As this nation prepared to celebrate the Independence Day long weekend, many were preparing for the July 1, 2022, reinstatement of the Superfund chemicals tax (the Superfund Tax). The Superfund Tax is an excise tax imposed on manufacturers, producers and importers of specified chemicals (Taxable Chemicals) and on importers of specified taxable substances that contain Taxable Chemicals (Taxable Substances). The imposition of the Superfund Tax on Taxable Chemicals and Taxable Substances is subject to a number of exceptions.
The Superfund Tax initially was enacted in 1980 as part of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), but expired in 1995. The Superfund Tax was reinstated as part of the 2021 Infrastructure Investment and Jobs Act, and became effective on July 1, 2022. The tax funds the Hazardous Substance Response Trust Fund, which is used for cleaning up abandoned or uncontrolled hazardous waste sites.
The provisions of the Superfund Tax are in sections 4661 and 4662 for Taxable Chemicals and sections 4671 and 4672 for Taxable Substances. The IRS has recently issued important guidance, including identifying Taxable Substances, providing registration requirements for affected parties, and detailing the procedures for compliance with the Superfund Tax, which is summarized below.
Notice 2021-66
Taxable Substances are the substances identified in section 4672(a)(3) or listed as a taxable substance by Treasury. The statute identifies 50 Taxable Substances. Notice 2021-66, released on December 14, 2021, provides Treasury’s initial list of an additional 101 Taxable Substances.
This Notice also provides guidance on the registration requirements for intermediate hydrocarbon stream registration and inventory exchange registration. Those registrations must be made on a Form 637, Application for Registration (For Certain Excise Tax Activities), under Activity Letter “G”.
Notice 2022-15
Generally, deposits of the Superfund Tax must be made with respect to the first 15 days of each calendar month and with respect to the remainder of each calendar month, with such deposits generally due within 14 days after the close of such semi-monthly period. Notice 2022-15, released on April 15, 2022, provides relief from the requirement to make semi-monthly deposits of the Superfund Tax for the third and fourth quarters of 2022. The Notice also provides procedures for using a safe harbor method to determine the amount of the semi-monthly deposits for the first two quarters of 2023, relief from section 6656 underpayment of deposit penalties for 2022 and the first quarter of 2023, and relief from being denied the ability to use the safe harbor method.
IR 2022-132
On June 24, 2022, the IRS released IR 2022-132 which provides the tax rates for 121 of the 151 Taxable Substances. Those rates range from $1.49 to $23.65 per ton. With respect to the remaining Taxable Substances, the importer must provide Treasury with sufficient information to determine the appropriate tax rate (based on the amount of Taxable Chemical in the Taxable Substance, as though the tax was imposed on the Taxable Chemical.) If the Importer does not provide sufficient information for Treasury to make that determination, the tax is 10% of the appraised value of the Taxable Substance at the time it is imported.
Revenue Procedure 2022-26
On June 28, 2022, the IRS released Revenue Procedure 2022-26, which provides procedures for importers, exporters, and interested parties to request a determination under section 4672(a)(2) that a substance be added to or removed from the list of Taxable Substances. A separate petition is requested for each substance that an interested party seeks to add or remove from the list. To be considered for inclusion as a Taxable Substance, the Taxable Chemical must satisfy the threshold requirement of constituting more than 20% of the weight or value of the materials used to produce the substance to add the Taxable Substance to the list. To be considered for removal from the Taxable Substance list, the Taxpayer must demonstrate that the Taxable Chemical constitutes 20% or less of the weight and value of the materials used to produce the Taxable Substance.
As detailed in the Revenue Procedure, the petition must state whether the petitioner is an importer or exporter of the substance, or an interested person, and provide detailed information regarding the chemical substance. Once the petition has been accepted by the IRS (i.e., after the IRS has all the required information), the IRS has 180 days to consider the petition.
FS-2022-31
Also on June 24, 2022, the IRS addressed several frequently asked questions regarding the reinstated Superfund Tax in FS-2022-31. Responses to many of the FAQs that have been discussed in this Alert, but certain highlights are provided below:
- What are the Superfund chemical excise taxes?
There are two separate Superfund chemical excise taxes:(1) a tax under section 4661 on the sale or use of "taxable chemicals" by the manufacturer, producer, or importer of the taxable chemical; and (2) a tax under section 4671 on the sale or use of "taxable substances" by the importer of the taxable substance.
- What is a taxable chemical?
A taxable chemical is one of the 42 chemicals listed in section 4661(b), and manufactured or produced in the United States or entered into the United States for consumption, use, or warehousing.
- What is a taxable substance?
A taxable substance is a substance that, at the time of sale or use by the importer of the substance, is listed as a taxable substance. See section 4672(a)(1) and section 4672(a)(3). See also Notice 2021-66, 2021-52 I.R.B. 901. There are currently 151 substances identified, but the IRS can add and subtract from this list.
- How are substances added to or removed from the list of taxable substances?
There are two ways a substance can be added to or removed from the list of taxable substances under sections 4672(a)(2) and (4). First, the Secretary can add substances in consultation with the Administrator of the Environmental Protection Agency and the Commissioner of US Customs and Border Protection, if the Secretary determines that taxable chemicals constitute more than 20 percent of the weight (or more than 20 percent of the value) of the materials used to produce the substance (determined on the basis of the predominant method of production). The Secretary may remove substances that do not meet this threshold. Second, an interested person can petition the Secretary to add or remove substances from the list. See Revenue Procedure 2022-26.
- I am an importer of tax substances. How do I calculate section 4671 tax?
The section 4671 tax is the amount of section 4661 tax that would have been imposed on the taxable chemicals used in the manufacture or production of the taxable substance if the taxable chemicals had been sold in the United States for use in the manufacture or production of the taxable substance.
- What happens if an importer does not calculate the section 4671 tax?
Under this circumstance, if the IRS has prescribed a tax rate for the taxable substance, the tax is calculated using the rate prescribed by the IRS.
Because the IRS has not yet prescribed that rate, the amount of tax is 10 percent of the appraised value of the taxable substance as of the time the taxable substance was entered into the United States for consumption, use, or warehousing.
- Who is responsible for reporting and paying Superfund chemical excise taxes?
For taxable chemicals, the manufacturer, producer, or importer of the taxable chemical is responsible for reporting and paying the section 4661 tax to the IRS.
For taxable substances, the importer of the taxable substance is responsible for reporting and paying the section 4671 tax to the IRS.
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