How did Kansas tax, license, report, and refund biodiesel produced, distributed, or used within the state under revised Notice 06-06?
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This page answers the general question as of 2006. Ezel answers yours, under current Kansas tax law, with citations.
Plain-English summary
Revised Notice 06-06 treated B100 and every biodiesel blend as Kansas special fuel. It covered biodiesel produced, distributed, or used in Kansas and expressly did not address biodiesel produced in another state and imported into Kansas.
Taxable and exempt fuel
Clear biodiesel was taxable under K.S.A. 79-3408. Biodiesel produced for the producer's own use was also taxable when placed directly into a motor-vehicle fuel tank. The nonhighway exception required fuel to be indelibly dyed under 26 U.S.C. § 4082 and used only for nonhighway purposes.
The first sale of biodiesel from a producer/licensed distributor to another licensed distributor was nontaxable under K.S.A. 79-3408(c)(5). For fuel sold into terminal storage for resale, the distributor of first receipt paid tax when the fuel was later purchased and loaded at the terminal rack.
Producer, distributor, and carrier requirements
A Kansas biodiesel producer needed a manufacturer license and a bond fixed by the Director but not less than $5,000. Importing or distributing biodiesel in Kansas could also require a distributor license and bonds of at least $1,000 for a distributor and $5,000 for an importer, as stated in the notice.
A producer transporting its own manufactured biodiesel needed a liquid-fuel-carrier license when the K.S.A. 55-507 thresholds applied: 120 gallons or more from a refinery, production/manufacturing site, pipeline terminal, or across the state line; or 3,500 gallons or more from another origin. Hiring a carrier, or having the customer transport purchased fuel, did not require the producer to hold that carrier license.
Incentives and fees
The notice described a $0.30-per-gallon qualified biodiesel producer incentive, with quarterly claims beginning July 1, 2007. The person first selling, offering, using, or delivering biodiesel owed the $0.01-per-gallon environmental assurance fee on Form MF-7/7a. The petroleum-products inspection fee did not apply to B100.
Reporting and refunds
The notice assigned distributor product codes 284 (undyed B100), 290 (dyed B100), 170 (undyed blend), and 171 (dyed blend). If tax had been paid before fuel was later sold as a dyed blend, the distributor claimed credit on an amended return.
An off-road user seeking a fuel-tax refund first applied for Form MF-51, paid the stated $6 permit fee, renewed the permit every three years, and then filed Form MF-35.
What this means for you
Biodiesel producers
Separate the production incentive from tax compliance. A producer could qualify for an incentive and still need manufacturer, distributor, or carrier licenses, bonds, fee returns, and fuel-tax reporting.
Off-road users
Buying clear biodiesel for off-road use did not make the sale exempt. The notice required dyed fuel for the point-of-sale exemption; otherwise the user followed the refund-permit and claim process.
Common questions
Q: Was clear B100 taxable?
A: Yes. Dyed special fuel used only off highway was the stated exception.
Q: Was a producer's sale to another licensed distributor taxable?
A: No, for the first sale described under K.S.A. 79-3408(c)(5).
Q: Did a Kansas producer need a license and bond?
A: Yes. The notice required a manufacturer license and a bond of at least $5,000.
Q: How did an off-road user seek a refund?
A: Obtain the MF-51 refund permit, then file Form MF-35; the notice stated a $6 permit fee and three-year renewal.
Citations and references
- K.S.A. 79-3401(s), (f), and (j); 79-3408; 79-3403; 79-34,141.
- K.S.A. 55-507; 65-34,117; 55-426; 79-3453 through 79-3463.
- 26 U.S.C. § 4082.
- 2006 Senate Bill 388.
- Forms MF-7/7a, MF-51, MF-35, MF-52, MF-52A, and MF-52B.
Subject
Biodiesel Requirements and Questions and Answers — Revised September 11, 2006
Source
- Landing page: Kansas Department of Revenue Policy Information Library
- Original document: Notice 06-06
Original ruling text
Notice
Notice Number: 06-06
Tax Type: Motor Vehicle Fuel Tax
Brief Description: Biodiesel Requirements and Questions and Answers - REVISED 9/11/2006
Keywords:
Approval Date: 07/06/2006
Body:
Kansas Department of Revenue
Division of Taxation
NOTICE 06-06 REVISED
Biodiesel Requirements
And
Questions and Answers
Note: This notice addresses production, distribution and usage of biodiesel in Kansas and relates to the State of
Kansas requirements only. This notice does not address biodiesel produced in another state and imported into
Kansas.
