Tar Sands Targeted: Bill Reclassifies Heavy Oil for Federal Excise Tax

This bill, the "Tar Sands Tax Loophole Elimination Act," amends the Internal Revenue Code to explicitly classify products derived from tar sands as "crude oil." Effective upon enactment, this change subjects these products—specifically naming bitumen, oil derived from bitumen, and oil derived from kerogen-bearing sources—to the federal excise tax on petroleum outlined in section 4611 of the tax code.

Redrawing the 'Crude' Line

The core change here is in Section 2, which expands the definition of taxable crude oil. Previously, there might have been ambiguity about whether these heavier, unconventional oils fit the definition. This bill removes that ambiguity. For companies extracting or processing tar sands, this means potentially facing new tax obligations that align with those paid by producers of more conventional crude oil. These excise taxes typically contribute to funds like the Oil Spill Liability Trust Fund, meaning this change could increase revenue directed toward environmental cleanup readiness.

Beyond the Sands: A Wider Net?

The legislation doesn't stop at tar sands. It also grants new authority to the Secretary of the Treasury. They can now classify other fuel feedstocks or finished fuel products as crude oil or petroleum products subject to the same excise tax. This power isn't unlimited; it requires two conditions: the product must meet the definition of 'oil' under the Oil Pollution Act of 1990, and it must be produced in "large enough commercial quantities to pose a significant hazard if discharged." While this provides flexibility to adapt the tax code to new fuel sources, the term "large enough commercial quantities" isn't precisely defined in the bill, introducing a degree of uncertainty about how and when this authority might be used in the future. This could impact emerging fuel industries down the line, depending on interpretation.