Illinois ethanol backers propose E15 tax breaks

Source: By Tim Landis, The State Journal-Register The State Journal-Register • Posted: Monday, May 27, 2013

Ethanol supporters in Illinois want to trade a 20 percent sales tax break on E10 fuel sales in Illinois for a 10 percent break on E15, arguing it would mean jobs, cleaner air and more tax revenue for the state.

The industries that produce and sell the fuels say it would mean even higher gasoline prices, increased liability and expensive equipment upgrades.

Each side is watching for action in the final scheduled days of the spring legislative session this week.

“Right now, there’s an economic disincentive to offer E15 in Illinois,” said Richard Ruebe, Group CEO for GTL Resources bio-fuel refinery and Illinois River Energy, one of the state’s leading producers of ethanol.

Ruebe and Dave Loos of the Illinois Corn Growers Association told a meeting of The State Journal-Register editorial board last week that only three stations statewide are selling the E15 blend of 15 percent ethanol and 85 percent gasoline.

Minus the sales tax breaks enjoyed by E10 and E85, said Ruebe and Loos, distributors have no incentive to sell E15.

Supporters are hoping to include the change as part of end-of-session negotiations on the state budget. An Illinois House committee held hearings on the proposal last week.

E10 sales

Ruebe and Loos said E10 sales have become so commonplace that the sales tax incentive first set at 40 percent in 1981 is no longer needed. Dropping the current 20 percent sales tax exemption on E10 in favor of 10 percent on E15 would boost ethanol demand, while raising about $500 million in added state sales tax revenue over the next five years, according to bill supporters.

“That’s very conservative,” Loos said. “We used older numbers related to prior gasoline prices.”

Supporters have asked for $25 million to fund research into conversion from E10 to E15 at retail stations. Neither is the change mandatory for retailers.

“This is a choice,” Ruebe said. “If they want to wait until they’re normal (pump) conversion, they can just do it then.”

Bill Fleischli, executive vice president of the Illinois Petroleum Marketers Association, said mandatory or not, the change would raise the price of gasoline by cutting the sales tax exemption.

“This is simply a tax increase to Illinois citizens,” Fleischli said.

He added that few among his convenience-store members could afford the estimated $22,000-per-pump cost of installing E15 dispensers.

“Everything in the system has to be changed,” said Fleischli, “the pumps, the tanks, the lines and the gas dispensers.

He said retailers and petroleum producers also just agreed to a five-year extension of the E10 tax break.

“Now, they want to change it,” Fleischli said. “We made business decisions based on that (20 percent).”

Is E15 safe?

Supporters of the tax change point out the U.S. Environmental Protection Agency has cleared E15 for use in 2001 and newer passenger vehicles as evidence the blend is ready for a larger market in Illinois.

“It’s actually the most tested fuel that’s come on the market,” said Loos, who added that E15 would help reduce pollution.

Loos and Ruebe also argued E15 actually would cut gasoline prices by reducing the amount of petroleum in the fuel — if the tax break is provided. The petroleum industry, they contend, is trying to keep a competing fuel off the market.

Stations that sell E15 would be required to post black-and-orange warnings at the pump that the fuel is for use only in 2001 and newer passenger vehicles or in flex-fuel vehicles. The warning advises E15 should not be used in “other vehicles, boats or gasoline-powered equipment.”

Illinois Petroleum Council executive director Jim Watson said, even with warning labels, the multiple ethanol blends would cause confusion at the pumps. He added that some motorists likely would ignore the warnings when fuel prices are high.

“I don’t care how it’s labeled, some people are going to gravitate to what costs the least,” Watson said.

Opponents also argue that more testing is needed before E15 could safely be introduced in the fuel-distribution system. Watson said producers are concerned they could be legally liable for damaged equipment and vehicles.

Watson, who served more than a decade in the legislature before joining the petroleum council in 2012, said there are influential political groups on both sides of the ethanol issue. He added that he considers himself a strong supporter of ethanol in the General Assembly.

“There’s a lot of politics involved here,” Watson said. “We still support ethanol. They just want to take it to another level.”