Do Tax Incentive Programs Change Taxpayers' Behavior?

Transcription

1 Do Tax Incentive Programs Change Taxpayers' Behavior? A Case Study Of Effectiveness of the Iowa Biofuel Retailers' Tax Credits John Good Mandy Jia Iowa Department of Revenue September 3, 214 FTA Revenue Estimation Conference San Antonio, TX Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of, and should not be attributed to, Iowa Department of Revenue.

2 OUTLINE Purpose of Iowa s tax credits for biofuel retailers Iowa s tax credits for biofuel retailers Formulation of the Ethanol Promotion Tax Credit Biofuel distribution percentages Exit rates of the EPTC claimants Summary 1

3 PURPOSE OF IOWA'S BIOFUEL TAX CREDITS FOR RETAILERS 26: Iowa General Assembly enacts H.F Establishing the Goal: 25 percent of all petroleum used in gasoline to be replaced by biofuels (ethanol and biodiesel) by 22 Purpose of tax credits for retailers: Provide tax incentives for retailers selling renewable fuels to help achieve the 22 goal Iowa currently provides four biofuel retailers Tax Credits 2

4 IOWA S BIOFUEL TAX CREDITS FOR RETAILERS Ethanol Promotion Tax Credit (EPTC) $.4-$.8 per gallon of pure ethanol sold if biofuel threshold is met or within certain percentage points. E85 Gasoline Promotion Tax Credit $.16 per gallon of E85 sold E15 Plus Gasoline Promotion Tax Credit Sales from Jan 1 May 31 and Sept 16 Dec 31: $.3 per gallon of E15+ sold Sales from June 1 Sept 15: $.1 per gallon of E15+ sold Biodiesel Blended Fuel Tax Credit $.45 per gallon sold for biodiesel blends classified as B5 or higher Retailers can claim the EPTC even if the retailer claims an E15 Plus Gasoline Promotion Tax Credit and/or E85 Gasoline Promotion Tax Credit for the same tax year for the same ethanol gallons sold. 3

5 BIOFUEL DISTRIBUTION PERCENTAGE FORMULA (EXAMPLE: SMALL RETAILER IN 213) 15, Gallon Gallons of Pure Pure Gasoline= % Ethanol Gallons and Ethanol 1% Gasoline 18, Gallon Gallons of E1= E1= 1% Ethanol and 8, 9% Gallons Gasoline Ethanol 1 Gallon of E15+= E15+= 15% Ethanol and Gallons 85% Gasoline Ethanol 15, Gallon Gallons of E85= E85= 79% Ethanol and 3,95 21% Gallons Gasoline Ethanol 15, Gallon Gallons of B2 B2 Biodiesel= 2% Biofuel 1 Gallons and % Biofuel Gasoline 1, Gallon Gallons of Pure Pure Diesel= Diesel= % Biofuel Gallons and % Biofuel Gasoline 1, total Gasoline Gallons 12,5 Biofuel Gallons (12.1%) 4

6 ETHANOL PROMOTION TAX CREDIT Retailer has met threshold: $.8 per gallon pure ethanol Retailer misses the threshold by 2 percentage points or less: $.6 per gallon pure ethanol Retailer misses the threshold by more than 2 percentage points but not more than 4 percentage points: $.4 per gallon pure ethanol Calendar Year of Sales Biofuel Threshold Percentages Large Retailers Small Retailers 29 1% 6% 21 11% 6% % 1% % 11% % 12% % 13% % 14% % 15% % 17% % 19% % 21% 22 25% 25% 221 and later NA NA Retailer misses the threshold by 4 percentage points or more: Not eligible for credit Source: Iowa Code N and (11A). Credit expires on January 1,

7 STATEWIDE BIOFUEL DISTRIBUTION PERCENTAGE 12.% 1.% 8.% 6.% 7.6% 7.9% 92.4% 18.5% 15.4% 9.1% 1.8% 5.5% 1.2% 5.6% 5.4% 9.7% 9.1% 9.% 9.2% 94.5% 94.4% 94.6% 9.9% 84.6% 81.5% 4.% 2.%.% CY 27 CY 28 CY 29 CY 21 CY 211 CY 212 CY 213 Pure Ethanol Biofuel Share Distribution Pure Percentage Biodiesel Share 6

