Now that the Biden administration has resurrected decades-old Superfund excise taxes on dozens of chemicals and hazardous substances, the countdown is on for the IRS to release highly anticipated rules before the taxes start July 1.
In the meantime, chemicals industry groups are lobbying for the agency to ease taxpayers into the new regime. Some, including Battery Council International, are even supporting legislation that would eliminate the reinstated Superfund taxes on chemicals such as lead oxide and sulfuric acid.
That feedback underscores that the Biden administration and IRS are in a pivotal period. The original Superfund taxes — used to fund hazardous waste site cleanups, including landfills and abandoned factories — expired in 1995, and their reinstatement is a success, both for environmental justice in the United States and the country’s international reputation. For years the U.S. has lagged behind its peers on environmental taxation.
But reinstating the taxes was one battle, and administering them is another. The responses the IRS has received so far strongly suggest that the success of the Superfund excise taxes will partially lie in the government’s ability to ease the transition for taxpayers so that Congress won’t again decide to let the taxes expire when they come up for renewal in 2031.
The original Superfund taxes targeted three areas: petroleum excise taxes, chemical feedstock excise taxes, and environmental income taxes. The reinstated taxes focus on chemicals and hazardous imported substances and will have much higher rates for an expanded group of substances. The tax rates, which apply to hazardous substances that enter the U.S. for consumption, use, or warehousing, will be doubled.
Several industry groups are particularly concerned about a reinstated hazardous substances excise tax in IRC section 4671. Last December the IRS published a preliminary list of taxable substances, which, if finalized, would apply to 152 chemicals, such as glycerine and acetic acid. That’s a considerable expansion — the previous regime covered 50 chemicals — and the IRS has since received some taxpayer suggestions. In comments filed by Baker & Hostetler LLP on their behalf, Battery Council International and the Association of Battery Recyclers expressed concern that there’s only “minimal guidance” on the Superfund taxes, saying the industry will need a gradual transition because the taxes were last in effect over 25 years ago.
The American Chemistry Council is also concerned about the lack of guidance, noting that in 1983 the IRS issued proposed regulations that were later withdrawn so the agency could work on other priorities. Thus, some topics addressed in the proposed regulations, such as the definitions of the terms “manufacturer or producer,” “importer,” “sale,” and “use,” went unresolved under the old Superfund regime. This time around, the IRS should issue regulations addressing those issues and more, the council said.
The American Petroleum Institute has said it’s worried that the list of taxable substances could expand without adequate due process. It said the process for expanding or shrinking the list is unclear, and it asked the IRS and Treasury to share their anticipated method for doing so. That would include clarifying the government agencies responsible for making the decision, the documentation the government will rely on in the decision-making process, the potential time frame for changing the list, and whether there will be a notice and comment period for taxpayers.
The comments demonstrate that there’s much more to reinstatement than simply activating old taxes. The IRS is updating the regime and has asked taxpayers to identify areas that need clarification or additional instruction. Whatever guidance is issued will be important for both the short and long term because the IRS has an opportunity to build stable infrastructure so that the Superfund excise taxes can be renewed for decades to come. It is hoped the IRS will rise to the challenge.