The reinstated Superfund Excise Tax is effective July 1, 2022, through December 31, 2031, absent extension. The latest reiteration of the excise tax will be comprised of two separate taxes on (1) chemical sales and (2) chemical importers. Additionally, the Infrastructure Investment and Jobs Act (“IIJA”) double the tax rate on chemicals or chemical products and expands the reach of the tax for chemical importers.
Background
In November 2021, President Biden signed the IIJA into law, which reinstated the Superfund chemical excise taxes under sections 4661 and 4671 of the tax code. In 1980, the Comprehensive Environmental Response, Compensation, and Liability Act established superfund programs to be administered by the Environmental Protection Agency (EPA) which was funded through the excise tax on petroleum and chemical manufacturers, producers, and importers. The EPA used the funds to clean up hazardous waste sites as determined under its direction. This original Superfund Excise Tax program expired in 1995, when hazardous waste site clean-up efforts became funded through general disbursements of other tax revenues.
Excise Tax on Chemical Sales
Section 4661 of the tax code, as reinstated, will impose a per-ton tax on the sale of 42 specific chemicals, which include ammonia, butane, benzene, mercury, and other common chemicals. Any manufacturer, producer, or importer that sells or uses a listed chemical must pay the per-ton tax of $0.48 to $9.47, depending on the specific chemical. These proposed tax rates are generally doubled from the rates that were used before the excise tax expired in 1995.
There are some allowable exceptions from the tax under Section 4662, including some of the following:
Methane, butane and other substances when used to produce motor, aviation, or diesel fuel
Nitic acid, sulfuric acid, ammonia, or methane used to produce ammonia that is a qualified fertilizer substance
Substances derived from coal
Additionally, chemicals sold for export or for resale by the purchaser to a second purchaser for export are exempted from the tax if the manufacturer or producer receives proof that the chemical was exported or resold for export.
Excise Tax on Importers of Taxable Substances
The IIJA also directed the IRS to review and update the list of taxable substances for importers. Originally, the excise tax on importers consisted of 50 substances as provided in Section 4672 – however, under Notice 2021-66, the IRS had now identified an additional 101 substances that will be subject to tax for importers.
The IIJA also expanded the threshold for the excise tax to apply for importers under Section 4671 of the tax code. Section 4671 previously applied to substances where the base taxable chemical constituted more than 50% of the weight of the materials used in the substance in question. The excise tax will now apply to substances where base taxable chemicals are more than 20% of the weight, widening the net for chemical importers that will be subject to the tax.
Registration and Reporting Requirements
Taxpayers subject to the Superfund Excise Tax will report the tax on Form 6627 which is attached to Form 720, Quarterly Federal Excise Tax Return. Additionally, taxpayers will remit the tax on a semimonthly basis.
Implications
The Superfund Excise Tax will require impacted companies to closely monitor the changing laws and guidance surrounding the reinstatement of the tax, since many details are forthcoming. Further, impacted companies will need to perform additional analysis on the chemicals they manufacture or import to determine the taxability of the substance.
The tax advisors at Schneider Downs are well equipped to guide chemical companies through the changing landscape surrounding the Superfund Excise Tax. If you have any questions, please reach out to Stephen R. Worth.