Biodiesel (B100 or any blend) is a special fuel per K.S.A. 79-3401(s) and is taxable per K.S.A. 79-3408. Special fuels
are defined at K.S.A. 79-3401(s):
K.S.A. 79-3401(s) "special fuels" means all combustible liquids suitable for the generation of power for the
propulsion of motor vehicles including, but not limited to, diesel fuel, alcohol and such fuels not defined under the
motor-vehicle fuels definition, hereinafter referred to as motor-vehicle fuel;
Motor fuel tax is imposed at K.S.A. 79-3408:
K.S.A. 79-3408. Tax imposed on use, sale or delivery of motor-vehicle fuels or special fuels; incidence of tax imposed
on distributor; allowance for certain losses; exempt transactions; reports required. (a) A tax per gallon or fraction
thereof, at the rate computed as prescribed in K.S.A. 79-34,141, and amendments thereto, is hereby imposed on the
use, sale or delivery of all motor-vehicle fuels or special fuels which are used, sold or delivered in this state for any
purpose whatsoever.
The exception to taxation would be K.S.A. 79-3408(c), which provides:
No tax is hereby imposed upon or with respect to the following transactions: . . .(6) The sale or delivery of special fuel
which is indelibly dyed in accordance with regulations prescribed pursuant to 26 U.S.C. 4082 and such special fuel is
only used for nonhighway purposes.
The following information indicates the current statutory requirements for the distribution and manufacturing of
motor vehicle fuels or special fuels (biodiesel) in the state of Kansas.
K.S.A. 79-3401 defines distributor and manufacturer:
(f) "distributor" means any person, who:
(4) received and, in any manner, uses, sells or delivers motor-vehicle fuels or special fuels in the state of Kansas on
which the tax provided for in this act has not been previously paid;
(j) "manufacturer" or "refiner" means any person who or which produces, refines, prepares, blends, distills,
manufactures or compounds motor-vehicle fuels or special fuels in the state of Kansas for such person's own use
therein, or for sale or delivery therein…
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K.S.A. 79-3403 includes the licensing and bonding requirements:
It shall be unlawful for any distributor to use, sell or deliver any motor-vehicle fuels or special fuels within this state
unless such distributor at the time of such use, sale, or delivery, is the holder of a valid, unrevoked motor-vehicle-fuels
distributor's license or special fuels distributor's license issued to such distributor in accordance with the provisions of
this act for each particular place of business at which such distributor shall use, sell or deliver motor-vehicle fuels or
special fuels…
It shall be unlawful for any manufacturer to use, sell or deliver any motor-vehicle fuels or special fuels within this
state unless such manufacturer at the time of such use, sale, or delivery is the holder of a valid, unsuspended and
unrevoked motor-vehicle fuel manufacturer's license or special fuel manufacturer's license issued to such
manufacturer in accordance with the provisions of this act for each particular place of business at which such
manufacturer shall use, sell or deliver motor-vehicle fuels or special fuels…
No motor-vehicle-fuels distributor's license or special fuels distributor's license shall be granted and issued until the
person applying has filed with the director a bond, payable to the state of Kansas, in such amount as shall be fixed by
the director, but in no event less than $1,000…
No motor-vehicle fuel or special fuel manufacturer's license shall be granted and issued until the person applying has
filed with the director a bond payable to the state of Kansas, in such amount as shall be fixed by the director, but in no
event less than $5,000…
QUESTIONS AND ANSWERS
Producer:
Question
Does Kansas offer an incentive for biodiesel production sales?
Answer
2006 Senate Bill 388 establishes the Kansas Qualified Biodiesel Fuel Producer Incentive Fund, which
allows for the payment of producer incentives for the production of biodiesel. The incentive is for the
production of biodiesel fuel in the amount of $.30 for each gallon of biodiesel fuel sold by the producer.
The Kansas qualified biodiesel fuel producer shall file for the production incentive beginning July 1, 2007
and quarterly thereafter. For a detailed, full text copy of the bill, please visit the Kansas Legislature’s
website at www.kslegislature.org.
Question
As a biodiesel producer, when is the Petroleum Products Inspection and Environmental Assurance Fee applicable to
biodiesel?
Answer
The person first selling, offering for sale, using or delivering biodiesel is responsible for paying the
environmental assurance fee to the state. The environmental assurance fee is $.01 per gallon pursuant to
K.S.A. 65-34,117. The monthly return is form MF-7/7a. The petroleum products inspection fee does not
apply to biodiesel (B100) pursuant to K.S.A. 55-426.
Question
As a biodiesel producer in Kansas, am I required to be licensed and bonded with the State of Kansas?
Answer
A manufacturer’s license is required pursuant to K.S.A. 79-3403. A manufacturer’s bond, in the amount
fixed by the director and not less than $5,000, is also required pursuant to K.S.A. 79-3403.
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A distributor’s license is required pursuant to K.S.A. 79-3403, if the biodiesel is being imported into or
distributed in the state of Kansas. A bond, in the amount fixed by the director and not less than $1,000 for
distributor’s and $5,000 for importer’s, is also required pursuant to K.S.A. 79-3403.
Question
If I am a biodiesel producer in Kansas and will be transporting the biodiesel to my customers, am I required to be
licensed?
