A second wave of Superfund taxes will go into effect on January 1, 2023. The new round of taxes will be applied to imported crude oil and petroleum products. The petroleum excise tax applies to crude received at a US refinery and is to be paid by the refinery operator. Taxes on petroleum products in liquid form imported for consumption, use, or warehousing are to be paid by the importer. The tax rate is adjustable for inflation and will start at 16.4 cents per barrel for 2023. It is expected to raise nearly $12 billion in funds over 10 years. This tax is in addition to the 9 cents per barrel for the Oil Spill Liability Trust Fund.
Purpose of the Tax
In 1980, the US Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The bill established the Hazardous Substance Response Trust Fund (Superfund) for use in funding the cleanup of hazardous waste sites when costs could not be passed to the responsible parties. The original tax expired in 1995 but has been reinstated as the result of recent legislation.
The current excise taxes will be used to replenish the Superfund and allow the EPA to clean-up contaminated sites.
Products Subject to Taxation
The IRS has not provided a list of petroleum products that are subject to the additional tax. However, it is generally understood that products derived from crude oil with nominal chemical processing. The new round of products to be taxed as of January 1st includes benzene, xylene, and toluene. These are also listed as taxable chemicals from the first grouping that went into effect in July. Prior to the Superfund taxes going into effect, these were taxed at the existing petroleum products tax upon entering the US. There is documented clarification on any potential overlap between taxable substances and petroleum products but not for taxable chemicals.
Importers and distributors are seeking clarification and guidance as to how to handle the taxation overlap on taxable chemicals. To date, the IRS has provided very limited guidance and information on this, and other matters related to these excise taxes. However, the National Association of Chemical Distributors (NACD) is actively working to get the clarification necessary to help ensure compliance with the new laws.
Impact on the Chemical Industry
Taxable chemicals and substances as defined by the IRS are subject to per ton excise taxes, ranging from $0.48 to $9.74. This will increase the cost of the goods imported, which will likely trickle down the supply chain at every level. While the importers may be paying the initial tax, the end-users are expected to bear the actual burden.