Is blended biodiesel (about 20% biodiesel, 80% petroleum diesel) subject to Connecticut's motor vehicle fuels tax, and if so at what rate?

Plain-English summary

A company planned to import pure biodiesel (a nontoxic, biodegradable fuel made from plant and animal oils and fats, per 7 C.F.R. § 1424.3) and sell it blended with petroleum diesel — roughly 20% biodiesel / 80% petroleum diesel — for use in ordinary diesel engines. It asked DRS whether that "blended biodiesel" is subject to the motor vehicle fuels tax, and at what rate.

DRS ruled that blended biodiesel is subject to the motor vehicle fuels tax at the diesel fuel rate — 26 cents per gallon (on and after August 1, 2002) under Conn. Gen. Stat. § 12-458(a)(2)(C). The reasoning ran in two steps:

1. It's a taxable "fuel." The motor vehicle fuels tax is imposed on licensed distributors of "fuels" (§ 12-458(a)), and "fuels" is defined broadly (§ 12-455a(b)(2)) to include any combustible gas or liquid suitable for the generation of power to propel motor vehicles. Blended biodiesel fits — it powers diesel-engine vehicles — so it is a fuel subject to the tax.

2. It's taxed at the diesel rate. The statute sets a general fuels rate of 25 cents (§ 12-458(a)(2)(A)), a gasohol rate of 24 cents (subparagraph (B)), and a diesel fuel rate of 26 cents (subparagraph (C)). Because Connecticut law doesn't define "diesel fuel," DRS looked to the parallel federal excise-tax definition — "any liquid (other than gasoline) which is suitable for use as a fuel in a diesel-powered highway vehicle or a diesel-powered train" (26 U.S.C. § 4083(a)(3)). Blended biodiesel qualifies as diesel fuel under that definition, so the 26-cents-per-gallon diesel rate applies rather than the general 25-cent rate.

Note this is the motor vehicle fuels tax — an excise collected from licensed distributors — which is a different tax from the petroleum products gross earnings tax. (In a later ruling, DRS addressed how a 5% biodiesel blend is treated under the petroleum products gross earnings tax, a separate levy.)

What this means for you

Fuel distributors and biodiesel blenders

If you're a licensed distributor selling a biodiesel/petroleum-diesel blend for use in diesel vehicles, expect the motor vehicle fuels tax at the diesel rate, not the lower general rate. The blend being partly renewable doesn't exempt it or drop it to the general fuels rate — what controls is that it's a combustible liquid usable to propel diesel vehicles.

Businesses running diesel fleets

Blended biodiesel purchased for on-road diesel vehicles carries the same per-gallon motor vehicle fuels tax as ordinary diesel. Factor the diesel-rate excise into fuel cost comparisons between conventional diesel and biodiesel blends.

Accountants and tax professionals

The tax attaches at the distributor level under § 12-458(a); the classification hook is the broad "fuels" definition in § 12-455a(b)(2). Where Connecticut leaves a term (like "diesel fuel") undefined, DRS is willing to borrow the parallel federal tax definition (here 26 U.S.C. § 4083(a)(3)) — a useful interpretive tool. Rates are date-specific; confirm the current statutory rate before applying the 26-cent figure.

Common questions

Q: Is biodiesel taxed in Connecticut?
A: Yes. Blended biodiesel used to propel diesel vehicles is a taxable "fuel" under the motor vehicle fuels tax.

Q: At what rate — the general fuels rate or the diesel rate?
A: The diesel fuel rate (26 cents per gallon on and after August 1, 2002) under § 12-458(a)(2)(C), because blended biodiesel qualifies as "diesel fuel."

Q: Connecticut doesn't define "diesel fuel" — how did DRS decide the rate?
A: It applied the parallel federal excise-tax definition (26 U.S.C. § 4083(a)(3)): a liquid other than gasoline suitable for use in a diesel-powered highway vehicle or train. Blended biodiesel meets that test.

