By: Chris M. Hunter
Chemical companies need to prepare for the return of an excise tax on chemicals produced or imported that hasn’t been in effect for nearly 30 years. In January 2022, the IRS published Notice 2021-66, related to the Infrastructure Investment and Jobs Act (“IIJA”), which revives the excise taxes imposed on certain chemicals—previously known as the Superfund Chemicals taxes. See https://www.irs.gov/pub/irs-drop/n-21-66.pdf.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). CERCLA is informally referred to as “Superfund” because it established the Hazardous Substance Response Trust Fund, which was partially funded by the taxes on the sale and import or use of certain chemicals, and was used to fund remediation of sites contaminated by disposal of hazardous substances. The Superfund Chemicals tax previously expired in 1995.
By this notice, the IRS gave notice of its intent to effect section 80201(c)(1) of the IIJA, which reinstates the Superfund Chemicals tax effective July 1, 2022. The law imposes a tax on any taxable chemical sold by the manufacturer, producer, or importer. The law and notice lists 42 chemicals subject to the tax. Some—such as benzene, butane, methane, ethylene, ammonia, arsenic, chlorine, lead oxide, and mercury—are common in consumer products.
Under the ILLA, the tax rate is twice what it was during the 1980s and 1990s: 44 cents per ton, for potassium hydroxide, and $9.74 per ton for petrochemicals. There are some exemptions, such as the use of methane or butane for making motor fuel, the use of some chemicals to produce fertilizers, and substances derived from coal. For importers, the IRS listed 151 substances a taxpayer intends to use or sell as subject to the tax but only if the weight of the substance contains 20% or more of a taxable chemical. Among those substances are ones with common consumer uses like glycerol and butanol. Compliance with the reinstated tax will likely require taxpayers’ tax advisers to work closely with operations and procurement departments.
Reinstatement of the Tax is projected to bring in an additional $14.5 billion over the next 10 years. Taxpayers subject to the new Superfund chemical taxes will be required to report on Form 6627, which must be filed together with the Quarterly Federal Excise Tax Return. With these taxes due to take effect on July 1, 2022, taxpayers are responsible for compliance beginning with the Q3 2022 filings due October 31, 2022.