The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) established the Hazardous Substance Response Trust Fund (the Superfund) for use in funding the cleanup of hazardous waste sites when the costs could not be imposed on potentially responsible parties. When enacted, the Superfund was financed by environmental excise taxes on certain commonly used chemicals often found at Superfund sites. The tax expired under its terms in the mid-1990s but has now been reinstated.
In November 2021, President Biden signed the Infrastructure Investment and Jobs Act. Among the many provisions in that legislation was a reinstatement and modification of the Superfund excise tax. The reinstated tax became effective on July 1, 2022, and is scheduled to remain in effect through Dec. 31, 2031. The tax applies to a list of 42 “taxable chemicals” specifically defined by statute. It also applies to a list of imported “taxable substances,” also defined by statute and incorporating substances made, in part, of taxable chemicals. The list of taxable substances has been expanded over the years, most recently by IRS Notice 2021-66, and now includes hundreds of substances. The reinstated tax doubles the prior rate of tax on the 42 listed taxable chemicals, which will also effectively double the tax rate of imported taxable substances.
Each of the 42 taxable chemicals is assigned a per ton tax rate ranging from $.48 per ton on the low end to $9.74 per ton on the high end. The tax is imposed on the manufacturer or importer of the listed chemicals, and it becomes due upon the first use or sale of the chemical in the U.S. The tax on taxable substances is only assessed on importers of the taxable substances and is due upon the first sale or the first use after import into the U.S. Taxable substances become taxable if they contain 20% or more by weight or value of one of the 42 taxable chemicals. Although the Internal Revenue Service (IRS) has published per ton tax rates for some taxable substances, it has not yet done so for others. As a result, importers of taxable substances must calculate the tax rate themselves based on the amount of each taxable chemical used in the taxable substance.
The tax also reinstated, and expanded, certain exemptions to the original excise tax. Many of these exemptions are based on the purpose for which a taxable chemical is used, including:
- Use of methane or butane as a fuel;
- Use of certain chemicals in the production of fertilizer;
- Sulfuric acid produced as a by-product of air pollution control;
- Substances derived from coal; substances used in the production of motor fuel, diesel fuel, aviation fuel, or jet fuel;
- Substances having a transitory presence during the refining process;
- A separated isomer of xylene;
- Recycled chromium, cobalt, and nickel; substances used in the production of animal feed; and
- Hydrocarbon streams containing mixtures of organic taxable chemicals.
The full details of the exemptions can be found in 26 U.S.C. § 4662(b).
The taxes will be reported on a quarterly basis using IRS Form 6627, Environmental Taxes, which is attached to Form 720, Quarterly Federal Excise Tax Return. The first return, for the calendar quarter ending on Sept. 30, 2022, will be due by Oct. 31, 2022. Along with the quarterly reporting requirements, taxpayers with a quarterly liability greater than $2,500 will be required to make semi-monthly tax deposits. The IRS has provided for transitional relief of the deposit obligations, as explained in IRS Notice 2022-15, to allow companies time to ramp up their procedures for making deposits. This notice relaxes the penalties for failure to make the required deposits in the correct amount, so long as the taxpayer corrects the deposit amount by the time the quarterly report for that quarter is due.
Although the IRS has recently provided some guidance on the reinstated tax, many questions remain unanswered including: (i) the timeline for adoption of tax rates for all taxable substances, (ii) the timeframe within which the IRS will consider the expansion of the taxable substances list to include new substances in response to taxpayer petitions to add substances to the list, and (iii) whether the tax will vary based on the form of the substance (e.g. pellets, flakes, or other potential forms).
If you have questions about the Superfund Excise Tax or your organization’s potential obligations under it, please contact a member of Taft’s Environmental practice group.