June 2, 2022

Superfund Tax Overview

Chem firms brace for new US Superfund taxes

Author: Al Greenwood

2022/04/28

HOUSTON (ICIS)–Chemical companies are bracing themselves for the return of two Superfund taxes, one of which covers 42 chemicals made or imported in the US and another covering an even wider range of substances imported into the country.

• US will revive two Superfund taxes on 1 July 2022.
• One tax applies to 42 chemicals sold or used by producers or importers.
• Another tax could apply to many more substances that are imported.

The US is reviving the taxes as part of the $1trn Infrastructure Investment and Jobs Act that President Joe Biden signed into law in November.

The proceeds raised by the taxes will help replenish the government’s Superfund programme, which pays for clean-up at waste sites.

TAXABLE CHEMICALS
The tax levied on the 42 chemicals apply to some of the most common building blocks used in the industry.

These taxes are levied on a short-ton basis for the following 42 chemicals sold in the US by manufacturers or importers:

Source: Deloitte

Paraxylene (PX), an isomer of xylene, would be subject to the tax once it is imported into the country, said Jeffery Wright, US oil, gas & chemicals tax leader for Deloitte, a consultancy. For xylene, the tax becomes due upon the first sale or the first use.

The tax does include some exceptions.

Exporters can apply for a refund, according to Deloitte. Companies that use the chemicals to make fuel, fertilizer or animal feed are also exempt.

Based on those exceptions, hydrofluoric acid or propylene used in the alkylation units of refineries could be exempt, since those chemicals would be used to make gasoline. Butane could avoid the tax if it is blended in gasoline.

Ammonia used to make nitrogen fertilizers could also avoid the tax.

Methane could escape taxes if it is burned as a fuel in power plants or used to make hydrogen for feedstock in refineries.

However, if the methane is used to make methanol for downstream chemical production, it could be taxed.

The tax also exempts coal derivatives and sulphuric acid that is a by-product of air-pollution control.

TAXABLE SUBSTANCES
The second tax covers substances sold or used by importers, according to Mayer Brown, a law firm.

The tax will cover imports that contain at least 20% of the 42 taxable chemicals. The tax rate would depend on the percent of the taxable chemicals contained by the substance.

For example, a short ton of a taxable substance that contains 20% propylene would be subject to an excise tax rate that is 20% of that for propylene. Since the propylene tax rate is $9.74/ton, the rate for the taxable substance would be $1.95/ton.

It is up to the importer to determine the rate for a taxable substance and maintain the records that would back their findings. If the company comes short, the IRS will impose a 10% tax based on the substance’s value when it enters the country.

So far, there are 151 taxable substances that could meet this 20% threshold, according to lists from the Internal Revenue Service (IRS).

One of these lists was published when the Superfund tax was last in effect in the 1990s, Wright said. Another list was from historic notices that also date from the 1990s. At the time, the substances in the two lists contained at least 50% of the taxable chemicals.

It is presumed that they still contain at least 20%, Wright said.

The table below shows some of the taxable substances in the lists that are followed by ICIS.

Source: Deloitte

Some of these taxes will be problematic. The US has just one plant that makes melamine. It has no domestic production for methyl ethyl ketone (MEK) and relies solely on imports.

The list could be modified to add taxable substances that meet the 20% threshold or remove them that no longer meet the threshold, said Shawn O’Brien a partner at Mayer Brown. Advances or changes in production methods could cause some of the substances to contain less than 20% of the taxable chemicals.

For example, some of these chemicals can be made with renewable feedstock, such as butanediol (BDO), polyethylene (PE) and monoethylene glycol (MEG). Others could be made from feedstock derived from chemically recycled plastics.

PASSING THE BUCK
If companies choose to pass through the taxes, it will likely appear as line items, O’Brien said. He could see the tax being passed down to end consumers.

In total, the amount could be substantial.

The Superfund taxes could raise $452m in 2022 and $1.17bn in 2023, according to the congressional Joint Committee on Taxation. By the time the tax ends on 31 December 2031, the proceeds could reach $14.5bn.

Wright said that companies could evaluate existing contracts with suppliers and customers to see if they can pass along the taxes. Ultimately, each company will have to determine the pros and cons of absorbing the taxes versus passing them along.

To make things clearer for companies, the American Chemistry Council (ACC), a trade group, has asked that the IRS publish tax rates for the taxable substances.

It also asked the IRS to include the harmonised tariff schedule (HTS) numbers and the chemical abstract service numbers of the taxable substances.

The HTS numbers are used by countries around the world to determine which products are subject to a specific tariff. Such numbers allow governments to impose the tariffs in a consistent and clear way.

The list of 151 taxable substances could certainly use some more clarity. It lists polypropylene and polypropylene resins as separate items. HTS numbers could reveal whether the tax applies to two different grades of polypropylene or if the IRS simply listed the same product twice.

The ACC noted that the 20% threshold could cause a lot of chemicals to fall under the definition of a taxable substance. The ACC would like the government to publish rules under which companies could request the removal of chemicals from the list of taxable substances.

The following table shows the full list of the 151 taxable substances that, if imported, would be subject to the Superfund tax.

