The Superfund Chemicals Excise Tax

The Superfund chemicals excise tax has been reinstated as part of the Infrastructure Investment and Jobs Act (the “Act”) effective July 1, 2022.¹ Congress established the “Superfund” in 1980 to finance the cleanup of hazardous waste sites if the owner or operator cannot be identified or if the cleanup needs to be expedited. The Superfund is financed, in part, by (1) a tax on the sale of “taxable chemicals” and (2) a tax on the sale or use of imported “taxable substances” that use one or more taxable chemicals in their manufacture (together, the “Tax”). After several extensions, the Tax expired on December 31, 1995. The reinstatement is set to expire again on December 31, 2031.²

Many new manufacturers and importers may be unfamiliar with the Tax, and even established chemical companies may have lost their internal knowledge base while the Tax has been on hiatus. These companies will need to review the chemicals they manufacture or import for sale or use, as well as the chemical composition of the products they import, to determine whether they are subject to the Tax. Companies that are subject to the tax will also need to understand their reporting requirements and payment obligations. Important questions these manufacturers need to ask is (1) am I a taxpayer regarding these excise taxes, (2) do I need to register and report, and (3) how are my prices and costs going to be affected by these excise taxes?

The Tax is imposed on (1) the sale of any taxable chemical by a manufacturer or importer,³ and (2) the sale or use of any taxable substance by an importer (due upon the first sale or use after import).⁴ The Act modifies the method for determining whether a substance is a taxable substance by lowering the required percentage of taxable chemicals used from 50 percent to 20 percent of the weight or value of the total materials used to produce it.⁵ In addition to the 50 taxable substances that are identified by statute,⁶ the IRS has provided a list of 101 other substances that meet the modified threshold.⁷ The export of any listed chemical is eligible for a refund of any tax paid on the chemical.⁸

The prior rate of tax on the 42 taxable chemicals has been doubled by the reinstatement, with new rates ranging from 44 cents per ton to $9.74 per ton.⁹ The amount of tax imposed with respect to a taxable substance is equal to the amount that would have been imposed on the taxable chemicals used as materials in the manufacture of the substance if such taxable chemicals had been sold in the U.S. for use in its manufacture or production.¹⁰ If an importer has insufficient information about the chemicals used in a substance, the Tax will be 10 percent of the appraised value of the substance at the time it enters the U.S.

The Tax will be reported on a quarterly basis using a Form 6627 worksheet attached to a Form 720. This Form is complex and still needs IRS guidance in many areas prior to the reinstatement date. Taxpayers with quarterly liabilities greater than $2,500 will be required to make semi-monthly deposits. If a taxpayer is not currently paying excise taxes, there is a registration process that needs to take place prior to the reinstatement date. Penalties associated with not registering can be $10,000 per day for those that are not compliant.

Complying with the Tax can involve significant complexity. If your business might be subject to the Tax, please reach out to an HBK tax advisor. Whether you need an analysis of your compliance requirements, training to your compliance personnel, or assistance with reporting, we are here to help.

¹ Pub. Law 117-58 (November 15, 2021)

²I.R.C. § 4661(c)

³ I.R.C. § 4661(a)

⁴I.R.C. § 4671(a)

⁵ I.R.C. § 4672(a)(2)(B)

⁶ I.R.C. § 4672(a)(3)

⁷ Notice 2021-66

⁸ I.R.C. § 4662(e)

⁹ I.R.C. § 4661(b), amended by Pub. Law 117-58

¹⁰ I.R.C. § 4671(b)