IRS Issues Guidance for Reinstated Superfund Tax for Key Chemicals and Metals

We reported earlier that the Superfund chemical excise tax from the 1980s had returned, with Congress reinstating it as part of the bipartisan infrastructure law enacted in November of last year. The IRS has finally issued an informal implementation guidance in the form of a fact sheet and FAQs for affected companies on the applicability of the tax, how to determine tax liability and a schedule for compliance with the new requirement.

Industry groups had urged the Internal Revenue Service (IRS) to delay implementation of the reinstated chemical excise taxes by six months, arguing that the IRS had not provided adequate guidance on a range of issues for taxpayers, including creating a process for updating the list of “taxable substances” and detailing their tax rates.

The IRS did not grant industry groups’ request to delay the July 1 deadline. Instead, the agency has issued guidance and has been hiring additional staff to help implement the new tax.

With respect to applicability of the tax, it is important to note that only companies that manufacture, produce, or import certain chemical substances may be responsible for paying Superfund excise taxes on the sale or use of those chemicals.

The law passed by Congress reinstates the two Superfund taxes with several modifications. First, there is the chemical excise tax rate (Section 4661), which covers the sale or use of taxable chemicals “by the manufacturer, producer, or importer thereof.” The rate was doubled from its prior iteration to a range of $0.44 per ton (for potassium hydroxide) up to $9.74 (for covered petrochemicals), depending on how a chemical is sold or used. The first group covers 42 listed taxable chemicals.

Second, the substance excise tax (Section 4671) applies solely to “any taxable substance sold or used” by importers. It now applies to significantly more substances – from 50 initially listed to 151 – as Congress expanded the definition of a “taxable substance.” The list is expected to evolve as the IRS makes additions, creating what tax analysts view as a major compliance burden on importers.

There are several helpful industry guides just out from the tax professional community, including a useful summary here.

The new tax authority is effective as of July 1, 2022, and runs through Dec. 31, 2031, and imposes taxes on the sale or use of chemicals (including key metals) taxed previously under the original Superfund law.

The estimated $1.2 billion in annual revenue over ten years the excise tax is slated to provide overall is expected to boost EPA’s Superfund program, with much of the funds likely to be provided to address a cleanup backlog of so-called “orphan” Superfund sites.

NASF will continue to monitor this issue.  For more information, please contact Jeff Hannapel or Christian Richter with NASF at jhannapel@thepolicygroup.com or crichter@thepolicygroup.com.     

This update is courtesy of the National Association for Surface Finishing (NASF). For more information or to become a member, visit nasf.org.