Tax exemption sought for ethanol inputs

Certain products used to manufacture ethanol would be exempt from state sales and use tax under a bill heard Feb. 24 by the Revenue Committee.

Under LB595, introduced by Thurston Sen. Joni Albrecht, state sales and use taxes could not be imposed on gross receipts from the sale, lease or rental of — and storage, use or other consumption in Nebraska of — enzymes, yeast and related products used to manufacture ethyl alcohol, or ethanol.

Albrecht said Nebraska typically exempts manufacturing inputs from state sales tax to avoid tax pyramiding.

“Taxing inputs results in an effective sales tax rate that is higher than the statutory rate,” she said. “The imposition of sales tax on inputs has kept our ethanol producers and manufacturers at a distinct disadvantage to other ethanol-producing states.”

The state Department of Revenue estimates that LB595 would reduce state general fund revenue by $593,000 in fiscal year 2021-22, $898,000 in FY2022-23 and $907,000 in FY2023-24.

Troy Bredenkamp, senior vice president of government affairs for the Renewable Fuels Association, testified in support of the bill. Nebraska exempts business inputs from sales and use tax in almost every instance, he said, but the department does not interpret yeast and enzymes to be ethanol manufacturing inputs because they are not identifiable in the final product.

By remedying that “unfortunate” interpretation, Bredenkamp said, LB595 would make Nebraska’s ethanol industry, which has been battered by thin margins and pandemic-related disruptions, more competitive.

Roger Berry, administrator of the Nebraska Ethanol Board, also testified in support, saying it is “imperative” to exempt ethanol inputs from taxation. He said LB595 could position Nebraska to expand its ethanol industry at a time when California and other states are demanding more low-carbon fuels.

“This one act would keep Nebraska competitive so that when the day of expansion comes, we do not lose out to the other states around us,” Berry said.

Also in support was Jon Cosby of E Energy Adams, which operates an ethanol plant in southeast Nebraska. He said neighboring states do not tax the enzymes and yeast that are integral to the ethanol manufacturing process.

“LB595 would put Nebraska’s ethanol producers and a plant like ours on an even playing field with competition in other states,” Cosby said.

No one testified in opposition to the bill and the committee took no immediate action on it.