Source: Deloitte

Thumbnail shows dollars. Image by Shutterstock

By Al Greenwood

https://www.icis.com/explore/jp/resources/news/2022/04/28/10758808/insight-chem-firms-brace-for-new-us-superfund-taxes

May 31, 2022

Lockdown Lifted

Shanghai Is Finally Lifting Its COVID Lockdown

by Tyler DurdenTuesday, May 31, 2022 – 06:00 PM

After another two months of misery and lockdowns, Shanghai is finally starting to lift its Covid restrictions (again).

Authorities in the Chinese city have started “dismantling fences around housing compounds and ripping police tape off public squares and buildings”, according to a report published on Tuesday by Reuters. 

On Monday night, residents were being allowed out of their compounds for the first time in two months, the report says. Despite the lockdowns starting to come to an end, “there was a sense of wariness and anxiety among residents,” Reuters reported. 

Joseph Mak, who works in education, commented: “I feel a little nervous. It’s hard to believe it’s actually happening.”

Not only has the recent bout of lockdowns triggered public protests and anger in the city of more than 25 million people, it also threw another sizeable wrench into the global supply chain at a time when the world could least afford it. 

Shanghai government spokeswoman Yin Xin told reporters this week: “This is a day that we dreamed of for a very long time. Everyone has sacrificed a lot. This day has been hard-won, and we need to cherish and protect it, and welcome back the Shanghai we are familiar with and missed.”

Despite the lockdowns being lifted, residents will still have to test every 72 hours to take public transportation and those who test positive will still be subjected to China’s “normal” quarantine procedures. 

Shanghai brought COVID under control at “very significant personal and economic cost”, commented Julian MacCormac, chair of the British Chamber in China. He continued: “What has materially changed to ensure that this will not happen again? That’s where the uncertainty lies.”

Todd Pearson, managing director of Camel Hospitality Group added: “I’m hopeful that they will rush things along to restart the economy. I just hope it’s not at the cost of more outbreaks. I’m not sure many businesses or the people could handle much more.”

Qu Weiguo, a professor at the Fudan University school of foreign languages even wrote online: “The Shanghai government needs to make a public apology in order to obtain the understanding and support of the people of Shanghai and repair the damaged relationship between the government and the people.”

https://www.zerohedge.com/markets/shanghai-finally-lifting-its-covid-lockdown

May 31, 2022

Lockdown Lifted

Shanghai Is Finally Lifting Its COVID Lockdown

by Tyler DurdenTuesday, May 31, 2022 – 06:00 PM

After another two months of misery and lockdowns, Shanghai is finally starting to lift its Covid restrictions (again).

Authorities in the Chinese city have started “dismantling fences around housing compounds and ripping police tape off public squares and buildings”, according to a report published on Tuesday by Reuters. 

On Monday night, residents were being allowed out of their compounds for the first time in two months, the report says. Despite the lockdowns starting to come to an end, “there was a sense of wariness and anxiety among residents,” Reuters reported. 

Joseph Mak, who works in education, commented: “I feel a little nervous. It’s hard to believe it’s actually happening.”

Not only has the recent bout of lockdowns triggered public protests and anger in the city of more than 25 million people, it also threw another sizeable wrench into the global supply chain at a time when the world could least afford it. 

Shanghai government spokeswoman Yin Xin told reporters this week: “This is a day that we dreamed of for a very long time. Everyone has sacrificed a lot. This day has been hard-won, and we need to cherish and protect it, and welcome back the Shanghai we are familiar with and missed.”

Despite the lockdowns being lifted, residents will still have to test every 72 hours to take public transportation and those who test positive will still be subjected to China’s “normal” quarantine procedures. 

Shanghai brought COVID under control at “very significant personal and economic cost”, commented Julian MacCormac, chair of the British Chamber in China. He continued: “What has materially changed to ensure that this will not happen again? That’s where the uncertainty lies.”

Todd Pearson, managing director of Camel Hospitality Group added: “I’m hopeful that they will rush things along to restart the economy. I just hope it’s not at the cost of more outbreaks. I’m not sure many businesses or the people could handle much more.”

Qu Weiguo, a professor at the Fudan University school of foreign languages even wrote online: “The Shanghai government needs to make a public apology in order to obtain the understanding and support of the people of Shanghai and repair the damaged relationship between the government and the people.”

https://www.zerohedge.com/markets/shanghai-finally-lifting-its-covid-lockdown

February 18, 2022

DOJ & The Supply Chain

DOJ expands scrutiny of possible supply-chain profiteers

Trucking, warehousing, 3PLs could be in antitrust division’s crosshairs

John Gallagher, Washington Correspondent Follow on Twitter Thursday, February 17, 2022 2 minutes read

Listen to this article 0:00 / 3:32 BeyondWords

The U.S. Department of Justice is now targeting a wider swath of transportation companies that it deems may be using supply chain disruption to gouge customers

The initiative, which DOJ announced Thursday, broadens the scope of the Biden administration’s heightened scrutiny of anticompetitive behavior in various industry segments, including transportation.

