Are You Current on Superfund Excise Taxes?

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If you’re a manufacturer or importer of chemicals and unfamiliar with Superfund excise taxes, which have recently been reinstated, this interview will give you peace of mind. It’s a discussion of the past, present, and future of Superfund excise taxes with Senay Redda, vice president of business development for indirect tax at Thomson Reuters. Michael Levin-Epstein, Tax Executive’s senior editor, conducted the interview in May.

Michael Levin-Epstein: How would you define Superfund excise taxes, and how do they impact corporations?

Senay Redda: A Superfund excise tax is a sales or use tax on specific goods or services like a tax on fuel. In this case, it is a tax on a specific set of chemicals and substances, and the fund collected through those taxes is used to create what is called a “Superfund.” The purpose of that Superfund is to clean up hazardous waste composed of those chemicals and substances.

Levin-Epstein: Could you talk about the history of excise taxes as they pertain to the Superfund?

Redda: In 1980 this tax was initially enacted as part of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), which established the Superfund program, administered by the [Environmental Protection Agency], to investigate and clean up sites contaminated with hazardous substances. In 1995 the excise taxes expired, so from a tax perspective nothing happened in the last twenty-six years. Fast forward to 2021: the Infrastructure Investment Act passed by the Biden administration in November 2021, when these taxes were reinstated, and the tax rate per tonnage, which varies by chemical, doubled their prior rates.

Levin-Epstein: How would you advise companies to take the appropriate action once they know what the actual rates are today?

Redda: The list of chemicals and amended tax rates are published in Internal Revenue Code Section 4661, and in December 2021 the Internal Revenue Service published Notice 2021-66, which includes an initial list of substances. But the IRS will continue to provide guidance on any changes. Substances are defined as any substance composed of twenty percent (more than twenty percent of the weight or value) of the constituent chemicals. So, companies have a pretty formidable task ahead, given [that] it has been a generation since they last dealt with these taxes, and it’s not just the taxes that they have to manage. They have to understand how to identify and track these forty-two chemicals and over 100 substances to understand their tax liability and then establish reporting mechanisms and how to automate that. That said, job one for these companies is to understand their obligations, and there’s a number of organizations including advisory firms helping them understand what this legislation means and its financial impact. They then need to understand their tax liability and if they can pass on any of that to others in the supply chain. This is all moving very quickly. These new taxes were introduced at the end of last year, well past the point where most preliminary budgets would have been set. So companies are quickly working through the financial impact, and they have a tough task ahead quickly establishing an implementation strategy. How do they go about identifying these chemicals and substances? Where is this data maintained? Who are they going to hire to help them gather that information? Which service providers/advisors or products can help them automate their tax calculation and compliance to the IRS? Companies used to filing excise tax returns will have familiarity with the process, but for many Superfund excise taxes will be their first foray, and they will need to complete and submit Form 720, the excise tax return, and attach to it Form 6627, which reports the chemicals and substances.

Approaching Deadlines

Levin-Epstein: So, they really have to gear up fairly quickly to meet those deadlines, which are coming right up in a couple of months, right?

Redda: Extremely quickly. Within seven months or so of the legislation passing, the regulations kick in—July 1, 2022.

Levin-Epstein: Is it your sense that TEI members might have to find additional staff to deal with this situation?

Redda: I think some may have to. The largest chemical manufacturers are probably looking at significant new costs and processes. But I’m sure it runs the gamut. There are some companies that could probably use their existing staff, but semimonthly reporting and deposits to the government will become cumbersome if companies decide to do this manually. Technology could be a big help here, but they are all coming up to speed with that.

Levin-Epstein: You’ve done a terrific job of explaining the excise taxes, how they’ve changed since 1995, and how our members are going to have to gear up to comply with it. I’m wondering whether or not this has broader implications for our tax members in the long term. Do you have any thoughts about that?

Redda: Some of this is just the broad reading of what’s happening, but this is a reintroduction of taxes whose purpose is to help clean up waste and regulate those chemicals. This is happening at a time where there’s a lot of heightened sensitivity to our environment, so it’s not unforeseeable to see a broadening of this type of legislation. You can imagine there could be legislation about the waste that’s produced in packaging, and an example of this is a newly introduced bill in New York State, the Extended Producer Responsibility Bill (Bill A10185), which adds significant responsibility to packaging manufacturers for the recycling and reuse of their products. It is very possible to see this trend extend into many other areas.

Levin-Epstein: Thank you.

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