New Superfund taxes on chemicals are now in effect

New federal excise taxes on chemicals went into effect on July 1, 2022.

There are two major considerations when preparing for these Superfund taxes:

• Primarily, a tax 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.
• Secondly, a tax on the sale or use of over 100 taxable substances, with the tax to be paid by the importer of that substance. A taxable substance is defined as a product that contains at least 20% or more by weight or value of one of the major 42 taxable chemicals.

These taxes replace previous taxes in effect from 1980 through 1995.

But while they’re replacing expired taxes, the provisions of the new taxes and the tax rates have changed since the original Superfund taxes expired 27 years ago.

The new law is expected to generate about $14.5 billion for the fund before it expires (again) on December 31, 2031. The money will go toward cleaning up the backlog of some 44,000 hazardous waste sites that are on the federal Superfund list, of which 1,300 are considered national priorities.

Here’s an overview of what the new law entails.

The new taxes were included in the Infrastructure Investment and Jobs Act approved by Congress in 2021, and signed into law by President Biden on November 15.

The law says, essentially, that there are 42 taxable chemicals and over 100 taxable substances, which have taxable chemicals making up at least 20% of the weight or value of them. Under the old Superfund law, taxable chemicals had to make up at least 50% for a substance to be taxed.

Tax rates on the 42 chemicals range from 44 cents per short ton on potassium hydroxide to $9.74 per short ton on benzene, butane, butylene, toluene, xylene, ethylene, propylene, and butadiene.

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

Looking at the list, you can see why the industry was not excited about the new 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 probably have butadiene in the soles, and the fruit you ate with breakfast probably was ripened using ethylene.  

Adding a tax on items used in so many things will certainly result in some level of increase in business costs and consumer prices, which won’t make the task of controlling inflation any easier.

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

For taxable chemicals, there are exceptions that relate to chemicals that are used to create other products: substances used in the production of motor fuel, animal feed, and fertilizer, for example. Also exempted are chemicals like the following:

• 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

This list is not exhaustive.

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

Exporters of chemicals and substances sold overseas can request a refund of any Superfund taxes they paid on those items.

The law specifies that companies have to be registered to collect and remit the excise taxes before they can take advantage of any exceptions.

Don’t assume that just because your company didn’t have to pay the first Superfund taxes almost three decades ago that it won’t need to pay them today. If you haven’t already, you’ll need to take a deep dive into your operations to see what taxable chemicals and substances you’re using and what you’re using them for.

You also should look into your supplier contracts to see if they specify who is responsible for covering these kinds of taxes.

Act quickly. The first filing deadline is October 31, and the law requires companies with net tax liabilities of more than $2,500 per quarter to start making deposits in July.

Finally, automate. As written, these taxes are going to be around for nearly a decade, and you’re not going to want your tax compliance team calculating your obligation and authorizing electronic fund transfers every two weeks for the next nine-and-a-half years.

The good news is that finally, after more than a quarter century, Congress has identified a funding source to pay for Superfund cleanups. 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 taxes funding this progress are falling squarely on one industry, increasing its costs and creating a new excise tax compliance challenge.

We’ve hosted a webinar on managing the new federal excise taxes for the Superfund. It’s available on demand.