On Nov. 15, 2021, President Joe Biden signed into law the Infrastructure Investment and Jobs Act—or Jobs Act—which reinstated and expanded the Superfund chemical excise taxes under sections 4661 and 4671 of the tax code. Prior to their expiration in 1995, the Superfund chemical excise taxes were used to fund the Hazardous Substance Superfund. Expenditures were administered by the Environmental Protection Agency and used to clean up hazardous waste sites around the United States. Reinstated, the Superfund excise taxes will apply to a long list of chemicals and chemical-containing substances, effective July 1, 2022 through Dec. 31, 2031, absent extension.
Many chemical companies may not be as intimately familiar with the Superfund excise taxes of the 1980s and 1990s as they are with “Back to the Future” and “Return of the Mack.” These companies will need to brush up on the body of excise tax law and IRS guidance. They will also need to undertake a detailed review of the chemicals they manufacture or import for sale or use, as well as the chemical composition of the products they import, to understand if a product is subject to the Superfund excise taxes and, if it is, how to timely report and remit tax or register for an exception.
Superfund Excise Tax on Chemical Sales
The return of the Superfund excise tax on chemicals affects taxpayers that manufacture, produce, or import certain chemicals, as it imposes an excise tax on the sale of 42 specific chemicals listed in Section 4661 of the tax code, including ammonia, butane, benzene, mercury, and other common products. Any manufacturer, producer, or importer that sells or uses them must pay a per-ton tax of $0.48 to $9.47, depending on the chemical.
There are exceptions to and exemptions from the chemical sales excise tax that are provided in Section 4662. Exceptions are provided for certain uses, derivations, and byproducts of the 42 listed chemicals. Chemicals sold for export or for resale by the purchaser to a second purchaser for export are exempted from the tax. However, to qualify for this exemption, the manufacturer or producer must receive proof that the chemical was exported or resold for export. A credit or rebate on certain uses and exports is available.
Superfund Excise Tax on Importers of Taxable Substances
The Jobs Act also reinstated the Superfund excise tax on an importer’s sale or use of any taxable substance under Section 4671. Taxable substance is defined in Section 4672 as: the 50 substances included on the initial list of taxable substances in Section 4672(a)(3), substances that exceed a 20% weight or value threshold that the IRS adds to the list of taxable substances, and any substance the IRS adds to or removes from the list of taxable substances at the request of an importer or exporter.
At the end of 2021, the IRS published Notice 2021-66, which adds 101 taxable substances to the list and suspends the existing procedure in Notice 89-61 for an importer or exporter to petition the IRS to add or remove substances from the list. The IRS previously published rates and indicated the effective date for each new taxable substance added to the list. Notice 2021-66 does not provide guidance regarding the rate of tax for each taxable substance. However, pending further guidance, prior published rates—adjusted for the Jobs Act increases—and the examples outlined in Notice 89-61 should aid in calculating the tax on taxable substances and the potential tax exposure if a substance is subsequently added to the list. It is expected that the IRS will issue guidance prior to the July 1, 2022, effective date of the Superfund excise taxes.
If an importer provides the Department of the Treasury with insufficient information about the chemicals used in a substance to determine the applicable tax, the taxable substances excise tax will be 10% of the appraised value of the substance at the time it entered the U.S. for consumption, use, or warehousing.
An exception to the taxable substances excise tax is provided if the chemical or chemicals that make up the taxable substance were subject to the chemical sales excise tax. In addition, certain imported products that contain taxable substances but are finished end-use products are not subject to the taxable substances excise tax.
Registration and Reporting Requirements
Companies not already filing excise tax returns will need to become familiar with Form 720 and make required semi-monthly deposits. The chemical excise tax and imported substances excise tax are reported on Form 6627, which is attached to Form 720. It is expected that the IRS will release an updated Form 6627 to reflect the current Superfund excise taxes and include their current rates. Like other environmental taxes reported on Form 720, deposits will begin in July 2022 and will be be required semi-monthly. The first-time companies will be required to report Superfund excise tax will be on their third-quarter 2022 Form 720, which is not due until Oct. 31, 2022. Penalties and interest may apply for late deposits, ranging from 2% to 15% depending on the number of late days. A late filing penalty may apply for the failure to file a Form 720 of 5% per month of the amount due, up to 25%.
There is no requirement to register with the IRS to pay either the chemical sales excise tax or the taxable substances excise tax. But there is a registration requirement to be excepted from tax for taxpayers making inventory exchanges of taxable chemicals under Section 4662(c)(2) or selling or buying intermediate hydrocarbon streams under Section 4662(b)(10). The registration requirements are not satisfied unless both parties are registered by the IRS as manufactures, producers, or importers of taxable chemicals and the person receiving the taxable chemical has notified the manufacturer, producer, or importer of such person’s registration number. Currently, the IRS is revising the form used for registration, Form 637, to add activity letter G. Until the revised Form 637 is released, taxpayers should submit the current Form 637 by writing in activity letter G and providing the following information: a list of the taxable chemicals the applicant exchanges and/or the intermediate hydrocarbon streams the applicant sells or buys, a description of the applicant’s processing plants, the products produced, the handling and storage facilities, and the processes involving hydrocarbon streams, as appropriate.
The comment period for issues related to these excise taxes and areas that require clarification or additional guidance ended in late January. Therefore, comments should be submitted as soon as possible to be considered by the IRS.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Shawn R. O’Brien is a partner and co-head of tax-energy in the tax controversy practice at Mayer Brown LLP in Houston.
Megan K. Hall is a senior associate in the tax transactions and consulting practice at Mayer Brown LLP in Washington, D.C.
Stephanie F. Wood is an associate in the tax transactions and consulting practice at Mayer Brown LLP in New York.
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