What Are Superfund Chemical Excise Taxes?
An overview of the reinstated Superfund chemical taxes, clarifying the financial and procedural responsibilities for manufacturers, producers, and importers.
A set of federal excise taxes, commonly known as the Superfund chemical taxes, are imposed on the sale and use of specific chemicals and substances. The primary purpose of this tax is to generate revenue for the Hazardous Substance Superfund Trust Fund. This fund is utilized for the cleanup of sites contaminated with hazardous waste, particularly when the responsible parties cannot be identified or are unable to pay for the remediation.
These environmental taxes were initially established in 1980 but expired at the end of 1995. The Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, reinstated these taxes effective July 1, 2022. The reinstated law doubled the previous rates, modified certain provisions, and extended the tax through December 31, 2031.
Identifying Taxable Chemicals and Substances
The foundation of the Superfund tax lies in identifying which materials are subject to the levy. The law, specifically Internal Revenue Code Section 4661, explicitly lists 42 chemicals that are taxed when sold or used by a manufacturer, producer, or importer. These are referred to as “taxable chemicals.” This list includes a range of inorganic and organic chemicals, such as chlorine, ammonia, benzene, and ethylene.
The tax also extends beyond this initial list to what are known as “taxable substances” under Internal Revenue Code Section 4672. A substance qualifies as taxable if it is created using one or more of the 42 taxable chemicals and if those chemicals constitute more than 20% of the weight or value of the materials used in its production. This 20% threshold is a change from the pre-1996 law, which set the bar at 50%, thereby expanding the range of imported products subject to the tax.
The IRS maintains an official list of these taxable substances, which initially included 50 substances outlined in the statute and was later expanded by IRS Notice 2021-66, adding over 100 more. A manufacturer or importer can petition the IRS to add a substance to the list if they believe it meets the 20% threshold. According to Revenue Procedure 2022-26, the IRS has a 180-day window to make a determination after a request is filed.
Determining Tax Liability and Rates
The responsibility for paying the Superfund chemical excise tax falls on the manufacturer, producer, or importer of a taxable chemical. The tax is triggered upon the first sale or use of the chemical within the United States. This means the entity that creates the chemical domestically or brings it into the country for consumption, use, or warehousing is the one liable for the tax payment.
The tax rates for the 42 chemicals are specified per ton, which the regulations define as 2,000 pounds. These rates were doubled with the 2022 reinstatement and now range from $0.44 per ton for potassium hydroxide to $9.74 per ton for several petrochemicals like acetylene, benzene, and ethylene. For example, ammonia is taxed at $5.28 per ton, chlorine at $5.40 per ton, and chromium at $8.90 per ton.
For imported taxable substances, the tax calculation is more complex. The primary method is to apply the tax rate of the constituent taxable chemicals used in its manufacture. The importer must provide sufficient information to the IRS to determine the amount of each taxable chemical used to produce the substance. If an importer cannot furnish this detailed information, an alternative method is available: a tax of 10% of the appraised value of the substance at the time of its entry into the U.S.
Key Exemptions and Special Rules
The tax code provides several specific exemptions that relieve certain chemicals from the Superfund tax, even if they are on the taxable list. These exemptions are targeted to avoid taxing chemicals used in essential industries or in ways that do not contribute to the environmental problems the fund addresses. Exemptions include:
- Methane or butane used to produce fuel.
- Nitric acid, sulfuric acid, ammonia, or methane used to produce fertilizers or animal feed.
- Sulfuric acid produced as a byproduct of air pollution control measures.
- Chemicals derived from coal.
- Chemicals that are ultimately exported.
A special rule allows for a credit or refund for taxes paid on a chemical that is later used to manufacture another taxable substance. This prevents a form of double taxation.
Procedural Requirements for Filing and Payment
The primary forms for this process are Form 6627, Environmental Taxes, and Form 720, Quarterly Federal Excise Tax Return. Taxpayers use Form 6627 as a worksheet to calculate their tax liability for the various taxable chemicals and substances. The total tax computed on Form 6627 is then reported on Form 720, which is filed quarterly.
Before engaging in certain tax-free transactions, such as inventory exchanges of taxable chemicals, taxpayers are required to register with the IRS. This is done by filing Form 637, Application for Registration (For Certain Excise Tax Activities), and receiving a letter of registration from the IRS.
The payment schedule for the Superfund tax is more frequent than the filing schedule. Taxpayers must make semi-monthly deposits of the tax they owe. A semi-monthly period is defined as the first 15 days of a calendar month or the period from the 16th to the end of the month. These deposits are made through the Electronic Federal Tax Payment System (EFTPS). The quarterly due dates for filing Form 720 are April 30, July 31, October 31, and January 31.