A Superfund excise tax on chemicals is in effect

A federal Superfund tax on chemicals went into effect July 1, 2022, replacing previous taxes that were on the books from 1980 through 1995.

The two major considerations when determining the reinstated Superfund excise taxes are the following:

• A tax is imposed on the sale or use of one of 42 taxable chemicals, with the tax to be paid by the manufacturer, producer, or importer of that chemical.

• A tax is imposed on the sale or use of over 100 taxable substances, with the tax to be paid by the importer. A taxable substance is defined as a product that contains at least 20% or more of taxable chemicals by weight or appraised value.

Though they replaced an expired Superfund tax measure, the new provisions and rates have changed since the original Superfund chemical excise taxes ended 28 years ago.

The new law is expected to generate about $14.4 billion for the fund before it expires on December 31, 2031. The Superfund tax revenue will go toward cleaning up the backlog of hazardous waste sites that are on a federal list, of which 1,300 are considered national priorities.

For more about what the new Superfund chemical excise tax law entails, we take a look at:

• How the law defines both taxable chemicals and taxable substances

• Exceptions and exemptions to the new Superfund tax on chemicals

• Ways to comply with the new Superfund excise taxes

The latest round of Superfund chemical excise taxes were included in the Infrastructure Investment and Jobs Act approved by Congress and signed into law by President Biden on November 15, 2021.

The Superfund tax law says, essentially, that there are 42 taxable chemicals and over 100 taxable substances. Under the old Superfund chemical excise tax law, taxable chemicals had to make up at least 50% of the weight or value to be designated as a taxable substance.

Tax rates on chemicals and substances can vary widely.

Taxes on chemicals range from $.44 per short ton on potassium hydroxide to $9.74 per short ton on benzene, butane, butylene, toluene, xylene, ethylene, propylene, and butadiene.

Rates on taxable substances range from $1.49 per ton on ammonium nitrate to $23.65 per ton on methyl isobutyl ketone. More taxable substances may be added to this list in the future; the excise tax law also contains a provision for the industry to petition to have taxable substances removed.

Looking at the list, you can see why the industry wasn’t excited about the new excise taxes. These are very commonly used chemicals and substances. 

In fact, you’ve probably got a half-dozen items on your desk right now that have benzene or propylene in them, your gym shoes likely have butadiene in the soles, and the fruit you ate with breakfast was probably ripened using ethylene.  

Adding Superfund tax rates on items used in so many things will certainly result in some level of increase in business costs and consumer prices.

There are a number of significant exceptions to the new Superfund chemical taxes.

For instance, there are exceptions on otherwise taxable chemicals used to create other products, like substances used in the production of motor fuel, animal feed, and fertilizer. Also exempted from the Superfund tax are:

• Methane or butane used as fuel

• Sulfuric acid produced as a byproduct of air pollution control

• Recycled chromium, cobalt, and nickel

• Chemicals that have a transitory presence during the refining process

Note: This list is not exhaustive.

For taxable substances, there also may be refunds and credits available for those used to manufacture another taxable substance, substances used to make fertilizer or fuel, or substances used in the production of animal feed.

Exporters of taxable chemicals and taxable substances sold overseas can file refund claims of any Superfund excise taxes they paid on those items.

The law specifies that companies have to be registered to collect and remit the Superfund chemical taxes before they can take advantage of any refund claims to the excise tax imposed.

Don’t assume that just because your company didn’t have to pay the expired Superfund chemical taxes, it won’t need to pay an excise tax under the Infrastructure Investment and Jobs Act. If you haven't already, take a deep dive into your operations to see what taxable chemicals and taxable substances you’re using and what you’re using them for.

You should also look into your supplier contracts to see if they specify who’s responsible for covering these kinds of Superfund chemical excise taxes.

Automation can also help you comply with Superfund chemical excise taxes. As written, these excise tax laws are going to be around for nearly a decade, and you’re not going to want your excise tax compliance team manually calculating your obligations and authorizing electronic fund transfers every two weeks until the current Superfund tax law expires in 2031.

The good news is that finally, after more than a quarter century, the Infrastructure Investment and Jobs Act has identified a funding source to pay for Superfund cleanups of hazardous substances. This will reduce the number of hazardous waste sites around the country, which should improve the health and safety of the people living near them. It also will create new brownfield sites for redevelopment.

The bad news is that the environmental excise taxes imposed are falling squarely on one industry, and the proposed regulations affect manufacturers and importers of certain chemicals and substances more harshly. It will likely increase supply chain costs and create compliance challenges for companies subject to the Superfund chemical excise taxes.

This post has been updated; it was originally published in August 2022.