The Infrastructure Investment and Jobs Act, signed in late 2021, restores Superfund chemical excise taxes under Internal Revenue Code Sections 4661 and 4671. These taxes were in place until 1995 to fund the Federal Hazardous Substance Superfund, but expired in 1995. The reinstated taxes will apply to certain chemicals and chemical-containing substances from July 1, 2022 through December 31, 2031.
Superfund tax history and implications for ongoing cleanups at Superfund sites
The Superfund excise tax of the 1980s and 1990s was one of three specific taxes that the United States Environmental Protection Agency (US EPA) used to fund the cleanup of Superfund sites or contribute money to sites multiparty where there were “orphan actions”. Since these fees expired, the US EPA now has a backlog of Superfund sites awaiting funding. New Superfund funding will be used to fill this backlog; the agency also said it would use the funds in accordance with President Biden’s directive to advance environmental justice and focus on historically underserved communities. Restoring the tax could also mean that the US EPA could have more funds available to deal with “orphan actions” in the cleanup rather than looking to the remaining creditworthy parties for the full costs.
Chemicals and activities covered by the reinstated tax
The reinstated Superfund tax applies to companies that manufacture, produce or import certain chemicals, as it imposes a tax on the sale of certain chemicals, including mercury, benzene, methane and a number of other chemicals commonly used in manufacturing. Under the law, taxable substances include (i) the 50 substances specifically listed in section 4672(a)(3), (ii) substances that exceed the 20% weight or value threshold that the Internal Revenue Service (IRS) adds to the list of taxable substances, and (iii) other substances added or removed from the list of IRS taxable substances at the request of an importer or exporter. In 2021, the IRS published an initial list of taxable substances in Notice 2021-66, available here. Depending on the particular chemical, any manufacturer, producer, or importer who sells or uses the chemical must pay a tax per ton of $0.48 to $9.47 for the first sale or use of the chemical after importation or manufacturing. Although the tax is specifically imposed on the importer, the law does not prohibit importers from passing the cost on to customers, either as a gross addition to the price or as a separate line.
There are exceptions and tax exemptions that may apply if certain eligibility criteria are also met; however, the exceptions and exemptions apply primarily to chemicals sold for export, and the tax also applies to the sale or use by an importer of any substance taxable under Code Section 4671 tax.
Reporting requirements and other industry implications
Businesses will be required to report Superfund excise tax quarterly using IRS Form 720, Quarterly Federal Excise Taxand IRS Form 6627, Environmental taxes. Semi-monthly tax filings will also be required for taxpayers with quarterly liabilities greater than $2,500. Businesses will be required to conduct a full review of the chemicals they manufacture or import for use or sale, as well as the chemical constituents of all products they manufacture or import to determine if and how the Superfund excise tax s ‘applied. If the Superfund excise tax applies, businesses will need to develop an internal process to identify, report and pay the tax in order to meet the reinstated requirements.
It is important for companies to carry out a detailed review of the chemicals they manufacture or import for sale or use, to determine whether they are subject to Superfund excise duties and to prepare for reporting requirements and of payment.