South Dakota legislature, Governor at odds over ethanol tax

May 1, 2008

In South Dakota, a storm has broken out between the Governor and the state Legislature, over new tax reporting provisions ordered by Governor Mike Rounds that his critics in the state Senate are saying amounts to a new tax. “I heard some of the spin out there that said I’m creating a new law. I’m not creating a new law,” Rounds told reporters.

The new provisions are aimed to simplify tax reporting from multiple blends of ethanol and gasoline, South Dakota allows its residents to customize their preferred ethanol and gasoline blend, and with E85 taxed at 10 cents per gallon and regular unleaded taxed at 22 cents per gallon, retailers have reported difficulties in reporting taxes.

Last month, Governor Rounds signed legislation reducing the state tax on biodiesel blends of B5 or higher, from 22 cents per gallon to 20 cents. The tax break is structured, like a recent biodiesel standard in Oregon, on a minimum level of in-state production; the threshold at which the law goes into effect is set at 20 Mgy in total state biodiesel production capacity.

Meanwhile, South Dakota consumers almost lost a long-time 2-cent-per-gallon tax break on ethanol. The bill was introduced by legislators to add an projected $4 million to a badly depleted highway fund, but was defeated by a broad coalition of legislators who said that increasing taxes on South Dakota’s most successful new industry was a bad idea.

South Dakota has been known more as an ethanol state than for biodiesel. However, South Dakota State University has received $26 million from the US Department of Energy for research on biofuels in general. The North Central Sun Grant Center will coordinate the program. The program covers biofuels education, outreach, feedstock assessment and feedstock development. The North Central Sun Grant Center will coordinate the efforts across all of the six Sun Grant Centers nationwide.

A study released by the South Dakota state government in January said that E10 has become the most popular fuel in the state. 37 percent of all state fuel tax revenues come from E10, 31 percent gasoline, 31 percent diesel, and the remaining 1 percent from E85 and liquid petroleum gas (LPG).