Q: Is this the same as the petroleum products gross earnings tax?
A: No. This ruling addresses the motor vehicle fuels tax (an excise on distributors). The petroleum products gross earnings tax is a separate levy analyzed under different statutes.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-458(a) (imposition of the motor vehicle fuels tax on licensed distributors at the rates in subdivision (2))
• Conn. Gen. Stat. § 12-458(a)(2)(A) (general fuels rate, then 25 cents/gallon), (B) (gasohol, 24 cents), and (C) (diesel fuel, 26 cents on and after August 1, 2002)
• Conn. Gen. Stat. § 12-455a(b)(2) (definition of "fuels": any combustible gas or liquid suitable for the generation of power to propel motor vehicles)

Federal law and regulations:

• 26 U.S.C. § 4083(a)(3) (federal excise-tax definition of "diesel fuel," applied by analogy)
• 7 C.F.R. § 1424.3 (federal definition of pure biodiesel — a nontoxic, biodegradable product made from the oils and fats of plants and animals)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2003-1

Original ruling text

Ruling 2003-1, Motor Vehicle Fuels Tax / Biodiesel Fuel

FACTS:

A company doing business in Connecticut (hereinafter “the Company”) plans to import a fuel called “biodiesel.”  Biodiesel (hereinafter “pure biodiesel”) is defined in the Code of Federal Regulations as a nontoxic, biodegradable product made from the oils and fats of plants and animals. 7 C.F.R. §1424.3.  Pure biodiesel is intended as a replacement for or additive to petroleum diesel fuel.  It burns cleaner and is safer to handle and store than petroleum diesel fuel.

The Company intends to mix pure biodiesel with petroleum diesel in an approximate proportion of 20% pure biodiesel to 80% petroleum diesel.  When so blended, the mixture (hereinafter “blended biodiesel”) is suitable for use in most diesel-burning motor vehicles, requiring little or no engine modification.

ISSUE:

Is blended biodiesel subject to the motor vehicle fuels tax, and if so, at what rate?

RULING:

Because blended biodiesel is a fuel suitable for the generation of power in motor vehicles with diesel engines, it is subject to the motor vehicle fuels tax at the rate for diesel fuel under Conn. Gen. Stat. §12-458(a)(2)(C), currently twenty-six cents per gallon.

DISCUSSION:

The motor vehicle fuels tax is imposed in Conn. Gen. Stat. §12-458(a) on licensed distributors of fuels at the rates specified in subdivision (2) of that subsection.  The term “fuels” is defined in Conn. Gen. Stat. §12-455a(b)(2) to include “any . . . combustible gas or liquid suitable for the generation of power to propel motor vehicles . . . .”  Blended biodiesel, as the facts of this ruling indicate, is a liquid suitable for the generation of power to propel motor vehicles with diesel engines.  Therefore, it is a fuel for purposes of the motor vehicle fuels tax.

The statutes do not specify a rate of tax for blended biodiesel.  In Conn. Gen. Stat. §12-458(a)(2)(A), the rate for all fuels is currently set at twenty-five cents per gallon, unless another rate is specified.  A separate rate of twenty-four cents per gallon is imposed in subparagraph (B) for gasohol, and the rate for diesel fuel, in subparagraph (C), is twenty-six cents per gallon on and after August 1, 2002.

The term “diesel fuel” is not defined for purposes of the motor vehicle fuels tax.  But it is defined for purposes of the federal excise tax on petroleum products as “any liquid (other than gasoline) which is suitable for use as a fuel in a diesel-powered highway vehicle or a diesel-powered train.”  26 U.S.C. §4083(a)(3).  In the absence of a definition of diesel fuel in Connecticut statutes or regulations, it is reasonable to rely on the definition of the same term in the context of the federal tax law that parallels the Connecticut motor vehicle fuels tax.

Blended biodiesel qualifies as “diesel fuel” under the federal definition, because it is suitable as a fuel for diesel-powered highway vehicles.  So the rate of tax for blended biodiesel in Connecticut is the rate imposed on diesel fuel under Conn. Gen. Stat. §12-458(a)(2)(C), currently twenty-six cents per gallon.

LEGAL DIVISION

March 25, 2003