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Taxing Biodiesel Fuel Transactions

One of the most renewable fuels, made from a blend of materials like plant mass, byproducts of soybean oil, recycled cooking oil and animal fats, biodiesel is slowly gaining momentum as a substitute for petroleum-based diesel. Biodiesel is a relatively new fuel, so taxation policies at every jurisdictional level are still being debated and refined. Expect more changes ahead.

Taxation Challenges

  • Tax rules for blending
  • Varying taxation points along the supply chain
  • Tracking state and local tax requirements
  • State incentives and rebates
  • Changing rates, rules and forms


  • The federal government does not charge excise tax on 100% biodiesel, but it does when it is blended with petroleum-based diesel fuel.
  • Kentucky offers a $1.00 per gallon credit for B100 produced or used in the blending process. Find more state laws here.
  • The Federal Advanced Biofuel Production Payments grant provides payments to support the production of biodiesel.
  • Blended biodiesel (B20) is subject to a 16¢/gallon tax in Texas and a 22.5¢/gallon tax in Iowa.
  • Illinois does not require any fuel licenses until after blending. Florida requires licenses for buying and selling. South Dakota requires 4 separate licenses.

The Avalara Solution

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AvaTax Excise

Identify and calculate fuel transactions

Avalara AvaTax Excise identifies and calculates indirect taxes for fuel transactions with built-in support for all major jurisdictions in the U.S., Canada, and Europe.

Don’t guess about the correct taxes for your fuel transactions. Try AvaTax Excise for free at ExciseRates!

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Returns Excise Enterprise

Fuel tax compliance automation

Avalara Returns Excise Enterprise generates signature-ready fuel tax returns and reports from fuel transaction data, enabling distributors, terminal operators, suppliers, fleets, and retailers to fully automate the filing process and ensure tax compliance.

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Returns Excise Pro

Easy fuel tax filing

Avalara Returns Excise Pro simplifies fuel tax filing through automation, enabling small and medium sized suppliers, distributors and terminal operators to reduce filing time and costs. An ideal solution for -

  • Smaller businesses facing electronic filing mandates
  • Businesses operating in less than 5 states
  • Businesses with less than 500 transactions per month
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Manage your fuel licenses and exemption documents

Avalara CertCapture creates, validates and stores fuel license and exemption documents, ensuring tax calculation and compliance accuracy, limiting audit exposure.

AvaTax Excise and Returns Excise Enterprise integrate directly with CertCapture to provide a fuel license and exemption document management solution. Learn more about integration.

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Browse Our Resources On Biodiesel

View our free resources on biodiesel. A one-time registration is required.

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