FINANCE AND ADMINISTRATION CABINET

Kentucky Department of Revenue

Office of Income Taxation

(As Amended at ARRS, February 8, 2010)

103 KAR 15:140. Biodiesel tax credit.

      RELATES TO: KRS 141.010,[141.010,] 141.020, 141.030, 141.040, 141.0401, 141.422, 141.423, 141.424

      STATUTORY AUTHORITY: KRS 141.424, [131.130(1), 141.018,] 141.425

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.423 establishes a nonrefundable tax credit for biodiesel producers, biodiesel blenders, and renewable diesel producers. 141.425 authorizes the department to promulgate administrative regulations necessary to administer the biodiesel tax credit. KRS 141.424 requires the department to promulgate an administrative regulation to establish the manner in which a pass-through entity shall electronically notify the department of who may claim the approved tax credit.[as provided by KRS 141.422 to 141.424][141.425 regarding the biodiesel tax credit][KRS 141.424 requires a biodiesel producer, biodiesel blender, or renewable diesel producer that is a pass-through entity or an agricultural cooperative association to notify the department electronically of all partners, members, shareholders, or beneficiaries who may claim any amount of the approved credit. This administrative regulation establishes guidelines and filing requirements for a biodiesel producer, biodiesel blender, or renewable diesel producer filing a tax credit claim for gallons of biodiesel produced in this state, gallons of biodiesel used in blended biodiesel produced in this state, or gallons of renewable diesel produced in this state][the credit].

      Section 1. Definitions. (1) "Applicant" means a biodiesel producer, biodiesel blender, or renewable diesel producer that files a tax credit claim as provided by KRS 141.423[any person who applies for the biodiesel tax credit as allowed in KRS 141.422 - 141.425].

      (2) "Application" or "Schedule BIO" means the Schedule BIO, Application and Credit Certificate of Income Tax/LLET Credit Cellulosic Ethanol (Revenue Form 41A720BIO). Incorporated by reference in 103 KAR 3:040, that is used to make[means] a tax credit claim[filed] with the department for gallons of biodiesel produced in this state, gallons of biodiesel used in blended biodiesel produced in this state, or gallons of renewable diesel produced in this state as provided by KRS 141.423(4)[request for the biodiesel tax credit as allowed in KRS 141.422 - 141.425].

      (3) "ASTM" means the American Society for Testing and Materials.

      (4) "Biodiesel" is defined by KRS 141.422(4)["Blender" means any person who combines biodiesel with petroleum diesel to create a mixture with a minimum of two (2) percent biodiesel].

      (5) "Biodiesel blender" means an entity that blends biodiesel with petroleum diesel as provided by KRS 141.422(8)["Corporation" is defined by KRS 141.010(24)].

      (6) "Biodiesel producer" is defined by KRS 141.422(5)["Department" is defined by KRS 141.010(2)].

      (7) "Blended biodiesel" is defined by KRS 141.422(8)["Distributive share" means the percentage of profits of a general partnership to which a partner is entitled].

      (8) "Corporation" is defined by KRS 141.010(24).

(9) "Department" is defined by KRS 141.010(2).

(10) "Identification number" means the:

      (a) Social Security number for individuals;

      (b) Federal Employer[Employee] Identification Number for general partnerships, estates, and trusts; and

      (c) Kentucky corporation income tax and limited liability entity tax account number for corporations and limited liability pass-through entities.

(11) "Individual" is defined by KRS 141.010(7).

(12) "Limited liability pass-through entity" is defined by KRS 141.010(28).

(13) "Pass-through entity" is defined by KRS 141.010(26).

(14) "Renewable diesel" is defined by KRS 141.422(12).

(15) "Renewable diesel producer" is defined by KRS 141.422(13). [(9) "Person" means any corporation, company, association, partnership, limited liability company, limited liability partnership, other business association, or individual.]

      Section 2. Application for Tax Credit. An applicant shall mail to the department a completed application on or before January 15 for the preceding calendar year.[(1) An applicant][Any person requesting a biodiesel credit][shall file an application with the department on][the][Schedule BIO (Form number 41A720BIO), incorporated by reference.

(2) Schedule BIO][All applications for the biodiesel credit][shall be mailed to the department on or before January 15 for the preceding calendar year.]

