Superfund Excise Taxes Reinstated July 1, 2022

The Infrastructure Investment and Jobs Act (IIJA), enacted into law on November 15, 2021, reinstated and modified two Superfund excise taxes, effective July 1, 2022. The first is the tax on chemicals under section 4661 and the second is the tax on imported substances under section 4671. These excise taxes were initially introduced in 1980 and expired in 1995.

The Superfund is the Hazardous Substance Response Trust Fund that was created by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). The Superfund was financed through excise taxes, like those imposed on certain crude oil and petroleum products and on domestically produced and imported petrochemicals and inorganic chemicals.

The IIJA not only reinstated the excise taxes, but also doubled the prior rate of tax on 42 listed chemicals and lowered the threshold at which the taxes would apply. See Exhibit A for the 42 chemicals and tax rates. For example, under prior law, tax would be imposed on certain chemical substances that were composed of at least 50% of the chemicals listed in section 4662. The IIJA lowered this threshold to 20%. This means the tax rates will be higher and apply to more substances than they did in the past. These new excise taxes are set to expire 8½ years after they kick in (i.e., on December 31, 2031), and they are expected to generate about $14 billion of revenue.

At the direction of Congress, the IRS published in December 2021 a list of additional taxable substances in Notice 2021-66. The Notice identifies an additional 101 taxable substances that are subject to the excise tax and requires reporting on Form 6627, relating to Environmental Taxes, which is attached to Form 720, the quarterly Federal excise tax return. See Exhibit B for a list of these substances. Taxpayers subject to these taxes must deposit the amounts due on a semi-monthly basis beginning July 1, 2022.

The new excise taxes are imposed on manufacturers or importers of the listed chemicals, and the tax becomes due upon the first sale or use in the United States. Taxpayers also may request a written determination from the IRS on whether a product they import or export qualifies as a substance taxable under these rules, if it consists of at least 20% of the listed taxable chemicals in section 4661. The IRS is expected to issue guidance shortly on the procedures to make these requests.

The new excise taxes impose recordkeeping and compliance obligations on manufacturers and importers. Affected taxpayers must develop systems to identify whether the tax applies to them, and to collect and remit tax to the IRS. These obligations create operational challenges that will require companies to engage with their IT departments to prepare for the new reporting requirements. These taxes are complicated, and the tax structure is complex, with many different rates of tax. Tracking data through the supply chain will pose challenges for affected taxpayers.