Illinois sales tax audit on biodiesel gas stations

A sales tax audit on biodeisel can be very confusing for both the auditor and the owner of a gas station. Most importantly, the mixing of soy is a questionable process whereby the output of biodiesel can vary as a result of degumming. Oil degumming creates variations in the soy that is used to blend biodiesel fuel. The actual percentage of error in determining the correct amount is 27% of the soy. This may seem like a large percentage. Oil Degumming fluctuates with temperature which changes the amount of soy that needs to be blended when you are using a machine that is used to blend fuels. The temperature at which the soy is stored is the primary issue. The colder the temperature, the more likely it is that less soy will be used in the machine that is already preprogrammed

In the even that you are audited by the state for sales tax of your gas station on fuel, your biodiesel sales will need to be justified by the purchase of your soy.  If you have not purchased enough soy to justify the total amount of biodiesel sold, then, the remaining amount of sales will be deemed as regular gasoline sales subject to sales tax.

Note:

Blends of biodiesel and conventional hydrocarbon-based diesel are products most commonly distributed for use in the retail diesel fuel marketplace. Much of the world uses a system known as the “B” factor to state the amount of biodiesel in any fuel mix:

100% biodiesel is referred to as B100

20% biodiesel, 80% petrodiesel is labeled B20

5% biodiesel, 95% petrodiesel is labeled B5

2% biodiesel, 98% petrodiesel is labeled B2

By:  Mansoor Ansari J.D., LL.M. (TAX)