chemical and mineral excise tax

“Reading the numerous exceptions and special rules of the new federal chemical excise taxes, I easily recalled the United States Tax Court’s recent description of the federal tax law as a whole: “One way to think about tax law is to view it as a series of general rules qualified by exceptions, and exceptions to those exceptions, and exceptions to those exceptions to those exceptions.” Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC, Tax Matters Partner v. Commissioner, T.C. Memo. 2022-31 (April 6, 2022).” Robert S. Schwartz, Esq.

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (“the Act”). Generally effective July 1, 2022, the Act resurrects and expands December 31, 1995-expired excise taxes codified in sections 4661, 4462, 4671 and 4572 of Internal Revenue Code “Chapter 38 — Environmental Taxes.” These new taxes are stated to sunset after December 31, 2031. Meanwhile, in April 2022, the IRS promulgated new Form 637 for the purpose of ordinarily optional, taxpayer registration with the IRS. To be revised, initial companion tax reporting Forms 720 and 6627 must be filed by October 31, 2022, for the opening July-September 2022 quarter. Meanwhile, semi-monthly advance tax deposits must be made July 29, 2022, for the first 2 weeks of July.

Sections 4661 and 4462 impose excise taxes on United States non-exempted producers, manufacturers and importers of minerals and chemicals listed by name in Section 4661(b) or “taxable chemicals.” Almost as if anticipating long-term inflation, the Section 4661 excise tax is higher than before 1996. For example, the old Section 4661(b) tax of $4.45 per ton of refined nickel and 22 cents per ton of manufactured potassium hydroxide are now $8.90 per ton of nickel and 44 cents per ton of potassium hydroxide.

Sections 4671 and 4472 impose excise taxes on United States importers (whether for use or resale) of “chemical substances” listed by name in Section 4672(a)(3), such as acetone, ethylene glycol and vinyl chloride. The amount of tax is not expressly set forth. The Section 4671 tax amount is determined by ascertaining the amount of Section 4661(b) “taxable chemicals” used as materials in the manufacture or production of any given “taxable substance” during the quarterly reporting period. The Section 4672 tax is the tax per ton of the “taxable chemicals” used in making “taxable substances” as per the new Section 4661(b) list.

In addition, Congress delegated power to the IRS, in consultation with the Environmental Protection Agency and U.S. Customs, to expand the list of Section 4672(a)(3) of “taxable substances.” Delegation authority extends to adding to the statutory list any chemical substance where more than 20 percent of the weight or value of the materials used to produce it are Section 4661 taxable chemicals or minerals compared to a higher 50 percent of weight or value threshold measure pre-1996. In this regard the IRS just released Revenue Procedure 2022-26 which provides the exclusive procedures for requesting an IRS determination that a chemical substance be added to or removed from the list of taxable substances under Section 4672(a). The procedure is detailed and complex such that tax expertise must be combined with chemicals expertise to make sense of it.

Another instance of expansion is Congressional delegation to the IRS to impose an additional to tax on those importers who do not timely furnish the IRS with sufficient requested information the IRS needs to correctly determine the amount of tax that had been paid. The addition to tax equals 10 percent of the appraised value of the taxable substance in question “as of” the time the substance entered the United States for consumption, use, or warehousing. The old excise tax had provided for a 5 percent addition to tax.

As a result of the Act, every business involved with manufacturing, producing, importing, or exporting Section 4661(b) list and /or Section 4672(a)(3) list items needs to get up to speed not only with the Code provisions, but also with at any time issued IRS further guidance, such as Notices 2021-66 and 2022-15. For example, US produced or manufactured Section 4661(b) taxable chemicals intended for export are not taxable, but complications arise if a company in the chain paid an excise tax not knowing about ultimate export and later seeks a tax refund as allowed by Section 4662(e). Refund procedures remain to be refined.

Another example: a seemingly broad, but difficult to apply, 4671(c) taxation exception is available for importer users and resellers of “taxable substances” in general subject to the Section 4671(b)(1) tax, whenever the substance is or has been already taxed as a “taxable chemical” under Section 4661(b) or has been the subject of the Section 4611 tax of $18.7 per 42-gallon drum of crude oil received at a U.S. refiner’s facility.

To achieve tax efficient compliance, and to avoid wasting money, many determinations like the above examples of exceptions, require knowledge not only of the substantive and procedural Code provisions and periodic IRS guidance, but also of listed items’ chemical compositions and their production, manufacture, and use. Here at Herold Law, P.A. we have the legal resources to advise any affected company in making sound judgments about all aspects of these new taxes: Anthony J. Reitano, Jr., John J. McAleese, III and Robert S. Schwartz. For more information about our capabilities call Mr. Schwartz at (908) 647-1022.

  • Category: Tax