State Ethanol Tax Credits Vary 02/16/07 4:00:59 PM
By Todd Neeley
DTN Staff Reporter
OMAHA (DTN) -- While the federal 51-cent tax credit for gasoline blenders who use ethanol receives the most attention as the primary driver of the growing U.S. ethanol industry, Corn Belt states dangle large carrots in front of potential and current ethanol producers and retailers.
State-level ethanol incentives may take on an even bigger role in the industry if the federal tax credit is eliminated. Some opponents of the federal tax credit have suggested ethanol has reached a point where it can remain profitable without it.
According to an October 2006 report from the Global Subsidies Initiative, the Corn Belt states of Iowa, Indiana, Illinois, South Dakota, Nebraska, Kansas, Minnesota, Wisconsin and Missouri offer a variety of tax incentives for ethanol.
Illinois offers a 5-cent-per-gallon grant to ethanol plants that retrofit or expand, and 10 cents per gallon for new plants. State grants are limited to $6.5 million per plant.
Indiana plants receive a 12.5-cent-per-gallon tax credit for expanding production capacity. According to the GSI, the expansion must be at least 40 million gallons, with a lifetime cap of $2 million for 40- to 60-million-gallon plants and $3 million on plants larger than 60 million gallons.
Iowa's incentives focus primarily on the sale of ethanol.
According to the GSI, Iowa ethanol retailers receive a 25-cent tax credit for each gallon of E85 they sell. E85 is an 85-percent ethanol-blended gasoline. Those same retailers receive 2.5 cents per gallon for selling more than a 60-percent volume-blended ethanol such as E85.
Kansas offers a 5-cent tax credit to current ethanol plants and 7.5 cents per gallon on new capacity. According to the GSI, the credits are limited to $750,000 for plants up to 10 million gallons and $1.125 million for plants up to 15 million gallons.
Minnesota gives ethanol producers a tax incentive of 20 cents per gallon, capped at $3 million per producer, per year.
Missouri also offers a 20-cent-per-gallon producer tax credit on the first 12.5 million gallons, and then 5 cents per gallon on the next 12.5 million gallons. According to the GSI report, the state requires plants receiving the tax credits to be majority owned by Missouri agricultural producers.
In Nebraska, ethanol producers receive an 18.5-cent-per-gallon tax credit for up to 15.6 million gallons per year. The state limits the tax credit to $2.8 million per year, per plant.
South Dakota provides a 20-cent-per-gallon tax credit to ethanol producers, with a statewide cap of $7 million per year.
In Wisconsin, ethanol producers receive a tax credit of 20 cents on the first 15 million gallons. To qualify for the credit, ethanol producers are required to use in-state feedstocks.
A handful of states outside the Corn Belt have also created incentive programs, according to GSI.
Ethanol tax incentives are available in Wyoming, Texas, California, Hawaii, Maine, Maryland, Mississippi, Montana, North Dakota, Oklahoma, Pennsylvania and Virginia. According to DTN's ethanol plant list, in these states there are just seven plants in operation, eight under construction and 50 in the planning stages.
Wyoming offers a tax credit of 40 cents per gallon to new or expanded ethanol plants. However, the state caps the total tax credit at $2 million for a single plant and $4 million a year statewide.
From 2005 to 2007 North Dakota will pay an incentive of 40 cents per gallon for ethanol produced and sold in the state. An ethanol plant that was in operation before July 1, 1995, with a production capacity of less than 15 million gallons, is eligible for up to $900,000 in production incentives through 2007. An ethanol plant in operation before July 1, 1995, that produced at least 15 million gallons the previous year, can receive up to $450,000 in production incentives. The cumulative state ethanol payment amount received by any single ethanol plant may not exceed $10 million.
Virginia ethanol producers receive 10-cent-per-gallon production grants for new plants or expansions of 10 million gallons or more.
Texas ethanol producers receive 16.8 cents per gallon on the first 18 million gallons of ethanol produced per plant. In Oklahoma new ethanol producers receive 20 cents per gallon tax credit.
In Montana, producers receive a 20-cent-per-gallon tax credit if they use 100 percent Montana feedstocks. The credit declines as local feedstock content falls. The state limits the credit to $2 million per producer per year and $6 million per year statewide.
Mississippi offers a 20-cent tax credit with a cap of $6 million per year per producer and an annual $37 million statewide cap.
In Maryland, ethanol producers receive a 20-cent tax credit on gallons produced from small grains, such as barley and wheat, and 5 cents on gallons produced with other feedstocks such as corn. The credit is limited to 15 million gallons, and 10 million gallons must be produced with small grains.
Maine offers a 5-cent-per-gallon tax credit for ethanol makers, California 40 cents per gallon, and Hawaii 30 cents per gallon with a statewide cap of $12 million per year.
Todd Neeley can be reached at todd.neeley@dtn.com
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