Urethane Blog

Superfund Tax Overview

June 2, 2022

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:

Taxable ChemicalAlias$/Short TonCent/lb
Acetylene9.740.487
Ammonia5.280.264
Antimony Trioxide7.400.370
Arsenic Trioxide6.820.341
Barium sulphide4.600.230
Benzene9.740.487
Bromine8.900.445
ButadieneBD9.740.487
Butane9.740.487
Butylene9.740.487
Chlorine5.400.270
Chromite3.040.152
Cupric oxide7.180.359
Cupric sulphate3.740.187
Cuprous oxide7.940.397
Ethylene9.740.487
Hydrochloric acidHCl0.580.029
Hydrogen fluoridehydrofluoric acid (HF)8.460.423
Lead oxide8.280.414
Methane6.880.344
Naphthalene9.740.487
Nitric acid0.480.024
Phosphorus8.900.445
Potassium dichromate3.380.169
Potassium hydroxideCaustic potash0.440.022
Propylene9.740.487
Sodium dichromate3.740.187
Sodium hydroxideCaustic soda0.560.028
Stannic chloride4.240.212
Stannous chloride5.700.285
Sulphuric acid0.520.026
Toluene9.740.487
Xylene9.740.487
Zinc chloride4.440.222
Zinc sulphate3.800.190
Antimony8.900.445
Arsenic8.900.445
Cadmium8.900.445
Chromium8.900.445
Cobalt8.900.445
Mercury8.900.445
Nickel8.900.445

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.

ChemicalAlias
1,4 butanediolBDO
acetic acid
acetone
acrylic and methacrylic acid resins
acrylonitrileACN
adipic acid
adiponitrileADN
bisphenol-ABPA
butanolnormal butanol or NBA
butyl acetatebutac
butyl acrylatebutyl-a
cumene
cyclohexaneCX
dimethyl terephthalateDMT
epichlorohydrinEPC
ethyl acetateetac
ethyl acrylateethyl-A
ethyl alcohol for non-beverage useethanol
ethylbenzeneEB
ethylene dichlorideEDC
ethylene glycolEG
ethylene oxideEO
formaldehyde
glycerine
isopropyl alcoholisopropanol (IPA)
linear alpha olefinsLAOs or normal alpha olefins (NAOs)
maleic anhydrideMA
melamine
methanol
methyl acrylatemetyl-A
methyl ethyl ketoneMEK
methyl isobutyl ketoneMIBK
methyl methacrylateMMA
nylon 6/6
phenol
phenolic resins
phthalic anhydridePA
polyalphaolefinsPAOs
polycarbonatePC
polyethylene resins, totalPE
polyethylene terephthalate pelletsPET
polypropylenePP
polypropylene resinsPP
polystyrene homopolymer resinsPS
polystyrene resins and copolymersPS
polyvinylchloride resinsPVCC
propanoln-propanol
propylene glycolPG
propylene oxidePO
styrene
styrene-butadiene, latex
styrene-butadiene, snpf
synthetic linear fatty alcohol ethoxylates
synthetic linear fatty alcohols
synthetic rubber, not containing fillers
terephthalic acidpurified terephthalic acid (PTA)
toluene diisocyanateTDI
urea
vinyl acetateVAM
vinyl chlorideVCM
vinyl resinsPVC
vinyl resins, nspfPVC

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.