8 MEDIAN BIOFUEL DISTRIBUTION PERCENTAGE VS. THRESHOLD PERCENTAGE 13% 12% 11% 1% 9% 8% 8.9% 8.3% 8.4% 8.6% 8.8% 9.2% 1.3% 1.% 7% 6% 5% 4% 3% 2% 1% % Large Retailers Small Retailers 7

9 CLAIM NUMBERS AND AMOUNTS OF THE ETHANOL PROMOTION TAX CREDIT $5. $4.5 $4.6 Million 1,2 Millions of Dollars $4. $3.5 $3. $2.5 $2. $ $3.7 Million 93 $3.3 Million 697 $2.3 Million 1, Claims $ $.5 $ Sum of Amount (Million $) Number of Claims 8

10 BIOFUEL DISTRIBUTION PERCENTAGE FOR LARGE RETAILERS Frequency Frequency Frequency 29 9

11 EXIT RATE OF LARGE RETAILERS BY STARTING LEVEL OF BIOFUEL SHARE 1% 9% 8% Low Biofuel Share 29 biofuel share <=1% High Biofuel Share 29 biofuel share>1% 87.3% 7% 6% 58.5% 62.5% 5% 4% 3% 3.% 3.6% 41.7% 2% 1% % From 29 to 21 From 21 to 211 From 211 to 212 Source: IA137 data. Preliminary results. 1

12 SUMMARY Through increasing the biofuel threshold percentages over time, the EPTC aims to promote ethanol sales in Iowa to help achieve the 22 goal. As the biofuel threshold percentage increased, more and more retailers were no longer able to meet the thresholds and therefore exited from the tax credit program. The EPTC did not change biofuel retailers behavior in the intended way. 11

13 QUESTIONS? John Good Fiscal Policy Analyst Iowa Department of Revenue Mandy Jia Fiscal Policy Analyst, Sr. Iowa Department of Revenue 12

14 (SUPPLEMENTAL INFORMATION) SALES OF ETHANOL BLENDED GASOLINE IN IOWA Millions of Gallons Taxable Gasoline Gallons Month and Year Source: Iowa Department of Revenue, Motor Fuel Tax Monthly Reports 13

15 (SUPPLEMENTAL INFORMATION) RATE SCHEDULE FOR THE ETHANOL PROMOTION TAX CREDIT Biofuel Threshold Percentages Credit Rate Per Gallon of Pure Ethanol Sold Small Retailers Large Retailers Calendar Year of Sales Rate 1 Rate 2 Rate 3 Threshold Threshold - 2% Threshold - 4% Threshold Threshold - 2% Threshold - 4% 29 $.65 $.45 $.25 6% 4% 2% 1% 8% 6% 21 $.65 $.45 $.25 6% 4% 2% 11% 9% 7% 211 $.8 $.6 $.25 1% 8% 6% 12% 1% 8% 212 $.8 $.6 $.4 11% 9% 7% 13% 11% 9% 213 $.8 $.6 $.4 12% 1% 8% 14% 12% 1% 214 $.8 $.6 $.4 13% 11% 9% 15% 13% 11% 215 $.8 $.6 $.4 14% 12% 1% 17% 15% 13% 216 $.8 $.6 $.4 15% 13% 11% 19% 17% 15% 217 $.8 $.6 $.4 17% 15% 13% 21% 19% 17% 218 $.8 $.6 $.4 19% 17% 15% 23% 21% 19% 219 $.8 $.6 $.4 21% 19% 17% 25% 23% 21% 22 $.8 $.6 $.4 25% 23% 21% 25% 23% 21% 221 and later NA NA NA NA NA NA NA NA NA Source: Iowa Code N and (11A). Credit expires on January 1,