As 2015 came to a close, Congress approved a $1.8 trillion year-end spending and tax deal that funds the federal government through September 30, 2016 and extends or makes permanent scores of tax incentives for corporations and individuals. President Obama signed the bill into law after the House of Representatives approved the tax and spending portions in separate votes of 318-109 and 316-113, respectively, and the Senate approved the package as one measure by a vote of 65-33.
The New England Fuel Institute’s (NEFI’s) Legislative and Regulatory Center filed the following reports on the policy and regulatory implications of the new spending and taxation package.
(Please note: Below is a brief summary of federal legislation and is not meant as tax guidance. Be sure to consult a qualified tax professional in these matters.)
Biodiesel/Bioheat® Tax Credit Renewed
In a significant victory for biodiesel-blended heating oil, known as Bioheat® Fuel, the package retroactively renews the $1 per gallon biodiesel tax credit through 2015 and extends it for 2016.
NEFI was successful in preserving the tax credit at the blender level. NEFI had warned members of Congress that a proposal to move the credit to the producer level was premature and could have unforeseen consequences on the heating oil market and biodiesel supplies and prices in New England.
The proposal to move to a producer-only tax credit is likely to resurface next year. “NEFI continues to communicate its concerns on the issue with its longtime partners at the National Biodiesel Board (NBB) and with the region’s biodiesel producers, and biodiesel and heating fuel wholesalers and suppliers,” NEFI wrote. “All parties are committed to a robust and competitive Bioheat® industry in the Northeast, and we are confident this shared vision will continue to result in smart public policy.”
With the Biodiesel Blenders Tax Credit reinstated retroactive to January 1, 2015, heating oil dealers who blend biodiesel into heating oil or diesel fuel may file retroactive claims for the $1.00 per gallon credit for blends created between January 1 and December 31, 2015. Special one-time claim procedures for 2015 are forthcoming from the IRS. Heating oil dealers will also be able to file claims for the credit for blends created during 2016.
The biodiesel credit will apply to qualified heating oil blends that comply with ASTM D6751 standard for biodiesel. The IRS special procedures will allow for one-time payments covering the entire 2015 claim period. Since heating oil dealers do not typically incur federal motor fuel tax liability under Internal Revenue Code Section 4081, a credit against existing tax liability cannot be taken. Instead, a straight refund of $1.00 per gallon will be taken on IRS Form 8849 and 8849 Schedule 3. Claimants will be required to have a valid IRS 637M certificate in order to make the retroactive claim. Claimants who do not currently have a valid 637M certificate will be required to obtain one from the IRS before filing a claim. The claim procedures for blends created during 2016 will be the same as for claims made before the credit expired.
Ban on U.S. Crude Exports Repealed with Protections for Northeast
Under a historic bipartisan agreement, the bill lifts the 40-year old ban on U.S. crude oil exports—a major priority for Republicans—in exchange for several Democratic concessions, including a five-year extension to wind and solar tax breaks. Northeast lawmakers also secured a new tax break designed to help independent petroleum refiners in the region offset Jones Act shipping costs. Independent refiners (defined as refiners with no upstream production operations) will be able to count 75 percent of the cost of transporting crude oil toward an existing manufacturing tax deduction. The goal is to help refiners that serve the Northeast remain competitive with those overseas and minimize the potential for higher energy costs in the region caused by crude oil exports. The bill also allows the President to freeze exports for up to a year under certain circumstances, such as a supply shortage or a significant increase in U.S. oil prices versus the global market.
Extension of Tax Credit for Energy-Efficient Appliances
The bill extends through 2016 the IRS Section 25C homeowner tax credit for qualified appliance upgrades and energy retrofits. There is no change to the $500 overall limit and lifetime cap, or to requirements for HVAC appliances. This means that heating oil, propane and natural gas furnaces and hot water boilers must meet or exceed a 95 AFUE rating in order to be eligible for the tax credit. The new law also maintains the $150 limit for these heating systems (or $200 if installed with an advanced main air circulating fan). NEFI continues to argue for a more robust and fuel-neutral energy efficiency tax credit.
Other Energy-Related Provisions
The spending portion of the new law sustains funding for the maintenance and management of the Northeast Home Heating Oil Reserve. The tax portion extends through 2016 the alternative fuel vehicle refueling credit and the above-the-line deduction for qualified energy efficient improvements in commercial buildings; and the “alternative fuel mixture” credit for propane, natural gas and other alternatives used as transportation fuels. Starting in 2015, the alternative fuel mixture credit is adjusted from 50 cents per gallon to 50 cents per energy equivalent of a gallon of diesel fuel, or approximately 29 cents per gallon for LNG and 36 cents per gallon for LPG/propane. The provision is effective for fuel sold or used after 2015.
Section 179 Expensing and Bonus Depreciation
The package permanently raises the expensing limit for IRS Section 179 from $25,000 to $500,000 and increases the total spending cap from $500,000 to $2 million. Once the cap has been reached, the deduction will phase out on a dollar-for-dollar basis up to $2.5 million. The cap is linked to inflation and will be increased in $10,000 increments in future years. The bill also expands the definition of “eligible property” under Section 179 to include air conditioning and space heating appliances. NEFI members will also be pleased to hear the package extends bonus depreciation through 2019. Businesses will be able to depreciate 50 percent of the cost of equipment acquired and put in service during tax years 2015, 2016 and 2017. Bonus depreciation will be phased down to 40 percent in 2018 and 30 percent in 2019. NEFI had joined other business groups in recent years to press Congress for both a permanent renewal of Section 179 and a long-term extension of bonus depreciation.
Suspension of Hours-of-Service Restart Rule
The package continues suspension of July 1, 2013 changes to the Hours-of-Service rule that restricts use of the 34-hour restart to just once per week and requires drivers using a restart to include two overnight rest periods between 1:00 and 5:00 a.m. When Congress halted the restart provision this time, it raised the bar for the FMCSA before the suspension can be lifted. This time the FMCSA must show that drivers operating under the 2013 restart requirements (between June and December of 2014) “[demonstrate] statistically significant improvement in all outcomes related to safety, operator fatigue, driver health and longevity and work schedules” when compared to drivers who abide by pre-July 1, 2013, regulations. Whether the data demonstrates safety improvements or not is unknown and suggests that it could be years before the restart suspension is lifted, if it all.
No Fuel Switching Language
The bill provides a total of $3.39 billion for states under the federal Low Income Home Energy Assistance Program (LIHEAP). It does not include a measure requested by President Obama that would have required states to set-aside a portion of their LIHEAP grants for “efficiency improvements” in low-income homes including fuel switching from heating oil and propane to “other fuels.” It also does not provide $200 million requested by the administration for a state-utility partnership program that would seek to encourage residential fuel switching. The industry made pushing back against these proposals a top priority at this year’s “Day on the Hill” event and has pressed the issue with members of Congress and the Obama Administration ever since.
No Harmful Commodity Trading Provisions
NEFI and its allies were successful in preventing a cut to funding for the Commodity Futures Trading Commission (CFTC), the federal agency responsible for oversight of the commodity futures, swaps and options markets. Also absent from the bill were the many anti-Dodd-Frank “policy riders” advocated by Wall Street lobbyists. This includes a proposal approved by the Senate appropriations committee earlier this year that would have weakened new limits on debit card transaction fees. The Petroleum Marketers Association of America (PMAA) and its allies in the Merchant Payments Coalition were successful in preventing its inclusion in the final bill.