What is the Superfund Excise Tax and Who Must Pay It?

The Superfund tax is meant to offset the cost of toxic cleanup, but how does it work?
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What is the Superfund Excise Tax and Who Must Pay It?

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At Frazer Onder Environmental Law, we’ve been closely following the developments surrounding the Superfund excise tax, and we wanted to provide you with a summary of the recent notice of proposed rulemaking and the key points raised by stakeholders. Superfund sites are located all over the United States, including in our own back yards in Missouri, Tennessee, Illinois, and California. We are proud to represent plaintiffs in environmental law nationwide, and Superfund sites are often the crux of many environmental contamination issues.

The Superfund excise tax, which was reinstated as part of the Infrastructure Investment and Jobs Act, is a tax imposed on manufacturers, producers, and importers of certain chemicals and substances. Its purpose is to fund the cleanup of Superfund sites designated by the U.S. Environmental Protection Agency (EPA).

About 20 comments resulted from the EPA’s notice of proposed rule, indicating that there is still work to be done in finalizing the regulations. While some questions were addressed, many more need to be explored.

Who Gets Taxed?

One significant issue is the definition of a manufacturer, producer, or importer of a taxable chemical. The notice clarified that contract manufacturers are not subject to the tax, shifting the responsibility to the party contracting with them. However, there were concerns about the inclusion of recyclers as manufacturers, potentially leading to double taxation. Various industry associations raised objections, emphasizing the need for exceptions in cases where recycled chemicals are reused.

Another area of contention revolves around taxable chemicals that may also be considered petroleum products. Commenters highlighted the potential for double taxation if both the Superfund chemical excise tax and the historic Superfund tax on crude and petroleum products apply. This detail still needs to be hammered out.

Who Doesn’t Have to Pay the Superfund Excise Tax?

There are some exceptions to the Superfund chemical tax that we should talk about. The recent notice has provided some valuable clarifications in this regard. According to the statute, certain substances are exempt from the tax. For instance, methane or butane used as a fuel, substances used in fertilizer or animal feed production, sulfuric acid produced as a result of air pollution control, substances derived from coal, and substances used in motor fuel production fall under these exceptions.

Before the notice came out, taxpayers had no way to claim an exemption or get a refund if they paid the tax on a chemical that was later used for an exempt purpose. But thanks to this notice, we now have procedures in place for exemptions, credits, and refunds. That being said, not everyone is completely satisfied with the provided clarification, and there are still some unanswered questions.

Methane and the Superfund Excise Tax

As for the most common exceptions, methane or butane is subject to the tax only if they are used for something other than fuel, or if they’re not used in the production of motor fuel, diesel fuel, aviation fuel, or jet fuel.

To put it simply, if methane or butane are used to generate energy, like in an engine for vehicles or aircraft, or in a furnace or cooking appliance for producing heat, they are considered as fuel and are exempt from the tax. However, if methane is used to make antifreeze, for example, the tax will apply to the party using it for non-exempt purposes.

There have been requests for clarification on this exception, particularly regarding the use of methane to create hydrogen, which is then used for producing renewable diesel fuel, motor fuel, aviation fuel, jet fuel, or in a fuel cell. Some commenters, like the Appalachian Region Clean Hydrogen Hub, have emphasized the benefits of hydrogen and urged for clear exemptions from taxation in such cases. Additionally, hydrogen is often converted to ammonia and vice versa, and commenters have suggested extending the exception to cover these instances when hydrogen is used as a fuel.

Fertilizers and Superfund Tax

Moving on to another common exception, no excise tax is imposed on nitric acid, sulfuric acid, ammonia, or methane used for ammonia production as a qualified fertilizer substance.

The notice states that if no tax was imposed on the sale or use of fertilizer chemicals due to this exception, the first party that sells or uses the chemicals for a purpose other than as a qualified fertilizer substance will be treated as the manufacturer of that chemical, and the tax will be applicable to them. Furthermore, the notice provides specific rules for documentation to facilitate tax-free sales of these taxable chemicals. The seller must obtain an unexpired exemption certificate from the purchaser either prior to or at the time of the sale.

Many comments were received regarding this exception. The Fertilizer Institute and the Agricultural Retailers Association raised concerns about the documentation requirements for tax-free sales under this exception. One private company even estimated an annual cost of $3 million for implementing such documentation, and these stakeholders called for a simpler process to avoid imposing burdens that could harm U.S. agriculture, thereby undermining the purpose of the exemption.

Superfund Taxing of Fuel Chemicals

Lastly, when it comes to organic chemicals like acetylene, benzene, butylene, butadiene, ethylene, naphthalene, propylene, toluene, or xylene (collectively known as fuel chemicals), no Superfund chemical tax is imposed if they are used to produce a qualified fuel substance.

A qualified fuel substance refers to fuel used by the manufacturer, producer, or importer for a qualified fuel use, or sold for use by any purchaser in aqualified fuel use, or sold for resale by any purchaser for use, or resale for ultimate use, in a qualified fuel use.

To be considered a qualified fuel use, a fuel chemical must be used in the manufacturing or production of motor fuel, diesel fuel, aviation fuel, jet fuel, or any use of a fuel chemical as a fuel itself. The notice clarifies that if someone uses such a substance for purposes other than a qualified fuel substance, they will be treated as the manufacturer of the taxable chemical.

These exceptions regarding fuel chemicals have brought some clarity to the table. They ensure that no Superfund chemical tax is imposed if these organic chemicals are utilized in the production of qualified fuel substances.

The recent notice has shed light on the exceptions to the Superfund chemical tax and provided much-needed guidance on claiming exemptions, credits, and refunds. However, it’s important to note that there are still some lingering questions and not all stakeholders are completely satisfied with the clarifications provided.

Frazer Onder Environmental Lawyers Cares

As Frazer Onder Environmental Law based in St. Louis, Nashville, and Newport Beach, we strive to stay up-to-date with the latest developments in environmental regulations and help our clients navigate through complex issues like the Superfund chemical tax. If you have any further questions or need assistance with environmental law matters, feel free to reach out to us. We’re here to help.

While the notice of proposed rulemaking addressed certain aspects of the Superfund excise tax, it is evident that more work needs to be done to address the challenges and concerns raised by stakeholders. As experts in environmental law, we are closely monitoring these developments to ensure that our clients receive accurate guidance and stay informed about the evolving regulations.

To reach us nationwide, contact 800-799-2824. We represent plaintiffs in every U.S. state against corporate polluters.