All y’all whose anticipatory agita I left back in December, 2019, can finally relax, as Judge Elizabeth Crewson Paris, Tax Court’s resident agricultural mayvinn, authors a full-dress T. C., Growmark Inc. & Subsidiaries, 160 T. C. 11,  filed 5/16/23. Judge Paris and the Tax Court Bench have finally unscrambled Growmark’s COGS, allowing only the Federal fuel excise taxes net of the tax credits under I.R.C. § 6426(b) and (c) for fuel mixtures it blended.

Growmark and the subs blend biodiesel and ethanol. They were on this blog in 2019; see my blogpost “Another Corny Cooperative,” 12/11/19, when their DPADs were disposed of. Judge. Paris then promised that she “will deal with Growmark’s COGS issues in a later opinion. I’m sure you’re all ‘hanging, breathless, on its fate,’ as a far better writer than I put it.”

Well, here it is.

The only question is “whether a taxpayer that claims a credit against fuel excise tax under section 6426(b) or (c) may also claim as part of its COGS its gross excise tax liability, unreduced by the amount of the credit itreceived.” 160 T. C. 11, at p. 6.

How do you spell “doubledip”?

Section 164 generally (love that word!) disallows deductions for excise taxes, but where these are paid or accrued in acquisition or disposition of property, they’re part of cost of acquisition or expenses of disposition, and deductible.

But only to the extent actually paid or incurred. These are the highway trust fund taxes on gas, ethanol, and diesel.

AJCA 2004 changed the rules. Before, there was no difference to the taxpayer if they took a reduced excise tax rate or took the tax credit.

“The AJCA replaced the prior benefit of the reduced rate with a credit under section 6426 that could be applied against excise tax imposed under section 4081. AJCA § 301(a), (c)(7), 118 Stat. at 1459–61. It tied the new excise tax credit to the gallons of alcohol used to produce any taxable fuel for sale or use in a taxpayer’s trade or business, not the alcohol fuel mixture produced. Id. Additionally, the AJCA extended the existing income tax credit for alcohol fuel mixtures through December 31, 2010. Id. § 301(c)(3), 118 Stat. at 1461. It also created new incentives for the production of biodiesel mixtures by adding an income tax credit for biodiesel mixtures and making those mixtures eligible for the credit against excise taxes. Id. §§ 301(a), 302(a),  118 Stat. at 1459–61, 1463. Section 87 was also amended to include the amount of the biodiesel income tax credit in the taxpayer’s gross income.” 160 T. C. 11, at p. 8.

If any of this makes sense to you, congratulations.

Other courts have considered the issue. The credit is not a part payment of tax, but a reduction of tax. “Consistent with those courts and giving effect to the plain meaning of the statutory text at issue, this Court agrees with respondent for purposes of calculating petitioner’s COGS. Accordingly,  this Court also concludes that when considering the text of all of the relevant provisions together, the credits produced from fuel mixtures for sale in the trade or business of the fuel blender are first used, to the extent of excise tax owed, to reduce excise tax liability. Only then are those credits refundable payments to the extent of any excess.” 160 T. C. 11, at p. 12.

What AJCA tried to do was make the math easier, and keep the taxpayers in the same position as before, not confer an additional tax break.