Superfund Excise Tax – What You Need to Know

The Superfund Tax that was established over two decades ago and taxed specific chemicals and hazardous substances has been restored after the passing of the Infrastructure Investment and Jobs Act last year.

Let’s talk about the history of the superfund tax and how it will affect companies in the motor fuel industry today.

What is the superfund tax?

The Superfund Chemical Excise Tax was created in 1980 through the Comprehensive Environment Response, Compensation, and Liability Act. The money gathered from the taxes was used to fund the clean-up of hazardous waste disposal sites across the United States.

The excise tax collection expired in 1995 but resumed on July 1, 2022.

What’s taxed & who does it affect?

It’s important to note that the tax only applies to imported chemicals and hazardous substances. Exporters will not be taxed. Companies might receive a refund of the tax paid if they export products made with specific chemicals and substances if they paid before manufacturing.

The full list of taxed chemicals and substances can be viewed here.

Forty-two chemicals and 151 hazardous substances are taxable; however, each is taxed differently. The manufacturer or importer pays the excise tax for chemicals, which is due on the first use or sale in the United States. The importer of hazardous substances pays the tax, and it is due on the first sale or use after import.

The IRS noted that the full list of taxable chemicals and substances could change over time.

According to the IRS, the tax rates for chemicals and substances depend on several factors. Chemicals will be taxed based on how they’re sold, used, or stored and can range from $0.44 to $9.74 and will be charged on a per-ton basis.

The tax on substances depends on their chemical composition and if it has 20% or more of a chemical on the taxable list.

Inflation Reduction Act impact

The Inflation Reduction Act added excise tax on domestic crude oil and imported petroleum products starting on January 1, 2023. The hazardous substance tax will be imposed at a rate of 16.4 cents per barrel and will be adjusted for inflation on January 1 of each year until it expires on December 31, 2032.

Funds collected will be added to the Hazardous Substance Superfund Trust.

Possible exemptions from superfund tax

Some exported chemicals and hazardous substances used in different types of fertilizer, animal feed, and fuel are exempt from the superfund tax. For example, butane and methane are exempt if used in fuel but not if they are used for other purposes.

Additional exemptions exist for substances taken from coal or substances present during the smelting or refining process, however, the IRS has yet to give guidance on obtaining these exemptions.

As we mentioned above, this tax is only for companies importing chemicals or hazardous substances on the list and filing an IRS Form 720.

Payments for superfund tax

The taxes are reported quarterly on the IRS Form 720, which is part of the Quarterly Federal Excise Tax Return. Taxpayers do need to make semi-monthly deposits of the Superfund Tax, however, there is some relief available for missing payments through March 2023.

The Superfund Chemical Excise Tax is set to expire in 2031 and is expected to bring in an estimated $14 billion that will go to assisting the clean-up of hazardous waste disposal sites.

This analysis is intended for informational purposes only and is not tax advice.  For tax advice, consult your tax adviser. See the full disclaimer here.