"Sec. 1   RCW 19.112.010 and 2006 c 338 s 15 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Alcohol fuel" means any alcohol made from a product other than petroleum or natural gas that is used alone or in combination with gasoline or other petroleum products for use as a fuel in self-propelled motor vehicles.
     (2) "Alternative fuel" means all products or energy sources used to propel motor vehicles, other than conventional gasoline, diesel, or reformulated gasoline. Alternative fuel includes, but is not limited to, liquefied petroleum gas, liquefied natural gas, compressed natural gas, biodiesel fuel, E85 motor fuel, fuels containing seventy percent or more by volume of alcohol fuel, fuels that are derived from biomass, hydrogen fuel, anhydrous ammonia fuel, nonhazardous motor fuel, or electricity, excluding onboard electric generation.
     (3) "Biodiesel fuel" means the monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet the registration requirements for fuels and fuel additives established by the federal environmental protection agency and standards established by the American society of testing and materials.
     (((2))) (4) "Diesel" means special fuel as defined in RCW 82.38.020, and diesel fuel dyed in accordance with the regulations in 26 C.F.R. Sec. 48.4082-1T as of October 24, 2005.
     (((3))) (5) "Director" means the director of agriculture.
     (((4))) (6) "E85 motor fuel" means an alternative fuel that is a blend of ethanol and hydrocarbon of which the ethanol portion is nominally seventy-five to eighty-five percent denatured fuel ethanol by volume that complies with the most recent version of American society of testing and materials specification D 5798.
     (7) "Motor fuel" means any liquid product used for the generation of power in an internal combustion engine used for the propulsion of a motor vehicle upon the highways of this state, and any biodiesel fuel. Motor fuels containing ethanol may be marketed if either (a) the base motor fuel meets the applicable standards before the addition of the ethanol or (b) the resultant blend meets the applicable standards after the addition of the ethanol.
     (8) "Nonhazardous motor fuel" means any fuel of a type distributed for use in self-propelled motor vehicles that does not contain a hazardous liquid as defined in RCW 19.122.020.

Sec. 2   RCW 19.112.120 and 2006 c 338 s 3 are each amended to read as follows:
     (1) By December 1, 2008, motor vehicle fuel licensees under chapter 82.36 RCW, other than motor vehicle fuel distributors, shall provide evidence to the department of licensing that at least two percent of total gasoline sold in Washington, measured on a quarterly basis, is denatured ethanol.
     (2) If the director of ecology determines that ethanol content greater than two percent of the total gasoline sold in Washington will not jeopardize continued attainment of the federal clean air act's national ambient air quality standard for ozone pollution in Washington and the director of agriculture determines and publishes this determination in the Washington State Register that sufficient raw materials are available within Washington to support economical production of ethanol at higher levels, the director of agriculture may require by rule that licensees provide evidence to the department of licensing that denatured ethanol comprises between two percent and at least ten percent of total gasoline sold in Washington, measured on a quarterly basis.
     (3) The requirements of subsections (1) and (2) of this section shall take effect no sooner than one hundred eighty days after the determination has been published in the Washington State Register.
     (4) The director and the director of licensing shall each adopt rules, in coordination with each other, for enforcing and carrying out the purposes of this section.
     (5) Nothing in this section is intended to prohibit the production, sale, or use of motor fuel for use in federally designated flexibly fueled vehicles capable of using ((up to eighty-five percent ethanol fuel blends)) E85 motor fuel. Nothing in this section is intended to limit the use of high octane gasoline not blended with ethanol for use in aircraft.

Sec. 3   RCW 82.04.4334 and 2003 c 63 s 1 are each amended to read as follows:
     (1) In computing tax there may be deducted from the measure of tax amounts received from the retail sale, or for the distribution, of:
     (a) Biodiesel fuel; or
     (b) ((Alcohol fuel, if the alcohol fuel is at least eighty-five percent of the volume of the fuel being sold or distributed)) E85 motor fuel.
     (2) For the purposes of this section and RCW 82.08.955 and 82.12.955, the following definitions apply:
     (a) "Biodiesel fuel" means a mono alkyl ester of long chain fatty acids derived from vegetable oils or animal fats for use in compression-ignition engines and that meets the requirements of the American society of testing and materials specification D 6751 in effect as of January 1, 2003.
     (b) (("Alcohol fuel" means any alcohol made from a product other than petroleum or natural gas, which is used alone or in combination with gasoline or other petroleum products for use as a fuel for motor vehicles, farm implements and machines, or implements of husbandry.)) "E85 motor fuel" means an alternative fuel that is a blend of ethanol and hydrocarbon of which the ethanol portion is nominally seventy-five to eighty-five percent denatured fuel ethanol by volume that complies with the most recent version of American society of testing and materials specification D 5798.
     (c) "Distribution" means any of the actions specified in RCW 82.36.020(2).
     (3) This section expires July 1, 2009.

