The Infrastructure Investment and Jobs Act (“Infrastructure Act”), signed by President Biden on November 15, 2021, 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 are subject to an excise tax on a list of specified chemicals, or certain chemical substances made from them, the proceeds of which will be directed to the Superfund Trust Fund.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA” or “Superfund”) established a Hazardous Substance Response Trust Fund (“Superfund Trust Fund”) to finance cleanups in certain circumstances, such as when responsible parties cannot be identified. Three dedicated types of taxes—on selected chemicals, on petroleum and on corporate income—provided most of the Superfund’s original revenue, but the three taxes all expired on December 31, 1995.
With the stated intention of replenishing the Superfund and disincentivizing fossil fuel and chemical production, the Infrastructure Act has now reinstated one of the three formerly applicable taxes: the excise tax on the sale or use of “taxable chemicals” and on an importer’s sale or use of “taxable substances.”
The Infrastructure Act amends Sections 4661 and 4662 of the Internal Revenue Code, with effect from and after July 1, 2022 through December 31, 2031, to apply an excise tax to the sale or use by the manufacturer, producer or importer of 42 specified “taxable chemicals.” The tax rate varies depending upon the particular chemical, but all the rates are double the rates 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.
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. There is also an exception for organic chemicals while part of an intermediate hydrocarbon stream; the sale of the intermediate hydrocarbon stream will be excepted if the seller has complied with applicable registration requirements. Exported chemicals are also not subject to the tax.
The Infrastructure Act also amends Sections 4671 and 4672, with the same effective date, 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. The applicable rates are the same as the rates described above for taxable chemicals, based on the type and amount of taxable chemicals used in production of the substance. The tax on substances is subject to exceptions similar to those for taxable chemicals to be used as fuels or in the production of fertilizer or animal feed.
As directed by the Infrastructure Act, the Internal Revenue Service (“IRS”), in Notice 2021-66, 2021-52 IRB 901, has published an initial list of taxable substances, which list includes chemical substances that the U.S. Department of the Treasury (“Treasury Department”) has determined are constituted more than 20% by weight or value of the 42 taxable chemicals described above, as well the 50 specific chemical substances set forth in section 4672(a)(3).
Notice 2021-66 (the “Notice”) also acknowledges that, in its prior iteration, there was a process by which importers or exporters could petition to request a determination that the list of taxable substances be modified by adding or removing a substance. The Notice states that the Treasury Department and the IRS intend to update that procedure to reflect the changes made by the Infrastructure Act. The Notice also explains how manufacturers may register for the exception for sales of intermediate hydrocarbon streams containing taxable chemicals.
The Infrastructure Act reinstated 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 environmental tax on all C corporations, were not included in the Infrastructure Act. Reinstatement of the excise tax on crude oil was part of the version of the Build Back Better Act that passed the House of Representatives in November 2021, but it was not included in the subsequent Senate Finance version of that legislation. At this writing, the fate of the Build Back Better Act is uncertain.
Visit 2021 – Traditional Energy Rebounds and Increased Energy Transition, for the complete list of individual, detailed articles associated with this publication.
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