The new Superfund tax is top of mind for chemical distributors right now. The scope of this reinstated tax is far-reaching and complex, and with so many other issues affecting NACD members — such as inflation, the shipping crisis, and the lingering effects of the COVID-19 pandemic — it only adds to their financial and administrative burden.
Here, we look at the re-emergence, the repercussions, and the resources we’ve made available.
What does the Superfund tax mean for my business?
Additional administrative burden and costs… The initial burden of the Superfund tax is placed on manufacturers, producers, and importers of certain chemicals and chemical substances. These companies will now be liable for paying and reporting excise taxes on 42 taxable chemicals and 151 taxable substances.
First established in the 1980s, the original Superfund tax expired in 1996. The newly resurrected Superfund doubles the tax rate per ton for taxable chemicals, lowers the threshold for taxable substances threshold from 50 percent to 20 percent, and increases the default tax rate from 5 percent to 10 percent for taxable substances.
The American Chemistry Council has suggested excise taxes would impose a $1.211 billion per year cost on American chemistry. Moreover, NACD’s economists estimate that the overall costs to buyers would be nearly $814.4 million after accounting for costs passed through the supply chain.
Even though the first semi-monthly deposit was due July 29, 2022, and the first quarter ends October 31, 2022, the Internal Revenue Service (IRS) has issued limited guidance. Specific details such as whether substances previously derived from plant matter are still subject to the tax, how to substantiate rates for taxable substances, and definitions for key terms such as “manufacturer” remain unaddressed by the IRS.
Be sure to keep checking for updates on our website and make use of all available resources, including our white papers and webinars.
When is the Superfund tax returning?
It’s already here! The Superfund tax went into effect on July 1, 2022, meaning the sale or use of the listed chemicals and substances are subject to the tax and reporting requirements under the law.
The tax is triggered by their sale or use, so even if you had the product in your warehouse prior to that July start date, you are still liable.
Thankfully, the IRS has provided a short grace period for companies for the last two quarters of 2022 and the first quarter of 2023 – as long as you can demonstrate you’re making good faith efforts to comply. That means you must make semi-monthly deposits, file, and reconcile the taxes at the end of each quarter.
Make sure you fully understand what’s expected of you, the filing requirements, and the deadlines. Check with your accountant or tax counsel if anything is unclear.
The new tax is complex, and there are plenty of nuances, so NACD thinks members would benefit from a little more time to get up to speed with the new procedures. That’s why we’re pushing for the IRS to extend this penalty relief period beyond early 2023.
Remember, the Superfund tax hasn't been around since 1996. Over those 26-plus years, almost everyone that dealt with it during its first iteration has either moved on or retired. So, the industry and the IRS need extra time to assimilate to the new requirements.
Where can I find out more information?
NACD has developed a Tax Issue Page— a webpage with resources for members explaining the requirements and implications of the Superfund tax, as well as excise taxes in general. This webpage includes more background information on the new law. Here, you’ll also be able to find archived webinars, a FAQ document, a substantial white paper, and a template letter to send to the IRS for your company to push for additional guidance.
What happens next?
The excise tax on certain chemicals and chemical substances was not the only tax that comprised the original Superfund and not the only one that Congress has newly resurrected. Congress reinstated the chemical tax through the Infrastructure Investments and Jobs Act in 2021 and has reinstated the tax on crude oil and petroleum products through the Inflation Reduction Act of 2022. The new law takes effect on January 1, 2023. NACD is preparing resources so members can better understand their subjectivity to the tax. One resource to look out for is an upcoming webinar featuring tax law, environmental law, and chemistry experts from McGlinchy Stafford PLLC and Bergeson & Campbell PC. The webinar will be held on November 3 from Noon to 1:00 pm (ET). For more details, visit NACD’s webinar page or register here.
If you have concerns or questions specific to your company’s situation, we advise contacting your tax advisers.
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