Answer
Yes, a Liquid Fuel Carriers license is required if you are transporting your own manufactured biodiesel
and meet or exceed the limitations in K.S.A. 55-507, which provides:
Liquid-fuel carrier's license; certificates for vehicles. No person shall transport any liquid fuels or motor
fuels from any refinery, place of manufacture or production, or pipeline terminal, or across the state line, in
quantities of 120 gallons or more over any of the public highways of this state without having first secured
from the director of taxation, and at the time holding, a valid, unrevoked liquid-fuels carrier's license and a
certificate thereof for each vehicle in which such person transports such fuels, nor shall any person
transport any liquid fuel or motor fuels in quantities of 3,500 gallons or more over any of the public
highways of this state from any point of origin other than a refinery, place of production or manufacture
or pipeline terminal without having first secured from the director of taxation, and at the time holding a
valid, unrevoked certificate of a liquid-fuels carrier's license for each vehicle in which such person
transports such fuels. This section shall not apply to the transportation by any consumer in the consumer's
own vehicle of liquid fuels exclusively for such consumer's own use from the place of purchase to the
place where it is to be consumed by such consumer.
Question
As a biodiesel producer in Kansas, if I hire a carrier to transport the biodiesel to my customers, or my customers
transport the biodiesel they purchase themselves, am I required to have a Liquid Fuel Carriers license?
Answer
No.
Question
Am I required to remit fuel tax when I produce and sell biodiesel to a terminal storage facility for resale?
Answer
No. The incidence of Kansas fuel tax is at the distributor of first receipt level. The distributor of first
receipt must remit the tax when the fuel is subsequently purchased and loaded at the terminal rack.
Question
I am a biodiesel producer and a licensed distributor. Am I required to remit fuel tax when I sell the biodiesel I have
produced, to another licensed distributor?
Answer
No. The first sale of biodiesel to another duly licensed distributor is not taxable, pursuant to K.S.A. 79-
3408(c)(5).
Question
Is biodiesel taxable if it is sold to a consumer/end user for off-road use?
Answer
If biodiesel is being sold directly to a consumer/end user for off-road use, the biodiesel must be dyed in
order to be nontaxable, otherwise it is subject to tax.
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Question
If I sell clear B100, should tax be remitted?
Answer
Yes, pursuant to K.S.A. 79-3408. The exception would be if the B100 is dyed pursuant to K.S.A. 79-
3408(c), which provides:
No tax is hereby imposed upon or with respect to the following transactions: . . . (6) The sale or delivery of
special fuel which is indelibly dyed in accordance with regulations prescribed pursuant to 26 U.S.C. 4082
and such special fuel is only used for nonhighway purposes.
Question
If I produce biodiesel for my own use, is it taxable?
Answer
Yes. Biodiesel placed directly into a motor vehicle fuel supply tank is taxable pursuant to K.S.A. 79-3408.
Distributor:
Question
How should biodiesel be reported on the Distributor return (MF-52) and schedules (MF-52A/MF-52B)?
Answer
Biodiesel (B100) should be reported on the Distributor return when received, IF it is known to be sold/used
as clear or dyed. If the taxability of the biodiesel is not known, the distributor may report the biodiesel
when it is determined that the product will be sold/used as clear or dyed. Biodiesel should be reported on
Schedule 2, Receipts, (or Schedule 3 for imports) as a special fuel, using product code 284 for undyed
biodiesel and product code 290 for dyed biodiesel. Product code 170 should be used for a biodiesel blend
undyed and 171 for a biodiesel blend dyed.
*It should be noted that this reporting exception is being allowed as an interim solution, until biodiesel is
readily available at Kansas terminals or Kansas biodiesel production facilities.
Question
If I have paid the fuel tax on biodiesel because it was originally reported to be used for a taxable purpose, placed in
bulk storage, then later sold blended with dyed diesel, how do I receive credit for the tax previously paid?
Answer
An amended return should be submitted to claim the credit. The amended return should include only the
gallons/tax previously reported as taxable.
Consumer/End User:
Question
How do I receive a refund for fuel tax paid on biodiesel that I used off-road?
Answer
You must apply for a refund permit (Form MF-51). The permit fee is $6. Once the permit is received,
complete the Refund Claim (Form MF-35) to request the refund. The refund permit must be renewed every
3 years. For refund requirements, see K.S.A. 79-3453 through K.S.A. 79-3463.
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TAXPAYER ASSISTANCE
To obtain additional copies of this or any other notice call the Kansas Department of Revenue’s voice mail forms request line at 785-
296-4937 or download them from our web site: www.ksrevenue.org. If you have any questions about this notice, please contact our
Motor Fuel Tax Segment.
Motor Fuel Tax Correspondence
Docking State Office Building
915 SW Harrison St.
Topeka, KS 66625-8000
(785) 368-8222
Fax: (785) 296-4993
Notice 06-06
07/06/06 Revised 09/11/2006
Date Composed: 07/06/2006 Date Modified: 07/06/2006
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