On March 27, 2023, the IRS released proposed rules on the Superfund excise tax, which was reinstated as part of the Infrastructure Investment and Jobs Act. The tax, effective as of July 1, 2022, had expired on December 31, 1995. It was designed to contribute to a Superfund created by Congress in 1980 to finance the cleanup of hazardous waste sites when the owner or operator could not be identified or when the cleanup needed to be expedited.
The tax is imposed on the sale of any taxable chemical by a manufacturer or importer and on the sale or use of any taxable substance by an importer. It is due upon the first sale or use after import. The rules, which were released in March, clarify that the tax will apply only to the first sale or use of the taxable chemical, which aligns with Congress’s intent to impose the tax only once per sale or use.
FAQs released by the IRS in June 2022 revealed tax rates for 121 taxable substances, ranging from $1.49 for ammonium nitrate to $23.65 per ton for methyl isobutyl ketone. Thirty additional chemicals were named, but those tax rates have not been determined. However, imported chemicals that have not been assigned a tax rate by the IRS are generally taxed at 10 percent of the chemical’s appraised value when it enters the United States. Taxpayers are only subject to the tax if the weight of the substance consists of 20 percent or more of a taxable chemical, a decrease from the 50 percent threshold under the previous law.
Many taxpayers have been frustrated by limited guidance on the Superfund excise tax, especially on key questions, such as how to claim exemptions, how to define key terminology regarding the supply chain process, and how to calculate the tax rate when the chemical substance contains greater than 20 percent of a taxable chemical. Certain exemptions have been clarified, such as for qualified fuel substances, fertilizer, and animal feed substances, and in cases where manufacturers or importers have obtained an exemption certificate from their customer for tax-free sales. However, many questions remain unanswered.
We anticipate further guidance, especially as the rules proposed on March 27 have not been finalized. Manufacturers and other affected businesses should watch closely for that additional guidance.
If you have questions or concerns relating to the Superfund excise tax, please contact a member of HBK Manufacturing Solutions at 330-758-8613, or email us at manufacturing@hbkcpa.com.
