SENATE BILL REPORT
SB 5447
As of January 30, 2023
Title: An act relating to promoting the alternative jet fuel industry in Washington.
Brief Description: Promoting the alternative jet fuel industry in Washington.
Sponsors: Senators Billig, King, Nguyen, MacEwen, Mullet, Wellman, Gildon, Keiser, Shewmake, Lovick, Boehnke, Warnick, Randall, Conway, Dhingra, Dozier, Liias, Lovelett, Salda?a, Stanford, Van De Wege and Wagoner.
Brief History:
Committee Activity: Environment, Energy & Technology: 2/01/23.
Brief Summary of Bill
  • Requires the Department of Ecology (Ecology) to amend the energy economy ratio for alternative jet fuel relative to conventional jet fuel from the value of 1.0 to 1.3 within ten years after the in-state production capacity of alternative jet fuel is sufficient to satisfy the business and operations (B&O) tax requirements of this act.
  • Requires Ecology to allow one or more carbon intensity pathways for alternative jet fuel by no later than December 31, 2023.
  • Codifies the Alternative Jet Fuels Work Group.
  • Creates a preferential B&O tax rate of 0.275 percent for the manufacturing and wholesaling of alternative jet fuels.
  • Establishes a B&O and public utilities tax credit for certain sales and purchases of alternative jet fuel.
  • Specifies the tax incentives take effect July 1, 2024, begin upon notification of a facility capable of producing 20 million gallons of alternative jet fuel is operating in this state, and are effective for a period of ten years.
SENATE COMMITTEE ON ENVIRONMENT, ENERGY & TECHNOLOGY
Staff: Angela Kleis (786-7469)
Background:

Work Group Report. In 2021, the Legislature reestablished the Sustainable Aviation Biofuels Work Group. It was convened by the Washington State University Office of Clean Technology, now the Office of National Laboratory Partnerships, and provided a report, including pertinent recommendations, to the Governor and Legislature on December 1, 2022.

 

Clean Fuels Program. The Legislature enacted the Clean Fuels Program in 2021 and directed the Department of Ecology (Ecology) to implement the program no later than January 1, 2023. The rules adopted must reduce greenhouse gas emissions attributable to each unit of the fuels to 20 percent below 2017 levels by 2038, based on a statutory schedule. Transportation fuels exported from the state are not subject to the greenhouse gas emissions reduction requirements of the program.

 

Statewide Office of Renewable Fuels. In 2022, the Statewide Office of Renewable Fuels (office) was established within the Department of Commerce to leverage, support, and integrate with other state agencies to carry out specified statutory duties such as driving job creation, improving economic vitality, and supporting the transition to clean energy. The office must meet specified requirements such as coordinating with certain entities and assessing opportunities for and barriers to deployment of renewable fuels and green electrolytic hydrogen in hard to decarbonize sectors of the state economy. 

 

Business and Occupation Tax. Washington's major business tax is the business and occupation (B&O) tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted. Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent—businesses with taxable income of less than $1 million—and 1.75 percent—businesses with taxable income of $1 million or more—for services and activities not classified elsewhere. Several preferential rates also apply to specific business activities.
 
Tax Preferences. State law provides for a range of tax preferences that confer reduced tax liability for a designated class of taxpayer. Tax preferences include tax credits, deductions, exemptions, preferential tax rates, and deferrals. Washington has over 700 tax preferences. Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to evaluate the effectiveness of the preference.  All new tax preferences automatically expire after ten years unless an alternative expiration date is provided.

Summary of Bill:

Incentive Enhancements. Ecology must amend the energy economy ratio for alternative jet fuel relative to conventional jet fuel from the value of 1.0 to 1.3 within ten years after the in-state production capacity of alternative jet fuel is sufficient to satisfy the B&O tax requirements of this act. The energy economy ratio must be reduced at a rate of 0.1 every three years until it is equal to 1.0

 

Carbon Intensity Pathways. By no later than December 31, 2023, Ecology must allow one or more carbon intensity pathways for alternative jet fuel. Ecology must:

  • allow biomethane to be claimed as feedstock for renewable diesel and alternative jet fuel consistent with that allowable for compressed natural gas, liquified natural gas, liquified compressed natural gas, or hydrogen production; and
  • notify the Department of Revenue (DOR) within 30 days when a facility capable of producing at least 20,000,000 gallons of alternative jet fuels is operating in this state.

 

Work Group. The Washington State University must convene an Alternative Jet Fuels Work Group (work group) to further the development of alternative jet fuels as a productive industry in the state. Membership includes legislators and sectors involved in alternative jet fuel research, development, production, and utilization. The work group must provide a report including pertinent recommendations to the Governor and the appropriate committees of the Legislature by December 1, 2024, and December 1st of every even-numbered year until December 1, 2028. The work group expires January 1, 2029. 

 

Statewide Office of Renewable Fuels. In addition to current statutory purposes, the office must further the development and use of alternative jet fuels as a productive industry in the state. In carrying out its duties, the office must also consider alternative jet fuels and collaborate with the work group.

 

Tax Incentives. The manufacturing and wholesaling of alternative jet fuel is subject to a preferential B&O tax rate of 0.275 percent. The preferential tax rate begins after DOR receives notification from Ecology that a facility capable of producing at least 20,000,000 gallons of alternative jet fuel is operating in Washington. The preferential tax rate lasts for ten years.  
 
A B&O and public utilities tax (PUT) credit is available for certain sales and purchases of alternative jet fuel. The amount of the credit is one dollar per gallon of alternative jet fuel that has at least 50 percent less carbon dioxide equivalent emissions than conventional jet fuel. The credit amount increases by $0.02 for each additional 1 percent reduction in carbon dioxide equivalent emissions beyond 50 percent. The credit may not exceed $2 per gallon of alternative jet fuel.
 
Eligibility for the credit for sales of alternative jet fuel is limited to businesses located in a qualifying county or a businesses' designated alternative jet fuel blender located in Washington. Qualifying county is a county that has a population less than 650,000.
 
Credits may only be earned on purchases of alternative jet fuel for flights originating in Washington. The credit applies only to alternative jet fuel that meets the appropriate American Society for Testing Materials international standards.
 
Contract pricing for sales of alternative jet fuel between a person claiming the credit and the final consumer must be adjusted to reflect the per gallon credit.  
 
The credit is calculated only on the portion of jet fuel that is considered alternative jet fuel and does not include conventional jet fuel when the fuels are blended or used in a jet fuel mixture.
 
Credits against the B&O tax for sales of alternative jet fuel may only be claimed on alternative jet fuel manufacturing and wholesaling activities that would otherwise qualifying for the new preferential B&O tax rate. Credits earned against the B&O or public utility tax for purchases of alternative fuel may be claimed against any B&O tax liability. 
 
Credits may not be earned until DOR receives notification from Ecology that a facility capable of producing at least 20,000,000 gallons of alternative jet fuel is operating in Washington. Credits may be earned for ten years and may be claimed until used. 
 
The preferential tax rate and tax credits are subject to review by JLARC. The automatic 10-year expiration for tax preferences does not apply to this act.

Appropriation: None.
Fiscal Note: Requested on January 18, 2023.
Creates Committee/Commission/Task Force that includes Legislative members: Yes.
Effective Date: The bill contains several effective dates. Please refer to the bill.