Kentucky offers tax incentives for the production of biofuels as well as the construction/upgrade of biofuel facilities.
Federal Tax Incentive Update - On December 17, 2010, President Obama signed H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law No: 111-312). This Act extends and reinstates several alternative fuel tax credits through December 31, 2011. Additional information can be found at the U.S. Department of Energy website.
Extended Tax Credits Include:
The Act also reinstates several tax credits that expired after December 31, 2009:
Biodiesel Production and Blending Tax Credit
Special Rule for 2010 Excise Tax Credit Claims - The Alternative Fuel, Alternative Fuel Mixture, and Biodiesel Mixture Excise Tax Credits were reinstated retroactively, meaning taxpayers may submit a one-time claim for qualified fuel sold or used during the 2010 tax year. The U.S. Internal Revenue Service (IRS) has issued special guidance to allow a 180-day period for the submission of these claims. Please refer to the IRS Notice 2011-10 for additional information.
Qualified biodiesel producers or blenders are eligible for a tax credit of $1 per gallon of pure biodiesel (B100) or renewable diesel produced or used in the blending process. Re-blending of blended biodiesel does not qualify. The biodiesel tax credit is applied against the corporation income tax imposed under KRS 141.040 and/or the limited liability entity tax (LLET) imposed under KRS 141.0401. The amount of the tax credit claimed against the corporation income tax and LLET can be different. The total amount of credit for all biodiesel producers may not exceed the annual biodiesel tax credit cap of $10 million. Unused credits may not be carried forward. For the purpose of this credit, biodiesel must meet ASTM specification D6751. Renewable diesel is defined as a renewable, biodegradable, non-ester combustible liquid derived from biomass resources that meets ASTM specification D975 or D396. The Kentucky Administrative regulation KAR 15:140. Biodiesel tax credit outlines the credit information administered by Kentucky Department of Revenue.
Ethanol Production Tax Credit
Qualified ethanol producers are eligible for an income tax credit of $1 per gallon of corn- or cellulosic-based ethanol that meets ASTM standard D4806. The total credit amount available for all corn and cellulosic ethanol producers is $5 million for each taxable year. Unused ethanol credits from one ethanol-based cap, such as corn, may be applied to another ethanol-based cap, such as cellulosic, in the same taxable year. Unused credits may not be carried forward. Kentucky statute information regarding alternative fuel producer tax credits can be found within KRS Chapters 141.422-141.430.
Alternative Fuel Production Facility Incentives
The Kentucky Economic Development and Finance Authority (KEDFA) provides tax incentives to construct, retrofit, or upgrade an alternative fuel production or gasification facility that uses coal or biomass as a feedstock. Beginning Aug. 1, 2010, tax incentives are also available for energy-efficient alternative fuel production facilities and up to five alternative fuel production facilities that use natural gas or natural gas liquids as a feedstock. Energy-efficient alternative fuels are defined as homogeneous fuels that are produced from processes designed to densify feedstocks such as coal, waste coal, or biomass resources, and have an energy content that is greater than the feedstock. The incentives may consist of: 1) a refund of up to 100 percent of the state sales tax paid on the purchase of personal property used to construct the facility; 2) a credit of up to 100 percent of an approved company's state income tax and limited liability entity tax that is generated by the project; 3) up to 4 percent of the wage assessment of employees whose jobs were created as a result of the construction, retrofit, upgrade or operation of a qualified facility; and 4) a credit for up to 80 percent of the severance tax paid for coal, natural gas, or natural gas liquids used as a feedstock.
The incentives expire at the time of receipt of the authorized incentives or 25 years from activation of the project, whichever occurs first. Approved companies may recover up to 50 percent of their capital investment through the authorized tax incentives. The minimum capital investment for incentive eligibility is $25 million for an alternative fuel or gasification facility that uses biomass as the primary feedstock; $100 million for an alternative fuel or gasification facility that uses coal, natural gas, or natural gas liquids as the primary feedstock; and $25 million for an energy-efficient alternative fuel facility.
Kentucky business incentives and financial programs are primarily administered through The Kentucky Cabinet for Economic Development. A Handbook for Starting and Licensing Your Business in Kentucky by the Cabinet for Economic Development can be found at The Kentucky Business Guide.