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Reinstated Superfund Excise Tax Imposed on Certain Chemical Substances

Categories: Distribution & Supply Chain, Government Affairs

Manufacturers and distributors of cleaning products may soon see surcharges related to the Superfund Excise Tax on invoices in the not-too-distant future.

On November 15, 2021, U.S. President Joe Biden signed into law the Infrastructure Investment and Jobs Act (IIJA), which among other things reinstated the Superfund Excise Taxes on certain chemicals and taxable substances effective July 1, 2022. In addition to the reinstatement of the taxes, the IIJA doubled the prior rate of tax on the 42 listed chemicals. This change effectively doubled the tax rate of the imported taxable substances as well, and the IIJA further increased the alternative method of calculation of the taxable substances to 10% the value of import. Congress directed the U.S. Internal Revenue Service (IRS) to publish a list of additional taxable substances by January 1, 2022, which was published by the IRS via IRS Notice 2021-66.

In addition to increasing the tax rate, the IIJA lowered the threshold as to what is considered a taxable substance for importers or exporters who wish to request a determination from the IRS. Prior to the expiration of the Superfund Excise Taxes, a chemical substance that was composed of at least 50% of chemicals listed in Internal Revenue Code (IRC) section 4662 could be found to be a taxable substance. The IIJA lowered this threshold to 20%. Therefore, a chemical substance could qualify as a taxable substance if taxable chemicals listed in IRC section 4662 constitute “more than 20% of the weight (or more than 20% of the value) of the materials used to produce such substance.”

The Superfund Excise Taxes are currently set to expire on December 31, 2031.

Taxable Chemicals. IRC section 4661(b) lists 42 chemicals that are once again subject to the Superfund Excise Tax effective July 1, 2022. Each chemical has a specified rate of tax, imposed on a per-ton basis, which has now been doubled. The Superfund Excise Tax is imposed on the manufacturer or importer of the listed chemicals, and the tax becomes due upon the first use or sale in the United States.

Taxable Substances. The IIJA also reinstated the Superfund Excise Tax on the import for sale or use of any taxable substance under Section 4671 of the Tax Code. Taxable substances are defined in Section 4672 as any substance that, at the time of sale or use by the importer, is listed as a taxable substance. Specifically, taxable substances include the 50 substances on the initial list of taxable substances in Section 4672(a)(3) and 101 taxable substances added by the IRS in December 2021, through IRS Notice 2021-66. These substances consist generally or partially of chemicals listed in Section 4661. Taxable substances include substances where taxable chemicals constitute more than 20% of the weight (or more than 20% of the value) of the materials used to produce such substance (as determined based on the predominant method of production).

The tax is imposed on the importer of the taxable substances and becomes due upon the first sale or use after import. The tax rate for taxable substances is dependent on the individual chemical composition of the substance. For example, if a chemical mixture is composed of 50% benzene (a listed taxable chemical), then the rate for the chemical mixture would be US$9.74 x 50%, or $4.87. Alternatively, a taxpayer may base the rate for taxable substances on 10% of the value of the import.

Consult with your tax professional regarding how the reinstatement of the Superfund Excise Tax may impact your operations.

About the Author.

ISSA Director of Legislative Affairs Bill Balek has more than 25 years of experience working with various legislative and regulatory organizations that create rules that have a direct impact on the cleaning products industry, including antimicrobial pesticide registration, hazardous material transportation, safety and health regulations, and general environmental laws.