Biofuels are transportation fuels that are made from biomass materials, which are plant-based materials such as wood, energy crops, agricultural residues, and waste from industry, farms, and households. Biofuels meet the definition of diesel fuel for California diesel fuel tax purposes and are taxed at the diesel fuel tax rate.
Biodiesel is one of the most popular biofuels. These fuels are usually blended with petroleum fuels (gasoline and diesel fuel), but they can also be used on their own. Biodiesel is a fuel made fully or partially from vegetable oils or animal fats. It is typically produced using a vegetable oil or animal fat with an alcohol, such as methanol or ethanol, in the presence of a chemical catalyst to produce mono-alkyl esters and glycerin using a process called transesterification which introduces oxygen into the fuel. Pure biodiesel does not contain any petroleum. Biodiesel is considered diesel fuel and treated as such in California.
B100 (pure biodiesel)
The IRS does not treat B100 as taxable diesel fuel because the federal definition of diesel fuel excludes from tax a category of liquids called Excluded Liquids, which includes liquids with less than 4% natural paraffins. Even though B100 is a liquid suitable for use in a diesel-powered highway vehicle, it does not contain natural paraffins and therefore is not considered taxable diesel fuel by the IRS.
California law does not contain a similar excluded liquid provision. Therefore, B100 is considered diesel fuel and its sale is subject to tax in California.
Renewable diesel is made of non-petroleum renewable resources such as animal fats, vegetable oils, and greases.
Renewable diesel differs from biodiesel in the way it is produced. It is produced in a manner similar to the way petroleum diesel is produced, which makes it chemically identical to petroleum diesel. Renewable diesel is hydrotreated and does not contain oxygen.
Vegetable Oil—Soy, Raw, Waste
Raw vegetable oil is not the same as biodiesel. Raw vegetable oil, whether it is Straight Vegetable Oil (SVO) (virgin oil, fresh, uncooked) or Waste Vegetable Oil (WVO) (used cooking oil, grease, fryer oil, including tallow fats), that is sold for or used in powering a diesel-powered highway vehicle in California, is subject to the California diesel fuel tax in the same manner as biodiesel or petroleum-based diesel fuel.
Vegetable oil used as a feedstock to produce renewable diesel fuel is not considered diesel fuel. Diesel fuel suppliers that use vegetable oil as a feedstock to produce renewable diesel fuel should report receipts of vegetable oil imported below the terminal rack on schedule 3Y, Imports Below the Terminal Rack Not Subject to Tax.
Imposition of Tax on Biofuels
The sale and production of biofuels normally occurs below the refinery or terminal rack, so the points of taxation are at the:
- Time of entry (imported into California),
- Removal from a California biofuel production facility or terminal rack, or
- Removal or sale of blended diesel fuel by the blender. The difference between the number of gallons of blended diesel fuel removed or sold and the number of gallons of previously taxed diesel fuel used to produce the blended diesel fuel is subject to tax.
If you are producing your own biofuels, the tax is imposed when you put the fuel into the tank of your vehicle or sell it to another person to power a diesel-powered highway vehicle.
You must report this fuel on your Supplier of Diesel Fuel Tax Return for the period during which the transaction(s) took place.
Tax-Paid Dyed Blended Biodiesel Fuel Removed from an Approved Terminal at the Rack
Revenue and Taxation Code (R&TC) section 60501(b), allows licensed diesel fuel suppliers to claim a refund or credit for the diesel fuel tax they paid on the biodiesel portion of dyed blended biodiesel fuel removed from an approved terminal at the rack.
Instead of filing a claim for refund, licensed diesel fuel suppliers may claim a credit on CDTFA-501-DD, Supplier of Diesel Fuel Tax Return for tax-paid biodiesel blended with diesel fuel and removed as dyed blended biodiesel fuel. Suppliers may claim a credit only to the extent of the diesel fuel tax paid biodiesel portion of the dyed blended biodiesel removed.
Please see the Refund Claims page for more information on claiming a refund for tax-paid biodiesel blended with diesel fuel and removed as dyed blended biodiesel.
Biodiesel Registration Requirements
You are required to register with us if you do any of the following in California:
- Manufacture or produce biofuels.
- Blend biofuels with petroleum diesel.
- Sell or import biofuels from another state or country that has not been previously taxed as diesel fuel in California.
- Use biofuels that have not been previously taxed as diesel fuel to power a vehicle driven on the roads or highways.
- Process or filter Straight Vegetable Oil (SVO) or Waste Vegetable Oil (WVO) for use in a diesel-powered highway vehicle.
If you produce and sell SVO, WVO, or biofuels to another person, you will be required to file a CDTFA-501-DD, Supplier of Diesel Fuel Tax Return, and may be required to register for a California seller's permit, collect and remit the sales tax to us.
You must report biofuels on CDTFA-501-DD, Supplier of Diesel Fuel Tax Return, for the period during which the transaction(s) took place.
See CDTFA-810-FTE, Instructions for Preparing Motor Fuels Schedules, Special Notes section, for Special Rules for Biodiesel.
Exports of Tax-Paid Biodiesel Fuel
You do not need to register with us to purchase tax-paid biodiesel fuel below the rack. However, if you export tax-paid biodiesel fuel without collecting the tax reimbursement, you will need to register with us as an exempt seller to be able to file a claim for refund with us.
The exemptions that apply to diesel fuel also apply to biofuels. Farmers, exempt bus operators, and train operators may issue exemption certificates to their suppliers. Other exemptions include sales to the Unites States (including its agencies and instrumentalities) and certain off-highway uses. For further information regarding exemptions and refunds of diesel fuel tax, see Diesel Fuel Tax Regulations 1430 through 1436.