H.R. 10607: American Fuel Affordability Act

This bill would make several tax changes related to diesel fuel and the construction and operation of new oil refineries in the United States.

Diesel fuel taxes

The bill would repeal some federal excise taxes on diesel fuel and revise related tax rules. In practical terms, this would reduce or eliminate certain federal taxes collected when diesel fuel is sold, used, removed, or imported after the bill becomes law.

Because those taxes help fund federal transportation and environmental trust funds, the bill also requires the Treasury Department to move money from the general fund to those trust funds to make up for the lost tax revenue.

Tax credit for building new refineries

The bill would create a new federal tax credit equal to 35% of the cost of qualified investments in a new refinery facility. To qualify, the refinery would need to:

• be located in the United States,
• be designed mainly to process liquid fuel from crude oil, shale, tar sands, or certain qualified fuels,
• begin construction after the bill becomes law and before January 1, 2032, and
• be placed in service before January 1, 2037.

The credit would apply to eligible property used in the refinery’s construction, including certain equipment and buildings.

Tax credit for fuel production at new refineries

The bill would also create a separate production credit for gasoline or diesel produced at a qualifying newly built refinery. The credit would be 5 cents per gallon of gasoline or diesel that the refinery produces and sells to an unrelated buyer. This credit would apply only to refineries that meet the bill’s definition of a newly constructed qualified facility.

Other tax rule changes

The bill would add the new refinery investment and production credits to the list of business tax credits under the Internal Revenue Code. It would also make a related depreciation rule permanent for property used in new refinery construction, which could allow faster tax write-offs for some refinery-related investments.

Effective dates

Most of the diesel tax changes would apply to diesel fuel sold, used, removed, or entered after the bill is enacted. The refinery construction investment credit would apply to property placed in service after enactment, the refinery production credit would apply to amounts paid or incurred after enactment, and the depreciation change would apply to property whose construction begins after enactment.

Relevant Companies

• XOM — Exxon Mobil could be affected if the bill encourages more refinery investment, changes diesel-related tax costs, or alters margins for refined products.
• CVX — Chevron could be affected through its refining operations and any new refinery construction or production incentives.
• COP — ConocoPhillips could be affected indirectly by changes in fuel taxes and refinery economics.
• MPC — Marathon Petroleum operates major refining assets and could be directly affected by the new refinery-related credits and diesel tax changes.
• VLO — Valero Energy could be impacted by the new refinery construction and production incentives, as well as changes to diesel taxation.
• DINO — HF Sinclair could be affected by shifts in refining profitability and federal fuel tax rules.
• PBF — PBF Energy could be affected by refinery tax incentives and changes to diesel-related federal taxes.
• PSX — Phillips 66 could be affected by refinery investment incentives and changes to the tax treatment of refined fuel production.