      Section 3. [Information Required on or attached to the Schedule Bio. The following information shall be required on or attached to the Schedule BIO:

(1) The applicant’s name and identification number;

(2) A description of how the applicant is taxed for Kentucky income tax purposes;

(3) The applicant’s Kentucky Special Fuels License Dealer Account Number;

(4) The number of gallons of biodiesel produced during the calendar year;

(5) The number of gallons of blended biodiesel produced during the calendar year; and

(6) A copy of the certificate for biodiesel or statement of biodiesel reseller submitted to the Internal Revenue Service for federal tax purposes shall be attached to the Schedule BIO. The certificate for biodiesel or statement of biodiesel reseller submitted shall be the form submitted for the federal tax period that most closely corresponds with the period covered by the Schedule Bio.

Section 4.] Proof of ASTM standard specification[Standard]. (1) A biodiesel producer or biodiesel blender shall provide proof the[that] biodiesel gallons reported on the application meet ASTM standard[Schedule BIO meet ASTM] specification D6751 for biodiesel fuel (B100) blend stock distillate fuels[standard D6751-03].

      (2)[A biodiesel blender shall provide proof that the biodiesel gallons reported on the Schedule BIO meet][as part of blended biodiesel meets][ASTM specification D6751 for biodiesel fuel (B100) blend stock distillate fuels][standard D6751-03][.

(3)] A renewable diesel producer shall provide proof that the renewable diesel gallons reported on the application meet ASTM standard[Schedule BIO meet ASTM] specification D396 for fuel oils intended for use in various types of fuel-oil-burning equipment, D975 for diesel fuel oils suitable for various types of diesel fuel engines, or D1655 for aviation fuels.

(3)[(4)] Proof submitted by a biodiesel producer or a renewable diesel producer [or blender] shall be in the form of documentation of laboratory results that certify that the biodiesel or renewable diesel reported on the Schedule BIO meets the ASTM standard specification.

(4)[meet][meets][the ASTM specification][standard]. A biodiesel blender shall obtain from the biodiesel producer a copy of laboratory results that certify that the biodiesel reported on the Schedule BIO meets[meet] the ASTM standard speciation.

(5)[specification][from the producer of the biodiesel that is blended and reported on the Schedule BIO]. An independent ASTM certified laboratory shall be used to generate the laboratory results that are required by this section.

(6)[laboratory or a laboratory designated by the Kentucky Department of Agriculture shall be used to generate the laboratory results.

(5)][(4)] Failure to submit documented laboratory results that certify that the biodiesel, renewable diesel, [produced] or the biodiesel used in the blended biodiesel meets the ASTM standard[meet][meets][the ASTM] specification with the Schedule BIO[standard] shall result in the department disallowing the credit.

(7)(a) A biodiesel producer, biodiesel blender, or renewable diesel producer shall have the biodiesel, blended biodiesel, or renewable diesel tested as provided by subsection (4) of this section on July 1 and December 31 of each calendar year to determine if the biodiesel, blended biodiesel, or renewable diesel meets the ASTM standard specification.

(b) A copy of the laboratory results for July 1 and December 31 of each calendar year shall be attached to the Schedule BIO submitted to the department as provided by Section 2 of this administrative regulation.[(6)(a)][The biodiesel produced or blended shall not be eligible for the tax credit until proof is received that the biodiesel produced or biodiesel that is blended meets the ASTM standard. Gallons produced or blended after a new sample is proved to meet the ASTM standard shall be eligible for the credit, subject to the provisions of KRS 141.422 to 141.424 and this administrative regulation.

(5)(a)][Separate proof of the ASTM specification][standard][shall be provided to the department by a biodiesel producer biodiesel][or][ blender, or renewable diesel producer on July 1 and December 31 for each calendar year that a Schedule BIO is submitted. ][For the calendar year ending December 31, 2006, proof shall be submitted only on December 31, 2006.]

(c)[(b)] Failure to provide proof of meeting the ASTM standard specification on July 1 and December 31 of each calendar year with the application shall result in the denial of the credit claimed for gallons of biodiesel or renewable diesel back to the previous testing date of July 1 or December 31.[submit proof of meeting the ASTM specifications on][standard by][the dates prescribed in this subsection shall result in the denial of the credit.]

