A bipartisan group of South Dakota State Senators are opposing actions by the state Department of Revenue and Regulations to collect additional tax monies from consumers that use ethanol blending pumps at retail outlets in the state to fuel their flex-fuel vehicles.

On May 1, the South Dakota State Department of Revenue and Regulations began collecting additional tax revenue from retail gasoline outlets that provide ethanol blending pumps for customers who can blend ethanol for flex-fuel vehicle use. The state taxing agency currently collects 20.0cts gal on 10 percent volume ethanol blends (E10) and 10.0cts gal for 85 percent ethanol blends (E85), but claims consumers blending from the two tanks are creating a new “taxable blend.”

In a memo sent April 17 to gas outlets in the state, the state agency’s top executive notified gasoline and ethanol retail outlet owners that they would need to begin collecting the Blender Pump Return Tax that imposes an additional 2.7cts gal tax at the blending pump from consumers who have flex-fuel vehicles and can vary their ethanol volumes.

State Senate Democratic Minority Leader Scott Heidepriem who sits on the bipartisan taxation committee, said he and his colleagues believe the new tax oversteps the governor’s authority and is unconstitutional. He said state vehicle fuel tax statutes do not allow for collecting additional taxes once a tax is already imposed on a motor fuel.

“Look, there are two tanks at these [retail] outlets, one tank carries E10 and the other E85,” Heidepriem said. “Each ethanol blend is already taxed. Now someone comes along and draws an amount from each of these tanks and the department of revenue wants to add another tax. That doesn’t make sense, and it’s not legal.”

But Paul Kinsman, secretary of revenue and regulation for the state agency, disagrees and said his department’s calculations show a 2.7cts gal tax shortfall when consumers blend E10 and E85 fuels to alter ethanol volume levels. He said state law requires fair and equitable motor vehicle fuel taxes for regular gasoline and ethanol blends, but the state legislature failed to take action ahead of the use of blending pumps at retail outlets.

“I testified that I’d either have to collect the taxes [at the racks instead of] audit those folks [at retail outlets]. The state Senate let the bill die, and now I’m collecting at the outlets.”

Heidepriem said that Gov. Michael Rounds offered Senate Bill 110 into the legislature in February that provided for a 22.0cts gal blender pump tax on ethanol blends that fall within the E10 and E85 specifications.

“We defeated that bill in the taxation committee and explained our reasons,” he said. “What the administration is doing is defying the legislature.”

However, Rounds apparently believes the tax is justified and believes the SB 110 was defeated due to ethanol producers’ lobbying efforts. In a letter to the state’s Ethanol Producers’ Association in April Rounds stated that the legislation was meant to address the growing use of self-blending pumps but was “killed by your lobbyist.”

Heidepriem believes the governor’s actions are meant to get around the legislature’s authority. He believes that retail outlets may be forced to defy paying the tax and bring the issue to the state courts for final disposition.

There are about 17 retail motor gasoline outlets with blending pumps available in the state.