Last month, the IRS published Notice 2021-66, issued in response to the Infrastructure Investment and Jobs Act’s (Jobs Act) reinstatement of the previously expired “Superfund Tax”—an excise tax imposed on manufacturers, producers, and importers of certain chemicals (i.e., “taxable chemicals”) found in fuels and numerous other industrial products. Understanding whether, and how, the Superfund Tax affects businesses’ tax liabilities will be critical when the tax becomes effective later this year. But given the lack of current IRS guidance and the fact that the Superfund Tax was last in effect over 25 years ago, affected taxpayers will likely face sizable challenges and uncertainties moving forward.
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When the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was originally enacted in 1980, the excise tax was used, in part, to fund the Superfund cleanup trust for contaminated sites based on certain sales or uses of taxable chemicals. That taxing authority expired at the end of 1995. Now, however, the Jobs Act reinstates the tax effective July 1, 2022, with an initial expiration date of Dec. 31, 2031. The new Superfund Tax is expected to infuse $14.5 billion into the Superfund program over the next decade.[1]
The “Superfund Tax” is comprised of two separate taxes—one covering the sale or use of taxable chemicals “by the manufacturer, producer, or importer thereof” pursuant to 26 U.S.C. § 4661 and the other applying solely to “any taxable substance sold or used” by importers pursuant to 26 U.S.C. § 4671.
In the first group, the Jobs Act reinstates Section 4661, which covers 42 listed taxable chemicals such as benzene, butane, methane, ethylene, ammonia, arsenic, chlorine, lead oxide, and mercury. It also doubles the tax rate of these taxable chemicals from previous amounts, with new rates between $0.44 per ton (for potassium hydroxide) and $9.74 per ton (for covered petrochemicals). (See H.R. 3684 at p. 901.) Importantly, however, there are several exemptions for these substances such as, inter alia: use of methane or butane for production of motor fuel; use of certain chemicals in the production of fertilizers; release of sulfuric acid as a byproduct of air pollution control equipment; certain chemicals that have a “transitory presence” during smelting or refining processes; and substances derived from coal. (See 26 U.S.C. § 4662(b).)
In the second group, the Jobs Act also directed the IRS to review and update the list of taxable substances for importers under 26 U.S.C. §§ 4671-4672. While the original list contained 50 substances initially listed in Section 4672(a)(3), the IRS has now identified an additional 101 taxable substances to be added to the list. (See Notice 2021-66, pp. 4-9.) Moreover, the Jobs Act expanded the triggering threshold for the excise tax to apply. Section 4671 previously only applied to substances where the base taxable chemical constituted more than 50% of the weight of materials used to produce the substance in question. Now, however, this excise tax applies to substances where base taxable chemicals are more than 20% of the weight. The burden will be on the importer to provide sufficient information to the IRS for determining whether the imported substance contains more than 20% of a taxable chemical, and if so, the appropriate tax rate that should be applied. Barring that showing, importers must compute the tax at 10% of the substance’s value when it enters the U.S.
IRS Notice 2021-66 also confirms that taxpayers subject to the Superfund Tax “must report the reinstated Superfund chemical taxes on Form 6627, Environmental Taxes, which is attached to Form 720, Quarterly Federal Excise Tax Return.” (See Notice 2021-66, p. 11.) Taxpayers subject to the Superfund Tax must deposit the excise tax on a semi-monthly basis beginning July 1, 2022. (See 26 C.F.R. § 40.6302(c)-1.)
Finally, the IRS is soliciting comments from taxpayers “on whether any issues related to the reinstated Superfund chemical taxes require clarification or additional guidance.” (See Notice 2021-66, pp. 11-12.) Given the number of questions not answered by the statute, and that it has been over 25 years since these excise taxes applied, taxpayers should strongly consider whether additional IRS guidance is needed for their particular businesses and operations. Comments are due by Jan. 28, 2022.
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[1] Sinema et al., Joint Committee of Taxation: JCX-33-21, Estimated Revenue Effects of the Provisions in H.R. 3684 (Aug. 2, 2021), available at https://www.jct.gov/CMSPages/GetFile.aspx?guid=f9c0b59d-de78-4173-993b-eb20b12ee5b8.