(d)[(c)] If proof is timely submitted and the proof certifies that the biodiesel or renewable diesel does not meet the ASTM standard specification[standard], then[:

1.] all credit claimed for gallons of biodiesel, renewable diesel, or biodiesel used in the blended biodiesel [gallons] back to the previous testing date of July 1 or December 31 shall be disallowed.[;

2. For the calendar year ending December 31, 2006, all credit claimed for biodiesel or blended biodiesel gallons back to July 1, 2006 shall be disallowed; and

3. Subsequent samples submitted after a test sample is proved not to meet the ASTM standard may be submitted at any time during the calendar year that a Schedule BIO is submitted, subject to the provisions of subsection (4) of this section.]

      Section 4.[5.] Filing Requirements[Use of the Tax Credit].[(1) An][Any][applicant who is an individual shall apply the tax][any][credit][[due][against the tax liability imposed by KRS 141.020.

(2) An][Any][applicant that is a corporation shall apply the tax][any][credit][due][against the tax liability imposed by KRS 141.040 and 141.0401.

(3) An applicant that is a limited liability pass-through entity shall apply the tax credit against the tax liability imposed by KRS 141.0401, and shall distribute the tax credit to each partner, member, or shareholder based on the partner’s, member’s, or shareholder’s distributive share.

(4) An applicant that is a pass-through entity not subject to the tax imposed by KRS 141.0401 shall distribute the tax credit to each partner based on the partner’s distributive share.

(5) An applicant that is an estate or trust shall apply the tax credit against the tax liability imposed by KRS 141.030, or shall distribute the tax credit to each beneficiary based on the beneficiary’s distributive share.

(6)] An applicant claiming the tax credit shall attach the credit certificate issued[Schedule BIO approved] by the department to its tax return on which the tax credit is claimed.

(2)[(7)] A partner, member, or shareholder claiming the tax credit shall attach a copy of Schedule K-1, Form 720S, Form number 41A720S(K-1), Form 765, Form number 41A765(K-1), or Form 765GP, Form number 42A765GP(K-1) incorporated by reference in 103 KAR 3:040, to the partner’s, member’s, or shareholder’s tax return on which the credit is claimed.[.

(3) Any person except partners in a general partnership claiming the biodiesel tax credit shall attach the approved Schedule BIO to the tax return on which the biodiesel credit is claimed.

(4) Any partner in a general partnership claiming the biodiesel tax credit shall attach the Schedule BIO K-1, Form number 41A720BIO (K-1), to the tax return on which the biodiesel credit is claimed.]

      Section 5.[6.] Electronic Filings for Pass-through Entities[General Partnerships]. (1) Each pass-through entity[general partnership] claiming the biodiesel tax credit shall file a report with the department by electronic mail at KRC.WEBResponseEconomicDevelopmentCredits@ky.gov.

      (2) The electronic mail shall contain a separate attachment in plain format text or plain ASCII format that includes each partner's, member's or shareholder's:

(a) Name;

(b) Address;

(c) Telephone number;

(d) Identification number; and

(e) Distributive share of the tax credit.[The electronic filing shall contain:

(a) Each partner’s, member's, or shareholder's name, address, telephone number, and identification number; and

(b) Each][The][partner’s, member's, or shareholder's distributive share of the tax credit.

(3) Any information required by subsection (2) of this section filed as a separate document attached to the electronic mail message shall be in plain format text or plain ASCII format.]

      [Section 7. Incorporation by Reference. (1) The following material is incorporated by reference:

(a) "Schedule BIO - Application and Credit Certificate of Income Tax Credit Biodiesel (Form 41A720BIO)", October 2005; and

(b) "Schedule BIO (K-1) - Distributive Share of Approved Biodiesel and/or Blended Biodiesel Tax Credit - Form number 41A720BIO (K-1)", October 2005.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Revenue, 200 Fair Oaks Lane, Frankfort, Kentucky 40620, or at any Kentucky Department of Revenue Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.]

THOMAS B. MILLER, Commissioner

      APPROVED BY AGENCY: December 15, 2009

      FILED WITH LRC: December 15, 2009 at noon

      CONTACT PERSON: DeVon Hankins, Policy Advisor, Office of General Counsel, Finance and Administration Cabinet, 392 Capitol Annex, Frankfort, Kentucky 40601, phone (502) 564-6660, fax (502) 564-9875.