A Superfund excise tax on chemicals has been signed into law and will go into effect on July 1, 2022. The tax law is included in the Infrastructure Investment and Jobs Act that was signed into law on November 15, 2021. This law will impact taxpayers that manufacture, produce, or import 41 specific chemicals and another 151 chemical substances, most notably acrylate monomers within the Gantrade portfolio of products.
History of the Superfund Excise Tax
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was signed into law in 1980. The law established the Hazardous Substance Response Trust Fund, which is informally known as the “Superfund.” CERCLA was established to aid in the cleanup of hazardous waste sites. It held identified parties responsible for contamination and it also funded or reimbursed the Environmental Protection Agency (EPA) for cleanups led by the government when responsible parties could not be identified. These EPA-led cleanups were supported by the Superfund. The Superfund was funded by excise taxes on domestic and imported crude oil, and on both imported and domestically produced petroleum products. Congress intended for the taxes to be equally distributed among suppliers, so the taxes were implemented at the beginning of the commercial chain of production. The taxed materials fell into two categories: petrochemical feedstocks and inorganic raw materials.
CERCLA was amended and extended by Superfund Amendments and Reauthorization Act of 1986 (SARA), for another five years. SARA expanded the excise taxes, imposing taxes on imported products that were derived from the existing taxable chemical products. Additions to the tax law ensured that the same chemical would not be taxed twice if it was imported and then created into another taxable product domestically. There were no exceptions or refunds if the products were later exported, so the laws on the taxable substances applied broadly. The tax law was extended for another five years with the Revenue Reconciliation Act of 1990, but it was not extended again. The law expired on December 31, 1995, and remained in expiration until November 15, 2021, when two of the excise tax laws were reinstated (see 26 USC 4661 and 4671).
These Superfund excise tax laws are being reinstated to address hazardous waste sites and facilitate cleanup in historically underserved areas. According to the EPA, the Bipartisan Infrastructure Law restores chemical excise laws and invests an additional $3.5 billion in environmental remediation at Superfund sites. This funding will help to clear the backlog of polluted sites that require Superfund resources.
The New Excise Tax on Chemical Sales
The reinstated tax laws from the Infrastructure Investment and Jobs Act differ from the earlier Superfund excise tax in several ways. These new Superfund taxes nearly doubles the number of taxable chemicals, with 42 chemicals included in this section of the law. A complete list of the chemicals can be found in IRC section 4661(b) in the Notice 2021-66. The per-ton rates have also effectively doubled since the 1995 Superfund tax. The current Superfund excise tax rates vary between each chemical and range from $0.48 to $9.74 per ton. If the importer does not furnish to the IRS sufficient information to determine the amount of the tax imposed, the rate is 10% percent of the appraised value as of the time such substance was entered into the United States for consumption, use, or warehousing. (this is direct from 26 USC 4671) The IRS have not yet published guidance on how to calculate the tax rate on these chemical substances, but it is anticipated that they will follow the same general methodology as applied prior to 1996.
Every newly implemented law is accompanied by a transitional period, and these standards were published in Notice 2022-15. The Superfund excise taxes go into effect on July 1, 2022, but there is a period of leniency from penalties for the third and fourth quarter of 2022 and first quarter of 2023. Additionally, the IRS will not withhold the taxpayer’s right to safe harbor rules if they have not met all the requirements of the excise tax within the first three quarters of 2023.
Impact of the Superfund Tax
Taxpayers will report the Superfund Excise Taxes on their Quarterly Federal Excise Tax forms, on IRS Form 720. Form 667, which is used for Environmental Taxes and reports the amount of the taxes owed, must be filed alongside Form 720 as well. Notably, the Superfund excise taxes aim to tax the chemicals at the earliest possible point in the manufacturing process. This means that the first buyer in the United States is responsible for the tax. Companies that import these taxable substances for manufacturing uses will be more impacted by the Superfund tax.
Companies that import the chemicals mentioned in the Superfund tax laws are responsible for paying the taxes. Since these newer Superfund excise taxes have broadened the range of chemicals deemed taxable, it is important that importers monitor the relevant chemicals and substances closely. However, taxpayers are able to submit comments and petition the IRS about which substances fall within the taxable range.
Impact on Gantrade Customers
As we noted earlier, the new tax going into effect on July 1, 2022 will cover 41 taxable chemicals and another 151 chemical substances listed in IRC sections 4661 and 4671. While our customers should certainly see their corporate accounting firms for precise impact on their respective taxation under the new law, we anticipate at Gantrade that the effect of these new taxes will be lightly felt among our client companies from a pricing perspective; many of our products are not covered by the tax at this time. The new tax program and its reporting requirements (reporting of activity from the prior two-week period during the next two-week period of each month) may be rather onerous for many, especially in the beginning. Since the IRS has not given specific guidance as to calculating your tax liability, the organization, notably, is waiving underpayment penalties during the first three quarters as the law becomes effective, for those making good faith efforts to pay in a timely manner.
So, expect prices to increase a bit relative to other market conditions, and expect a bit of a reporting headache as we get used to a new taxation normal. A final consideration is that under the new law, the US Secretary of the Treasury is empowered with the ability to add or remove listed, taxable chemicals or chemical substances within flexibilities outlined in the law by Congress.
Continue to monitor this space as the expert team at Gantrade will continue to provide you with updated information with regard to the newly enacted and effective Superfund tax on chemicals and chemical substances like acrylate monomers. Contact us today to learn more or start a conversation specific to your product needs.