ChemicalAlias
1,4 butanediolBDO
1,3-butylene glycol
1,5,9- cyclododecatriene
2-ethyl hexanol
2-ethylhexyl acrylate
2,2,4-trimethyl- 1,3-pentanediol diisobutyrate
2,2,4-trimethyl- 1,3-pentanediol monoisobutyrate
acetic acid
acetylene black
adipic acid
adiponitrileADN
allyl chloride
alpha- methylstyrene
aniline
benzaldehyde
benzoic acid
bisphenol-ABPA
butanolnormal butanol or NBA
butyl acrylatebutyl-a
butyl benzyl phthalate
chlorinated polyethylene
cyclododecanol
decabromodiphenyl oxide
di-2 ethyl hexyl phthalate
di-n-hexyl adipate
diethanolamineDEA
diglycidyl ether of bisphenol-A
diisopropano- lamine
dimethyl terephthalateDMT
dimethyl-2, 6-naphthalene dicarboxylate
diphenyl oxide
diphenylamine
epichlorohydrinEPC
ethyl acetateetac
ethyl acrylateethyl-A
ethyl chloride
ethylene dibromide
ethylenebistetra- bromo- phthalimide
formic acid
glycerine
hexabromocyclod odecane
hexamethylenedia mine
isobutyl acetate
isopropyl acetate
linear alpha olefinsLAOs or normal alpha olefins (NAOs)
methyl acrylatemetyl-A
methyl chloroform
methyl isobutyl ketoneMIBK
methyl methacrylateMMA
monochloro- benzene
monoethanolamineMEA
monoisopro- panolamine
normal butyl acetatebutac
normal propyl acetate
nylon 6/6
ortho- dichlorobenzene
ortho-nitrochloro- benzene
paraformaldehyde
para- dichlorobenzene
para-nitrochloro- benzene
para-nitrophenol
pentaerythritol
perchloroethylene
phenol
phosphorous pentasulfide
phosphorous trichloride
poly 1,4 butylenetere-phthalate
poly (69/31 ethylene/ cyclohexylene- dimethylene terephthalate)
poly (96.5/3.5 ethylene/ cyclohexylene-dimethylene terephthalate)
poly (98.5/1.5 ethylene/ cyclohexylene-dimethylene terephthalate)
poly(ethyleneoxy) glycerol
poly(propylene) glycol
poly(propylene/ ethylene) glycol
poly(propyleneoxy) glycerol
poly(propyleneoxy)s ucrose
poly(propyleneoxy/ ethyleneoxy) benzenediamine
poly(propyleneoxy/ ethyleneoxy)diamine
poly(propyleneoxy/ ethyleneoxy)glycerol
poly(propyleneoxy/ ethyleneoxy)sucrose
polyalphaolefinsPAOs
polybutene
polybutylene
polybutylene/ ethylene
polycarbonatePC
polyethylene terephthalate pelletsPET
propanoln-propanol
sodium nitriolotriacetate monohydrate
synthetic linear fatty alcohols
synthetic linear fatty alcohol ethoxylates
terephthalic acidpurified terephthalic acid (PTA)
tetrabromo- bisphenol-A
tetrachloro-phthalic anhydride
tetrahydrofuran
texanol benzyl phthalate
toluene diisocyanateTDI
toluenediamine
trichloroethylene
triethanolamineTEA
triisopropanolamine
trimethylolpropane
vinyl acetateVAM
acetone
acrylic and methacrylic acid resins
acrylonitrileACN
ammonium nitrate
carbon tetrachloride
chloroform
chromic acid
cumene
cyclohexaneCX
ethyl alcohol for nonbeverage useethanol
ethylbenzeneEB
ethylene dichlorideEDC
ethylene glycolEG
ethylene oxideEO
ethyl methyl ketoneMEK
ferrochrome ov 3 pct. carbon
ferrochromium nov 3 pct
ferronickel
formaldehyde
hydrogen peroxide
isophtalic acid
isopropyl alcoholisopropanol (IPA)
maleic anhydrideMA
melamine
methanol
methylene chloride
nickel oxide
nickel powders
nickel waste and scrap
phenolic resins
phthalic anyhydridePA
polybutadiene
polypropylene resinsPP
polystyrene homopolymer resinsPS
polyethylene resins, totalPE
polypropylenePP
polystyrene resins and copolymersPS
polyvinylchloride resinsPVCC
propylene glycolPG
propylene oxidePO
styrene
styrene-butadiene, latex
styrene-butadiene, snpf
synthetic rubber, not containing fillers
unwrought nickel
urea
vinyl chlorideVCM
vinyl resinsPVC
vinyl resins, nspfPVC
wrought nickel rods and wire

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

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