Sec. 4   RCW 82.08.955 and 2003 c 63 s 2 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to sales of machinery and equipment, or to services rendered in respect to constructing structures, installing, constructing, repairing, cleaning, decorating, altering, or improving of structures or machinery and equipment, or to sales of tangible personal property that becomes an ingredient or component of structures or machinery and equipment, if the machinery, equipment, or structure is used directly for the retail sale of a biodiesel ((or alcohol fuel)) blend or E85 motor fuel. Structures and machinery and equipment that are used for the retail sale of a biodiesel ((or alcohol fuel)) blend or E85 motor fuel and for other purposes are exempt only on the portion used directly for the retail sale of a biodiesel ((or alcohol fuel)) blend or E85 motor fuel.
     (2) The tax levied by RCW 82.08.020 does not apply to sales of fuel delivery vehicles or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the vehicles including repair parts and replacement parts if at least seventy-five percent of the fuel distributed by the vehicles is a biodiesel ((or alcohol fuel)) blend or E85 motor fuel.
     (3) A person taking the exemption under this section must keep records necessary for the department to verify eligibility under this section. The exemption is available only when the buyer provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller shall retain a copy of the certificate for the seller's files.
     (4) For the purposes of this section, the definitions in RCW 82.04.4334 and this subsection apply.
     (a) (("Alcohol fuel blend" means fuel that contains at least eighty-five percent alcohol fuel by volume.
     (b))) "Biodiesel blend" means fuel that contains at least twenty percent biodiesel fuel by volume.
     (b) "E85 motor fuel" means an alternative fuel that is a blend of ethanol and hydrocarbon of which the ethanol portion is nominally seventy-five to eighty-five percent denatured fuel ethanol by volume that complies with the most recent version of American society of testing and materials specification D 5798.
     (c) "Machinery and equipment" means industrial fixtures, devices, and support facilities and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts that are integral and necessary for the delivery of biodiesel ((or alcohol fuel)) blends or E85 motor fuel into the fuel tank of a motor vehicle.
     (5) This section expires July 1, 2009.

Sec. 5   RCW 82.12.955 and 2003 c 63 s 3 are each amended to read as follows:
     (1) The provisions of this chapter do not apply in respect to the use of machinery and equipment, or to services rendered in respect to installing, repairing, cleaning, altering, or improving of eligible machinery and equipment, or tangible personal property that becomes an ingredient or component of machinery and equipment used directly for the retail sale of a biodiesel or ((alcohol fuel blend)) E85 motor fuel.
     (2) The provisions of this chapter do not apply in respect to the use of fuel delivery vehicles including repair parts and replacement parts and to services rendered in respect to installing, repairing, cleaning, altering, or improving the vehicles if at least seventy-five percent of the fuel distributed by the vehicles is a biodiesel or ((alcohol fuel blend)) E85 motor fuel.
     (3) For the purposes of this section, the definitions in RCW 82.04.4334 and 82.08.955 apply.
     (4) This section expires July 1, 2009.

NEW SECTION.  Sec. 6   A new section is added to chapter 19.112 RCW to read as follows:
     (1) Special fuel licensees under chapter 82.38 RCW, other than international fuel tax agreement licensees, dyed special fuel users, and special fuel distributors, shall not use biodiesel fuel derived from palm oil to qualify towards the biodiesel fuel requirements established in RCW 19.112.110, unless the following conditions are satisfied:
     (a) The special fuel licensee can demonstrate that, at the time of production, there was not sufficient Washington grown feedstock available to produce the biodiesel; and
     (b) The palm oil was purchased from a company that:
     (i) Maintains active membership in the roundtable on sustainable palm oil; and
     (ii) Implements the roundtable on sustainable palm oil's directives as they are promulgated in order to ensure the sustainability of the palm oil.
     (2) For purposes of this section, "palm oil" means a form of edible vegetable oil obtained from the fruit of the oil palm tree."