The newly enacted Infrastructure Investment and Jobs Act (“Infrastructure Act”) has revived and doubled the long-expired “Superfund” excise taxes on selected chemicals. Under the Infrastructure Act, beginning July 1, 2022, manufacturers, producers and importers will be responsible for an excise tax on a universe of 42 chemicals, or on substances made from them, which will be directed to the Hazardous Substance Superfund Trust Fund. Given that the tax expired in 1996, involving legal counsel early can help companies assess the applicability of the renewed tax to their various product lines and various tax exemptions, and develop related planning strategies.
Superfund Taxes and the Superfund Trust Fund: Background
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA,” or “Superfund”) was enacted in 1980 to address cleanup of contaminated sites. CERCLA contains broad liability provisions and generally requires that companies associated with contaminated sites pay for cleanup costs. CERCLA also established a Superfund Trust Fund to finance cleanups in certain circumstances, such as when responsible parties cannot be identified. Three dedicated types of taxes – on petroleum, selected chemicals and corporate income -- provided most of the Superfund Trust Fund’s original revenue, but the taxes all expired in 1996.
As discussed below, the Infrastructure Act has reinstated through December 31, 2031, one of the three formerly applicable types of taxes: the excise taxes on the sale or use of “taxable chemicals” and on an importer’s sale or use of “taxable substances.” According to the Biden Administration’s Made in America Tax Plan released earlier this year, restoration of the tax would: help replenish the Superfund Trust Fund and hasten its cleanups; penalize fossil fuel and chemical production through tax disincentives; and improve the health of communities overburdened by pollution.
Tax on Sale or Use of “Taxable Chemicals”
The Infrastructure Act amends Sections 4661 and 4662 of the tax code to apply an excise tax to the sale or use by the manufacturer, producer or importer of 42 specified “taxable chemicals.” Effective July 1, 2022, the tax rate varies depending upon the particular chemical and is double the rate that applied before 1996. The highest rate ($9.74 per ton) applies to certain petrochemicals: acetylene, benzene, butane, butylene, butadiene, ethylene, naphthalene, propylene, toluene and xylene. A rate of $6.88 per ton applies to methane. A complete list of the chemicals and the applicable rate for each chemical can be found here.
There are several exceptions to the imposition of the tax, including for certain chemicals to be used as a fuel or in the production of fuel, fertilizer or animal feed. Exported chemicals are also not subject to the tax.
Tax on Importers of "Taxable Substances”
The Infrastructure Act also amends Sections 4671 and 4672 of the tax code to reinstate the excise tax on the sale or use by an importer of certain “taxable substances” that were produced from the 42 “taxable chemicals” described above. Effective July 1, 2022, an importer’s sale or use of taxable substances is subject to an excise tax at the same rates described above for taxable chemicals, based on the type and amount of taxable chemicals used in its production. “Taxable substances” are identified by the Treasury Department, and the Infrastructure Act directs Treasury to publish an initial list of taxable substances no later than January 1, 2022. The list is to include:
- Any chemical as to which Treasury determines, in consultation with the Environmental Protection Agency, that the 42 “taxable chemicals” described above constitute more than 20% of its weight or value;
- Fifty specific chemicals set forth in section 4672(a)(3), except to the extent Treasury determines a particular chemical does not satisfy the 20% of weight or value test above; and
- Any chemical that Treasury treated as taxable under the pre-1996 version of the tax (which applied a 50% of weight or value test), except as otherwise determined by Treasury.
The tax is subject to exceptions similar to those for taxable chemicals to be used as fuels or in the production of fertilizer or animal feed.
Crude Oil Excise Tax in Version of Build Back Better Act Passed by House
The Infrastructure Act reinstates only the tax on select chemicals and substances - one of the three long-expired taxes designed to support the Superfund. The other two taxes, an excise tax on crude oil and an environment tax on all C corporations were not included in the Infrastructure Act. However, reinstatement of the excise tax on crude oil is part of the Build Back Better Act (“Build Back Better”) that recently passed the House of Representatives and is under Senate consideration. Under Build Back Better, refiners, importers, users and exporters of crude oil would be subject to an excise tax of 16.4 cents per barrel (increased from the pre-1996 rate of 9.7 cents per barrel) in the same manner as the current 9.0 cent Oil Spill Liability Trust Fund tax. If enacted, the provision would have an effective date of July 1, 2022.
Whether Build Back Better will be passed by the Senate, and whether it will reinstate the crude oil Superfund Tax remain to be seen. The third original Superfund tax – the corporate environmental tax – was included in neither the Infrastructure Act nor Build Back Better.
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