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Senate-passed infrastructure bill would reinstate superfund excise taxes

August 2021

In brief

The US Senate on August 10 passed, 69-30, a $1 trillion bipartisan infrastructure bill (HR 3684, the ‘‘Infrastructure Investment and Jobs Act”), with $550 billion in new infrastructure spending that would be offset by a combination of tax and non-tax provisions. The offsets include a provision to reinstate the hazardous substance Superfund excise taxes on chemical manufacturing and imports (superfund excise taxes). The Senate-passed bill now goes to the House, where Democratic leaders have indicated that action on the bill may be delayed until and unless the Senate passes a ‘budget reconciliation’ spending and tax bill.

The Comprehensive Environmental Response, Compensation, and Liability Act enacted in 1980 established superfund programs to be administered by the US Environmental Protection Agency (EPA) and funded through excise taxes on petroleum and chemical manufacturers and importers. The EPA used funds collected through these excise taxes to clean up hazardous waste sites as determined under its direction.

Congress decided to let the excise taxes expire at the end of 1995 and to fund the clean-up efforts through general disbursements of other tax revenues.

While various bills to reinstate the superfund excise taxes have been introduced since their lapse approximately 25 years ago, none were enacted.

Action item: Taxpayers should review their operations and the possible financial, compliance, and other impacts (e.g., IT and supply chain) of the potential re-imposition of the superfund chemical excise taxes and be prepared for the proposed July 1, 2022 effective date.

In detail

Excise taxes on chemical manufacturing and imports

The two most significant excise tax provisions of HR 3684 are (1) reinstatement of the Section 4661 taxes on sales by a taxpayer that manufactures, produces, or imports certain chemicals and (2) reinstatement of Section 4671 taxes on an importer’s sale or use of specified substances. 

Section 4661 as reinstated would impose a per-ton tax on the sale of 42 chemicals, ranging from 44 cents per ton on potassium hydroxide to $9.74 per ton on benzene, butane, and other common chemicals found in fuels and industrial products. These proposed rates reflect a doubling of the historical per-ton rates as they existed when the tax was allowed to expire at the end of 1995. Section 4662 would provide certain exceptions to imposition of the tax, including the following non-exhaustive list:

  • Methane, butane and nine other specified substances when used to produce motor, aviation, or diesel fuel;
  • Nitric acid, sulfuric acid, ammonia, or methane used to produce ammonia that is a qualified fertilizer substance; and
  • Substances derived from coal.

The Section 4661 tax also would not be imposed on the sale of taxable chemicals for export, if properly substantiated.

Section 4671 as reinstated would impose taxes on an importer’s sale or use of a list of specified substances. The historical list of taxable substances is provided in section 4672(a)(3); these generally are substances consisting, or partially consisting, of chemicals identified in Section 4661. HR 3684 requires Treasury, by January 1, 2022, to provide an updated list of taxable substances subject to the Section 4671 tax, but the proposed language also states that the substances currently identified in Section 4672(a)(3) would continue to be taxable until otherwise determined by Treasury. 

Observation: Key proposed changes to the Section 4671 taxing regime include:

  • While previously a substance was deemed taxable if a taxable chemical constituted 50% or more of the substance, HR 3654 would reduce that percentage to 20%.
  • The rate of the tax would be the same as imposed above in Section 4661. However, should a taxpayer fail to report or provide data to the IRS to determine the tax in a timely manner, the tax levied would be 10% of the appraised value of the taxable substance at the time of entry -- a 5% increase from the historical calculation.

As currently drafted, the amendments to the superfund excise taxes in HR 3684 would take effect on July 1, 2022.

Unchanged provisions

Prior to 1996, crude oil received at US refineries and petroleum products entered into the United States for consumption, use, and warehousing was subject to tax at both the hazardous substance superfund financing rate (9.7 cents per barrel) and the oil spill liability trust fund financing rate (9 cents per barrel since January 1, 2017). After the hazardous substance superfund provision lapsed, a barrel of crude oil/petroleum product became solely subject to the oil spill rate. The current version of the proposed infrastructure bill does not reinstate the Section 4611 hazardous substance superfund financing rate of 9.7 cents per barrel.

The proposed legislation also makes no changes to another federal environmental excise tax, Section 4681, which imposes a tax on ozone depleting chemicals (ODCs) sold or used by the manufacturer, producer, or importer and any imported taxable products that had ODCs used in their manufacture.

Form 637 registrations

Prior to 1996, taxpayers that were involved in inventory exchanges of taxable chemicals and taxpayers involved in the buying and selling of mixed organic hydrocarbon chemical streams were required to register using Form 637, Application for Registration (For Certain Excise Tax Activities), activity letter G. Based on the current proposed legislation, these registration requirements would be reinstated.

Observation: Completing the Form 637 registration can be a timely process. If this requirement is reinstated, affected taxpayers should monitor for the revised Form 637 and consider seeking a registration as soon as possible.

The takeaway

Most taxpayers’ businesses have changed dramatically over the last 25 years, including the likely loss of institutional knowledge of the superfund excise taxes. Taxpayers should review their businesses to determine which operations could be subject to reinstated superfund excise taxes. This review would take into account the potential impact of the new tax regime on their product costing and invoicing, IT infrastructure to support tax determination and reporting, tax and finance departments’ workload and responsibilities, and vendor and customer communications.

Taxpayers also should consider how historical litigation and IRS rulings might be interpreted for today’s business environment and their potential impact. Lastly, with potentially a short time frame until these taxing regimes come back into effect (as proposed, less than a year), now is the time for affected companies to act and prepare accordingly.

Contact us

Andrew Nunes

Andrew Nunes

Partner, Indirect Tax, PwC US

Ruth Perez Kim

Ruth Perez Kim

Partner, Tax Controversy and Regulatory Services, PwC US

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