Rural incentives in Missouri tax cut proposal target biofuels, small producers for help
When lawmakers return this week for a special session, most of the attention will be on Gov. Mike Parson’s proposal to cut income taxes by $700 million a year.
But Parson also wants the bill to include several tax credits intended to benefit rural Missouri by increasing the demand for crop-based fuels, encouraging small meat processors and boosting food production in urban areas. Some of the incentives are new, some are extensions of expired programs. And they were all included in a bill Parson vetoed because he didn’t like the short time they would be in existence.
The vetoed bill only allowed for the incentives to be in place until 2024. Parson wants them to be in place for at least six years.
“A two-year sunset undermines the taxpayer investment in a program given the time it takes to develop the program versus the time the program is operational before it expires,” Parson wrote in the letter explaining his veto.
There is little controversy over the programs themselves — the final version of the bill passed 111-26 in the House, with all the ‘no’ votes coming from Republicans, and 28-0 in the Senate. But whether Parson will get the longer sunset he wants is uncertain. The short window was Sen. Denny Hoskins’ idea when programs he wanted in the bill – particularly a $16 million tax credit for investments in capital funds for rural business development – didn’t survive negotiations on the final version.
The two year sunset was intended to force another debate on the whole package of incentives before he leaves office, Hoskins said.
Hoskins handled the bill in the Senate. Term limits will force Hoskins, R-Warrensburg, out after the 2024 election.
“I’ve got two years left, and as we were looking at other possible incentives, we gave it two years, and in the next couple of years, we will work on the other (agriculture) issues,” he said.
The 12-item package Parson wants includes 10 tax credits with an aggregate cap of $39.5 million per year. The other two items are a credit to railroads for new rolling stock applied to property taxes distributed to local governments and an expanded state loan program for livestock purchases by family farms.
“Every single one of these tax credits brings back more than a dollar for every dollar that is invested,” said Rep. Brad Pollitt, chairman of the Rural Community Development Committee.
Pollitt sponsored the bill Parson vetoed, which had the six-year extension when it was introduced.
He didn’t like the two-year extension either, he said, but it was the price of getting the bill out of a conference committee.
“That isn’t long enough to get the programs started, or to restart the ones that have already sunsetted,” said Pollitt, R-Sedalia.
Three of the credits are new programs designed to support production and sale of gasoline and diesel with higher blends of alcohol and seed oil.
- A 5-cents-per-gallon credit to retailers selling E15 gas, which is 15% ethanol instead of the 10% blend sold by most stations. The program would be capped at $5 million annually.
- A credit of 2 cents per gallon or 5 cents per gallon for retailers that sell diesel with a biodiesel blend. The amount of the credit, capped at $16 million annually, is based on whether the blend is more or less than 10% biodiesel. The credit is refundable, which means that if retailers’ credits exceed their taxes, they will receive the difference from the state.
- A refundable credit of 2 cents per gallon to biodiesel producers, capped at $4 million annually. Biodiesel is generally made from soy or other seed oil, but it can also be made from waste oil from plants or animals.
Missouri has six ethanol plants capable of producing 287 million gallons of ethanol per year, about 2% of national capacity. There are six plants making biodiesel, with a capacity of 253 million gallons, almost 9% of national capacity and the third-largest biodiesel industry of any state.
But ethanol and biodiesel are just a small fraction of the fuel used for cars and trucks. Ethanol supplies about 13% of the demand for gasoline nationally and biodiesel is about 5.3% of the diesel used for transportation.
In April, in response to rising gas prices, President Joe Biden relaxed rules limiting the sale of E15 fuel in summer months because of smog concerns. But relatively few stations offer it, in part because their equipment isn’t certified for it, said Ron Leone, executive director of the Missouri Petroleum and Convenience Association
And while most cars made in the past 10 years are rated by the manufacturer to use E15 fuel with no mechanical issues, many older cars are not. That also makes stores reluctant to offer the fuel, Leone said.
The association is opposed to any mandate requiring retailers to sell E15 fuel, he said.
“My guys typically do not have a problem with government programs that are permissive,” Leone said. “We have always had and continue to have a problem with mandates but are neutral to supportive of incentives.”
Providing incentives for retailers to buy new equipment or have existing pumps and tanks certified for E15 would increase consumption of Missouri-made energy, said Chris Wilson, general manager of Mid-Missouri Energy in Saline County, the state’s largest ethanol plant.
Right now, he said, ethanol makers export much of their production.
“I do think there is ample room for increased demand,” Wilson said.
The issue for older cars, as well as pumps and tanks, is not whether E15 fuel will actually cause problems but that the equipment is not certified for it, he said.
“Their concern is going to be ‘if I can’t show documentation it was certified and approved, insurance may not cover it,’” Wilson said.
The other incentives from the vetoed bill Parson included in the list of items for the special session are:
- A credit of $5 a ton, up to $6 million annually, for sawmills to convert wood waste – chips and sawdust – into energy. This credit expired June 30, 2020.
- A credit of up to 25% of the cost for modernizing or expanding a meat processing facility, capped at $2 million annually. The credit expired Dec. 31. The renewal in the vetoed bill would have added a cap of 500 or fewer employees to target the incentive to smaller processors.
- A new credit of up to $25,000 for each farm and $200,000 total to establish “urban farms” in communities of 50,000 people or more.
- A property tax credit for railroads to replace rolling stock. This credit expired on Aug. 28, 2020 and was capped only by the total property taxes due from each railroad. The state reimburses local governments for the lost revenue.
- Tax credits of up to $6 million annually for contributions to the Missouri Agriculture and Small Business Development Authority and investments in cooperatives developing agricultural businesses. The existing credit expired Dec. 31.
Parson also wants the bill to include a sales tax exemption for utility vehicles used on farms and loan programs to produce specialty crops and expand livestock herds.
“These ag tax credits basically allow family farms to compete with corporate farms on a level playing field,” Pollitt said.
Combining the agricultural credits with the governor’s general tax cut plan means they will likely live or die on the fate of that bill, Pollitt said. Passing them is an issue of fairness, he said.
“We passed and the governor signed six other tax credit bills this session,” he said. “There is no reason why agriculture should get the short end of the stick.”