In 1980, the Comprehensive Environment Response, Compensation, and Liability Act (“CERCLA”) was enacted to force parties responsible for contaminating sites with hazardous waste to either perform cleanups or reimburse the government for the EPA-led cleanup work. The CERCLA also created the Superfund trust, which funded the EPA’s clean-up efforts when responsible parties could not be identified. The trust was funded primarily through various excise taxes imposed on the chemical and petroleum industries.
These excise taxes expired in 1995 and, as a result, the Superfund cleanup has slowed considerably. The Infrastructure Investment and Jobs Act (the “Infrastructure Act”)—signed into law in November 2021—reinstates the Superfund excise taxes. The reinstatement is expected to generate $14.5 billion of revenue for the Superfund program over the next 10 years.
The two reinstated excise taxes are imposed on (1) chemical sales and (2) chemical importers and will be levied upon manufacturers, producers, and importers of certain chemicals or substances. These taxes are scheduled to come into effect July 1, 2022 and remain in effect through December 31, 2031.
Excise Tax on Chemical Sales
The Superfund excise tax on chemical sales is imposed on 42 listed taxable chemicals on a per-ton basis by taxpayers that manufacture or produce a listed chemical in the United States or import it for consumption, use, or warehousing in the United States. Additionally, the reinstatement doubles the rate at which this tax previously applied. Table 1 below lists the taxable chemicals and the new taxation rate.
However, there are certain exceptions to this excise tax, such as: Use of methane or butane for motor fuel production; use of certain chemicals in the production of fertilizers; release of sulfuric acid as a byproduct of air pollution control equipment; certain chemicals that have a “transitory presence” during smelting or refining processes; and substances derived from coal.
Excise Tax on Chemical Importers
The Superfund excise tax on taxable substances imposes a tax on any taxable substance that a taxpayer imports to sell or use. The rate of tax is based on the tax rate for the underlying chemicals used in the manufacture or production of such taxable substance (see Table 1). There is no tax imposed, however, to the extent the chemicals that make up the taxable substance were already subject to the Chemical Sales tax described above.
Moreover, if taxable chemicals contained within Table 1 above comprise more than 20% of the weight or value of the materials used to produce a substance, such substance is a taxable substance.
The table below lists only the substances contained within section 4671 of the Internal Revenue Code. However, IRS notice 2021-66 provides a more comprehensive list of Taxable Substances as a result of the 20% rule.
Taxpayers subject to the new Superfund chemical taxes will be required to report on Form 6627, which must be filed together with the Quarterly Federal Excise Tax Return. With these taxes due to take effect on July 1, 2022, taxpayers are responsible for compliance beginning with the Q3 2022 filings due October 31, 2022.
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The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change as a result of rapidly evolving legislative developments and government guidance.