IRA Section 13203 – Sustainable Aviation Fuel Tax Credit

Section 13203 of the IRA inserts a new section 40B into the IRC, creating a sustainable aviation fuel tax credit. The credit is available to taxpayers that sell or use a qualified mixture of sustainable aviation fuel and kerosene that is produced in the U.S. and is used (or sold for use in the ordinary course of business) in an aircraft, provided the transfer of such mixture to the fuel tank occurs in the U.S.

Sustainable aviation fuel is defined as a liquid fuel that:

1) meets the requirements of the ASTM International Standard D7566 or the Fischer Tropsch provisions of the ASTM International Standard D1655, Annex A1;
2) is not derived from compressing an applicable material (or material derived from the same) with a feedstock which is not biomass;
3) is not derived from fatty acid distillates or petroleum; and
4) has been certified as having a lifecycle greenhouse gas emissions reduction percentage (“LGGERP”) of at least 50% (compared to petroleum based jet fuel).

The credit is available for mixtures sold or used after December 31, 2022. It will expire on December 31, 2024.

The amount of the credit depends on the amount of sustainable fuel in the mixture and the lifecycle greenhouse gas emissions associated with its use. To calculate the amount of the credit, the taxpayer must multiply the number of gallons of sustainable fuel in the qualified mixture by the sum of $1.25 and an applicable supplementary amount. The supplementary amount is equal to $0.01 for each percentage point by which the mixture’s LGGER exceeds 50 percent (up to a maximum of $0.50).

The taxpayer must register with the Treasury Department and provide certification from an unrelated party to demonstrates compliance with applicable requirements in the form and manner prescribed by the Department.