The IRS issued FAQs regarding the Superfund chemical excise tax (FS-2022-31) and tax rates (IR-2022-132) today to help those taxpayers who may be impacted by the Superfund excise taxes. The taxes are set to be reinstated beginning on July 1, 2022. There are two separate Superfund chemical excise taxes: a tax imposed on the sale or use by the manufacturer or importer of “taxable chemicals” listed in section 4661, and a tax on the sale or use by the importer of “taxable substances” listed in section 4672 and IRS Notice 2021-66.
The new FAQs include an explanation of the Superfund taxes, how the tax is computed and who may be liable for the tax. It also details that the Superfund chemical taxes will be reported on Form 720 (Quarterly Federal Excise Tax Return), with an accompanying Form 6627(Environmental Taxes.) The first return, for the calendar quarter ending on Sept. 30, 2022, is due by Oct. 31, 2022.
With respect to the imported substance tax, the FAQs restated that a substance must be listed by the IRS to be taxable. An importer or exporter of a substance (or other interested person) can petition the Secretary to add a substance to or remove a substance from the list of taxable substances. For purposes of claiming refunds under section 4662(e) for section 4661 tax paid on chemicals used in the production of an exported substance, in the case of a petition of an importer or exporter (i) that is filed and accepted by the Secretary before Jan.1, 2023, (ii) that seeks to add the substance to the list of taxable substances and (iii) based on which the Secretary adds the substance to the list of taxable substances, both the filing date of the petition and the date the substance is added to the list of taxable substances will be deemed to be July 1, 2022. More information on the procedures for petitioning the Secretary to add or remove substances from the list of taxable substances will be released in advance of July 1, 2022.
Of importance to importers, the FAQs provide guidance on how to calculate tax on imported taxable substances. The FAQs indicate that the importers may calculate tax based on their own determination of the tax that would have been imposed on the taxable chemicals used in the manufacture or production of the taxable substance if the taxable chemicals had been sold in the United States for use in the manufacture or production of the taxable substance. If the importer does not calculate the tax for a taxable substance and the IRS has prescribed a tax rate for the taxable substance, the tax is calculated using the rate prescribed by the IRS. If the importer does not calculate the tax for a taxable substance and the IRS has not prescribed a tax rate for the taxable substance, then the amount of tax is 10% of the appraised value of the taxable substance as of the time the taxable substance was entered into the United States for consumption, use or warehousing.
Imported substance tax rates
The Internal Revenue Service also announced today that it has prescribed tax rates for 121 taxable substances that are subject to the Superfund chemical excise tax imposed on imported taxable substances. Taxable substances are those substances listed in either section 4672(a)(3) of the Code or Notice 2021-66. Substances may be added or removed from the list of taxable substances at a later date. The rates will be included in the instructions to Form 6627, Environmental Taxes, and under Recent Developments for Form 6627, Environmental Taxes.
The guidance provides helpful information to taxpayers, especially with respect to the clarifications for importers on determining tax and tax rates for imported substances. However, for taxpayers importing the 30 listed products that do not have associated tax rates (such as hydrogen peroxide, methanol, synthetic rubber and vinyl resins), a determination must be made by the importer as to the amount of chemicals used in production of their imported product; otherwise the default rate of 10% of the entry value may be imposed.
Taxpayers are still awaiting guidance on a number of key issues that will be important for implementation of the tax. These provisions include rules related to adding or removing substances from the list of taxable products, rules related to export claims and rules related to tax-free sales and refunds for production of fertilizer, animal feed, fuel and other exemptions.
It is important to note that IRS FAQs are not published guidance. The FAQs are intended to provide general information to taxpayers. They are not published in the Internal Revenue Bulletin, they cannot rely on or be used by the IRS to resolve a case. However, if a taxpayer reasonably and in good faith relies on the FAQs, it will not be subject to a penalty, to the extent the reliance results in an underpayment of tax.