If importers and suppliers of such chemicals and substances — such as acetone, nickel oxide and beyond — aren’t paying attention to Superfund excise taxes, they should be.
Here’s the skinny: The Infrastructure Investment and Jobs Act signed into law last year amended and reinstated the expired Superfund excise taxes on certain chemicals and substances, effective July 1 of this year.
Meanwhile, the Inflation Reduction Act of 2022 reinstated another Superfund excise tax on crude oil and imported petroleum products that will be effective January 1, 2023. This brings back and expands a tax that expired a quarter-century ago.
“There is a lot going on,” said Keith Jordan, KPMG partner, tax accounting methods and credits services, during an interactive webinar held by KPMG this week that was focused on recent Superfund tax developments.
Broadly, the lawmakers’ intent behind the taxes was to use the transaction-based tax to bolster a trust fund to help fund the clean up of environmental disasters.
However, “under the reinstated law, the list of chemical substances has been expanded and the applicable tax has increased almost 100%,” according to a July 25 Forbes report. The recent changes have also caused confusion when it comes to reporting and calculating tax bills.
Many companies are struggling to understand both whether it applies to their operations and to estimate their potential liability in order to figure out what it means for their tax bills.
Over 100 taxable substances
The Internal Revenue Service (IRS) government has issued guidance which underscores the issue’s complexity. For example, an IRS FAQ on the taxes states there are currently 151 taxable substances and 42 chemicals subject to the excise taxes. But that list can change, as substances can be added or removed from the list, according to the IRS.
KPMG said tax and accounting departments must develop a detailed understanding of the exact materials companies purchase and use in manufacturing as well as where materials are sourced.
Meanwhile, some companies are working to pass surcharges along to their customers. “That goes into how we’re seeing the practical economic implications of this tax,” Kevin Sherlock, KPMG senior manager, tax accounting methods and credit services said during the webinar, adding that the tax could lead to increased costs of materials.
“Each company along the line seems to take the position that they want to essentially recoup any money that they’re having to shell out to cover this tax,” he said. “That creates some potential issues or dialogue that has to happen with your customers. That’s an area where we’re seeing…some issues or strain pop up.”
KPMG tax experts pointed to numerous issues that companies are wrestling with. For example, broad substance categories are difficult to interpret: Are mixtures or compounds taxable? If so, how?
“Until we get more guidance from the IRS, this is something that has been causing a lot of confusion and headaches for taxpayers who obviously want to do the right thing but also don’t want to pay taxes on something that is not currently taxable,” said KPMG Senior Manager Rachel Smith.
