In November 2021, President Biden signed the Infrastructure Investment and Jobs Act. The Act reinstated and expanded the Superfund Chemical Excise Taxes under sections 4661 and 4671 of the tax code, which were last in force during the mid-1990s. Effective July 1, 2022, the restored taxes will apply to the manufacture and production of many common chemicals. The taxes will also apply to sellers and users that import many common chemical substances. A list of 42 taxable chemicals and 151 taxable chemical substances (established by Notice 2021-66) is available here.
The rate of tax ranges from $0.48 and $9.47 per ton, depending on the chemical or chemical substance at issue. Affected entities must estimate their liability and make semi-monthly deposits to the IRS. Entities must also report and reconcile their liability by completing quarterly reports on IRS Forms 720 (Quarterly Federal Excise Tax Return) and 6627 (Environmental Taxes) with the first reporting due in Q3 2022.
General exceptions to the taxes include:
· Chemicals manufactured or produced for specific uses and the creation of specific chemical derivations and byproducts (e.g., methane and butane used as fuel; sulfuric acid produced as a byproduct of air pollution control; certain chemicals derived from coal; certain chemicals used in the production of motor fuel; and recycled chromium, cobalt, and nickel).
· Chemicals manufactured or produced for export, both directly and through resale to a purchaser for export.
· Qualifying inventory exchanges of taxable chemicals and sales of intermediate hydrocarbon streams containing mixtures of organic taxable chemicals—both of which require registration with the IRS.
· Chemical substances used as fuel, in the production of fertilizer or in the production of animal feed.
· Chemical substances containing minimal amounts of taxable chemicals (20% or less by weight or value).
Given the expansive list of chemicals and chemical substances subject to the taxes, producers, manufactures and importers must evaluate their operations and determine if they handle any taxable products. If they identify taxable chemicals or chemical substances, they should determine whether an exception applies and what steps they must take to support it. If no exception applies, a process will need to be implemented to identify the quantity of material they create or handle. Doing so will ensure accurate and verifiable tax reporting.
The IRS has recognized the significant compliance challenges entities will face implementing the tax. As such, the IRS issued Notice 2022-15 providing some relief from compliance requirements through Q1 2023.
--Ross P. Keogh practices in Parsons Behle & Latimer’s Missoula, Montana office and focuses his practice on opportunity zones, tax, corporate and real estate transactions, energy, environmental and natural resource matters and estate planning. To discuss this article or other related matters, contact Ross at (406) 317.7241 or by sending an email to rkeogh@parsonsbehle.com.
--Anna Paseman is a summer clerk in Parsons Behle & Latimer’s Salt Lake City, Utah office.
