IRS Issues Proposed Regulations on Superfund Excise Tax on Importers

The Internal Revenue Service on March 27 released new proposed regulations to “provide guidance” on superfund excise taxes on imported chemicals and substances that took effect July 1 of last year. Comments are due May 30.

Reinstated by the Infrastructure Investment and Jobs Act at the end of 2021 after having expired at the end of 1995, the taxes include an excise tax on manufacturers, producers and importers that sell or use any of 42 listed chemicals, as well as another excise tax on importers that sell or use any “taxable substance” that includes taxable chemicals, as listed on the IRS website. The taxes expire again in 2031.

The proposed rule includes exceptions to the excise taxes, including for methane or butane used as fuel or nitric acid, sulfuric acid, ammonia or methane used to produce ammonia, among other things. Other exemptions cover taxable chemicals used to manufacture fertilizer or animal feed.

The proposal defines importer as the “person entering the taxable chemical for consumption, use, or warehousing.” However, it says that “if the person entering the taxable chemical for consumption, use, or warehousing is merely acting as an agent or a customs broker for another person, then the agent or customs broker is not the importer, and the importer is the first person in the United States to sell or use the taxable chemical after entry of the taxable chemical for consumption, use, or warehousing.”

The proposal includes procedures to add or remove chemical substances to or from the list of substances subject to the excise taxes. The IRS may list new chemical substances if, after consulting with the EPA and CBP, it finds that “taxable chemicals constitute more than 20 percent of the weight or more than 20 percent of the value of the materials used to produce such substance, determined on the basis of the predominant method of production.”

The proposal also provides that, if an importer or exporter requests a finding on whether a substance should be listed, or requests removal of a substance from the list, then the IRS must make a final decision within 180 days after the request was filed.

The proposed rule seeks comments specifically on how it can provide Harmonized Tariff Schedule and Chemical Abstract Service numbers “for all taxable chemicals and taxable substances to ensure uniform identification by stakeholders and the IRS,” it said. “The Treasury Department and the IRS request comments on the degree of specificity that would be required for HTS and CAS numbers,” the proposal said. "Specifically, the Treasury Department and the IRS request comments on the appropriate number of decimal places for the HTS and CAS numbers that would be used to identify taxable chemicals and taxable substances.”

“Taxpayers and their related parties” may begin relying on the proposed rule now, even though they have not yet been finalized, the proposal said, as long as they “follow the proposed regulations in their entirety (as applicable) and in a consistent manner until the date the Treasury decision adopting these rules as final regulations is published in the Federal Register.”