House File 2128, signed by Governor Reynolds on May 17, 2022, created a new deduction, effective July 1, 2022, for gasoline or diesel fuel withdrawn from a terminal by a licensee to be blended with a biofuel after it is withdrawn from the terminal when the tax rate on the gasoline or diesel fuel exceeds the tax rate which would be due on the biofuel-blended fuel.
This new deduction, added to Iowa Code section 452A.8, is intended to promote the use of biofuels by allowing a lower tax rate to be charged when the fuel is withdrawn from the terminal when it is known that the fuel is going to be blended into a biofuel with the lower tax rate after it has been withdrawn. In other words, you can sell the fuel at the lower “blended” tax rate in these situations. Suppliers and distributors will now be able to make these adjustments on their return to reduce the need for their customers to request refunds of tax collected at the higher rate for the gasoline or diesel fuel.
This new deduction may be taken on the Iowa Fuel Tax Supplier/Distributor Return. It will appear on the return as the field titled “Gallon Deduction for Reduced Tax Rate Sales.” For suppliers and distributors who file by the direct entry method (Under 5,000 gallons), type the gallons to be deducted directly in the field.
For some taxpayers, continuing to pay the tax and file refund claims may be more appropriate than using this deduction. In particular, suppliers who are also retailers may not be able to accurately determine how much blended fuel should be claimed in the new deduction and should continue to use the refund process.
For suppliers and distributors who file by EDI or the Excel Upload method, use schedule code 13K Credit or Deduction for Reduced Tax Rate. Enter only the gallons to be deducted in the gross gallons field on this schedule, not the total gallons sold as reported on the taxable schedules (5, 3A, 3B, 3X, 11B).
For example, to calculate the amount of the gallons to deduct, using the tax rates effective 7/1/2023, multiply the gasoline gross gallons by 0.183333. This will give the number of gallons of gasoline to be deducted to essentially make the load taxed at the lower blended rate. For diesel, multiply the gross gallons by 0.083077. This will give the number of gallons of diesel to be deducted to essentially make the load taxed at the lower blended rate.
The gasoline gallon deduction multiplier of 0.183333 is calculated as follows:
- Gasoline tax rate of $0.30 minus the E-15 or Higher tax rate of $0.245 for a difference of $0.055. Divide the difference of $0.055 by the gasoline tax rate of $0.30 for the deduction gallon multiplier of 0.183333.
The diesel gallon deduction multiplier of 0.083077 is calculated as follows:
- Diesel tax rate of $0.325 minus the B-11 or Higher tax rate of $0.298 for a difference of $0.027. Divide the difference of $0.027 by the diesel tax rate of $0.325 for the deduction gallon multiplier of 0.083077.
If you have any questions, please email IDRMotorFuel@Iowa.gov or call 515-281-3114.