“The lingering challenge of supply chain disruptions from the COVID-19 pandemic has created an opportunity for criminals to fix prices and overcharge customers,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “The FBI and our law enforcement partners will continue to collaborate and investigate schemes that violate our antitrust laws and stifle our economic recovery.”

As part of the initiative, DOJ’s Antitrust Division is prioritizing existing investigations where competitors may be exploiting supply chain disruptions for profit and is “undertaking measures to proactively investigate collusion in industries particularly affected” by supply chain disruptions, the agency warned.

“For those who seek to exploit supply chain disruptions for their own illicit gain, the Antitrust Division, along with the FBI, will investigate and prosecute criminal violations of the antitrust laws, including agreements between individuals and businesses to fix prices or wages, rig bids or allocate markets.”

Up to now, DOJ’s stepped-up oversight of anticompetitive behavior in the transportation sector has focused on the maritime industry and railroads, where there has been evidence that the relatively few players have wielded their market power to raise rates.

In July, DOJ and the Federal Maritime Commission signed a first-time agreement to sharpen economic oversight of foreign ocean carriers serving in the U.S. international container trades. The agreement came days after President Joe Biden signed an executive order aimed at curbing potential anticompetitive behavior among 72 industries, including among ocean carriers and freight railroads.

But Thursday’s announcement should now put companies involved with trucking, warehousing, 3PLs and last-mile delivery on notice as well, according to one trade expert.

“Certainly the focus here is on other elements of the supply chain that haven’t gotten as much attention as ocean carriers and marine terminals but are needed to get cargo to and from inland destinations,” Gerald Morrissey, a partner with the law firm Holland & Knight, told FreightWaves.

“This is really saying that any company in the supply chain, particularly those that are not subject to some form of antitrust immunity [such as ocean carriers and marine terminals] could be in the crosshairs for potential complaints by customers or competitors with this increased focus from DOJ.”

As part of the initiative, the Antitrust Division has formed a working group with the Australian Competition and Consumer Commission, the Canadian Competition Bureau, the New Zealand Commerce Commission, and the United Kingdom Competition and Markets Authority, focusing on collusion in global supply chains.

“The working group is developing and sharing intelligence, utilizing existing international cooperation tools, to detect and combat collusive schemes,” DOJ stated.

February 18, 2022

DOJ & The Supply Chain

DOJ expands scrutiny of possible supply-chain profiteers

Trucking, warehousing, 3PLs could be in antitrust division’s crosshairs

John Gallagher, Washington Correspondent Follow on Twitter Thursday, February 17, 2022 2 minutes read

Listen to this article 0:00 / 3:32 BeyondWords

The U.S. Department of Justice is now targeting a wider swath of transportation companies that it deems may be using supply chain disruption to gouge customers

The initiative, which DOJ announced Thursday, broadens the scope of the Biden administration’s heightened scrutiny of anticompetitive behavior in various industry segments, including transportation.

“The lingering challenge of supply chain disruptions from the COVID-19 pandemic has created an opportunity for criminals to fix prices and overcharge customers,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “The FBI and our law enforcement partners will continue to collaborate and investigate schemes that violate our antitrust laws and stifle our economic recovery.”

As part of the initiative, DOJ’s Antitrust Division is prioritizing existing investigations where competitors may be exploiting supply chain disruptions for profit and is “undertaking measures to proactively investigate collusion in industries particularly affected” by supply chain disruptions, the agency warned.

“For those who seek to exploit supply chain disruptions for their own illicit gain, the Antitrust Division, along with the FBI, will investigate and prosecute criminal violations of the antitrust laws, including agreements between individuals and businesses to fix prices or wages, rig bids or allocate markets.”

Up to now, DOJ’s stepped-up oversight of anticompetitive behavior in the transportation sector has focused on the maritime industry and railroads, where there has been evidence that the relatively few players have wielded their market power to raise rates.

In July, DOJ and the Federal Maritime Commission signed a first-time agreement to sharpen economic oversight of foreign ocean carriers serving in the U.S. international container trades. The agreement came days after President Joe Biden signed an executive order aimed at curbing potential anticompetitive behavior among 72 industries, including among ocean carriers and freight railroads.

But Thursday’s announcement should now put companies involved with trucking, warehousing, 3PLs and last-mile delivery on notice as well, according to one trade expert.

“Certainly the focus here is on other elements of the supply chain that haven’t gotten as much attention as ocean carriers and marine terminals but are needed to get cargo to and from inland destinations,” Gerald Morrissey, a partner with the law firm Holland & Knight, told FreightWaves.

“This is really saying that any company in the supply chain, particularly those that are not subject to some form of antitrust immunity [such as ocean carriers and marine terminals] could be in the crosshairs for potential complaints by customers or competitors with this increased focus from DOJ.”

As part of the initiative, the Antitrust Division has formed a working group with the Australian Competition and Consumer Commission, the Canadian Competition Bureau, the New Zealand Commerce Commission, and the United Kingdom Competition and Markets Authority, focusing on collusion in global supply chains.

“The working group is developing and sharing intelligence, utilizing existing international cooperation tools, to detect and combat collusive schemes,” DOJ stated.