calendar year and the first quarter of the second calendar year being claimed in the first fiscal year, repeating in following years.
• According to the IDR, the timing of tax credit and refund claims for each of the four programs is indicated in Figure 1 below.

Figure 1 — Timing of Claims

• Increases for tax credit and refund claims for calendar years affected by the Bill are summarized in Figure 2 below.

Figure 2 — Calendar Year Credits (in Millions)

• Due to the E-15 Plus Gasoline Promotion Tax Credit being refundable in TY 2026 and TY 2027, there is no fiscal impact from the income surtax for schools. For nonrefundable TY 2028 in this projection, the surtax is assumed to equal 2.5% of State individual income tax liability.

Fiscal Impact

The changes to biofuels due to House File 1053 are estimated to decrease State General Fund revenue by the amounts detailed in Figure 3 below.

Figure 3 — General Fund Revenue Decreases (in Millions) The decrease in tax liability in TY 2028 from the E-15 Plus Gasoline Promotion Tax Credit is also estimated to decrease the statewide local option income surtax for schools by $85,000 in FY 2029.Program

First

Year

Second

Year

Third

Year

Fourth

Year

E-15 Plus Gasoline Promotion Tax Credit 9.6% 85.5% 4.2% 0.7% Biodiesel Production Credit 39.9% 60.1% 0.0% 0.0%Program CY 2025 CY 2026 CY 2027 CY 2028 E-15 Plus Gasoline Promotion Tax Credit 0.0$ -18.0$ -18.7$ -9.6$ Biodiesel Production Credit -0.3 -0.9 -0.9 0.0 Total -0.3$ -18.9$ -19.5$ -9.6$Program FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 E-15 Plus Gasoline Promotion Tax Credit 0.0$ -1.7$ -17.2$ -17.1$ -4.2$ -0.3$ Biodiesel Production Credit -0.6 -0.9 -0.6 0.0 0.0 0.0 Total -0.6$ -2.6$ -17.7$ -17.1$ -4.2$ -0.3$

Sources

• Iowa Department of Revenue
• Legislative Services Agency analysis