The Superfund Tax on chemicals, which expired in 1996, has been reinstated as part of the bipartisan Infrastructure Investment and Jobs Act, and will go into effect starting July, 1st 2022 (until January 1, 2031). The reinstatement of the Superfund Tax on chemicals is in line with the Biden Administration’s increased focus on environmental justice. 1 in 5 Americans live within 3 miles of a Superfund hazardous waste site, and Americans of color disproportionately live in the affected communities.
This tax applies to 42 taxable chemicals and related taxable substances. The Build Back Better Bill, which is currently stalled in the Senate, could reinstate taxes on crude oil if it is passed at a later date.
- The tax on “taxable chemicals” applies to 42 chemicals listed in the statute that are imported into the U.S. or produced in the U.S.. IRS released the list of taxable chemicals in November of 2021: https://www.irs.gov/pub/irs-drop/n-21-66.pdf
- It applies to manufacturers, producers or importers that sell or use the specified taxable chemical
- Single layer tax: a credit is given if a taxable chemical is used to produce another taxable chemical.
- The tax rate depends on the type of chemical, ranging from $0.48/ton to $9.47/ton depending on how danger the chemical is.
- “Taxable substances” refer to chemicals or materials not on the taxable chemical list, but where taxable chemicals constitute 20% or more of the materials used to manufacture the substance.
- This tax applies to importers of taxable substances.
- The tax is calculated based on the weight of the taxable chemicals used in the manufacture of the taxable substance.
- Certain taxable substances are listed in the statute, but the 20% limit noted above can be applied to other materials by the IRS. The burden is, however, on the importer to give IRS information to determine how much is owed or a default tax (10% of the substance’s value) can be levied.
Several exceptions to the tax exist:
- Chemicals sold in an inventory exchange, or sold for export
- organic taxable chemicals as part of an intermediate hydrocarbon stream,
- methane or butane used as a fuel to produce motor, diesel, aviation, or jet fuels,
- acetylene, benzene, butylene, ethylene, naphthalene, propylene, toluene, and xylene if used for the same,
- nitric acid, sulfuric acid, ammonia, or methane used to produce or sold to a manufacturer of ammonia which is directed toward fertilizer or animal feed,
- sulfuric acid when it is produced as a byproduct of air pollution control,
- coal derived substances
- barium sulfide, cupric sulfate, cupric oxide, cuprous oxide, lead oxide, zinc chloride, and zinc sulfate “by reason of transitory presence of such chemical during a smelting or refining process”
- and there is an exception for chromium, cobalt and nickel recovered in recycling.
This tax will be collected quarterly. As noted, it goes into effect July 1st, 2022, with the first filing due by October 31st, 2022. A mechanism exists to petition IRS to remove materials from your burden after reporting. If there is confusion about your upcoming burden, or on what exceptions may apply for your business, it may be advisable to consult a tax expert in advance of the initial filing in October of 2022.
The NACD’s recent webinar topic on Superfund Tax, attended by WTS, Inc. and summarized above, is an excellent resource for those seeking further details on this topic.[i]