Relates to exempting dyed Diesel motor fuel used in farming or manufacturing

1 Co-sponsor

• Diane J. Savino

BILL NUMBER:S2924

Title of bill

An act to amend the tax law, in relation to exempting dyed Diesel motor fuel used in farming or manufacturing

Purpose

The purpose of this bill is to address an unintended taxation consequence on farms and other small businesses due to the recent implementation of federal regulations regarding the use of dyed non-highway, locomotive or marine (NRLM) diesel fuel.

Summary of provisions

Section one makes changes to section 282-a of tax law to allow those fuel vendors with a direct pay permit to purchase qualified dyed diesel motor fuel tax free from a fuel importer. In order to qualify for this exemption, the end use of the fuel needs to be either in farming or in manufacturing, processing or assembly.

Section two through five make technical changes regarding permit requirements and conforming definitions necessary to implement this policy change.

Section six establishes an effective date.

Justification

In the fall of 2007, the United States Environment Protection Agency implemented new regulations requiring that all non- road vehicles, including farm tractors and farm equipment utilize a lower sulfur diesel fuel than had been historically used in those vehicles. Due to existing New York State tax law, the new lower sulfur diesel fuel is considered enhanced diesel fuel and is taxed in a different manner than the higher diesel fuel. Previously, uses of the dyed higher sulfur diesel fuel were exempt from the State's three fuel taxes (the petroleum business tax, diesel motor fuel excise tax and sales tax) and fuel distributors were able to purchase the fuel without paying tax. The distributor then forward on the tax exemption directly to the exempt small businesses, such as farms.

The change in taxation status means that fuel distributors must pay all taxes on the fuel at the time of purchase, regardless of whether the end sale is an exempt use. This means small fuel distributors must layout almost $.40/gallon in taxes and then wait for four to five months for refund of those taxes. This creates a tremendous cash-flow issue for these small businesses. In fact, many of them cannot afford this cost and are now forwarding the up-front taxes to the exempt businesses, including farmers. Farms and small businesses must then front an additional $.40/gallon for four to five months until a refund can be obtained. This places a tremendous burden on these businesses and family farms.

The bill seeks to address this business climate issue by clarifying that none of the three state taxes will be required with the purchase

of dyed non-road diesel by a distributor where the end sales and uses of the diesel fuel will be by the specifically exempt categories, such as farms.

Legislative history

2010 - S.5122

Fiscal implications

None to the state.

Effective date

This act shall take effect on the first day of the sales tax quarterly period, as described in subdivision (b) of section 1136 of the tax law, next commencing at least ninety provided, however, that registered distributors days after this act becomes a law; of Diesel motor fuel may apply for direct payment permits thirty days after this act becomes a law.