In short: The Infrastructure Investment and Jobs Act (“IIJA”), enacted November 15, 2021, reinstated the Superfund chemical excise taxes, effective July 1, 2022 on certain chemicals and chemical substances.
The reinstated Superfund chemical excise tax applies to companies that manufacture, produce or import certain chemicals and to importers of certain taxable substances; and the excise is payable upon the first sale or first use of a specified chemical or imported chemical substance within the US. The updated legislation contains several modifications, including the applicable tax rates and the method for determining whether a substance is a taxable substance, by lowering the required percentage of taxable chemicals used to produce the substance from 50 percent to 20 percent of the weight (or the value) of the materials used to produce such substance.
- The list of taxable chemicals and the amount of tax imposed on those chemicals is disclosed within IRC Section 4661(b).
- The initial list of 50 taxable substances is found in IRC Section 4672(a)(3).
- In Notice 2021-66, the IRS published a list of 100 additional substances subject to the Superfund chemical excise tax.
When is a Taxable Chemical or Taxable Substance “Used”?
A taxable chemical is “used” by a manufacturer, producer or importer when they are consumed, when they function as a catalyst, or when they change their characteristics or chemical composition. However, loss or destruction through spillage, fire, or other casualty is not considered a use.
What Happens If One Imports a Substance That Contains Taxable Chemicals?
The importer must provide the United States Treasury with the requested information to determine the tax imposed, i.e., chemical make-up, weight and specific tax rate applied. If an importer fails to provide United States Treasury with the information needed to determine the tax imposed, the tax due will generally be ten percent (10%) of the appraised value of the substance at the time it enters the United States for consumption, use or warehousing. In addition, an importer can affirmatively elect the alternative method of using ten percent (10%) of the taxable substance’s value upon import into the United States.
Exceptions to and Exemptions from the Superfund Chemical Excise Tax
Exceptions to and exemptions from the chemicals excise tax are specified within IRC Section 4662, including but not limited to certain derivations, and byproducts for the listed chemicals. Further, chemicals sold for export or for resale by the purchaser to a second purchaser for export are exempted from the excise tax. However, the manufacturer or producer must obtain proof that the chemical was exported or resold for export.
How to Report and Remit the Superfund Chemical Tax
The applicable taxes must be reported and deposited with the following forms:
- Form 6627, Environmental Taxes, and
- Form 720, Quarterly Federal Excise Tax Return
Each person is required to make deposits of tax for each semimonthly period in which the tax liability is incurred. A semimonthly period is the first fifteen (15) days of a calendar month or the portion of a calendar month following the 15th day of the month. As the Superfund chemical taxes are effective beginning July 1, 2022, the first semimonthly deposit, covering the first fifteen (15) days of July 2022, is due by July 29, 2022. Note that the semimonthly deposit requirement only applies for taxpayers with a quarterly liability greater than $2,500.
Penalty Relief for Failure to Deposit (Notice 2022-15) – Not a Free-Pass on Semimonthly Deposits
IRS Notice 2022-15 states the IRS is providing for temporary relief from the penalty for failure to deposit Superfund chemical taxes for the third and fourth calendar quarters of 2022, and the first calendar quarter of 2023. However, it should be noted that the penalty relief is not a free pass to not remit semimonthly deposits.
Since the expiration of the Superfund chemical tax goes back to December 31, 1995, many chemical companies may not be as familiar with this excise tax today. Most of those who may have understood the tax are possibly retired or no longer familiar with the law and IRS guidance. Companies should complete a detailed review of the chemicals they manufacture, produce, or import for sale or use, as well as the chemical composition of the imported products, to determine if a substance is subject to the Superfund chemical excise tax and, if it is, how to register for an exception or how to report and remit the tax.