Reinstatement of Superfund Excise Taxes for 3rd Quarter of 2022

Rödl & Partner Tax Matters Volume 2022-4, published August 8, 2022

The Infrastructure Investment and Jobs Act (IIJA), reinstated, effective July 1, 2022, the excise taxes imposed on certain chemical substances by sections 4661 and 4671 of the Internal Revenue Code (IRC), also referred to as Superfund chemical taxes. 

The Superfund chemical excise taxes have two components. First, excise tax is applied on the sale or use of taxable chemicals that are manufactured or produced in the United States or imported into the United States for consumption, use or warehousing (IRC 4661). Secondly, excise tax is applied on taxable substances sold or used by an importer (IRC 4671). If you are not a manufacturer or producer of chemicals, then you likely are not subject to the excise tax if you are purchasing them from a domestic supplier. 

Any manufacturer, producer or importer of taxable chemicals or taxable substances will need to include a Form 6627 with the quarterly excise tax return (Form 720). The first return for the third quarter of 2022 is due on October 31, 2022. Additionally, the excise tax needs to be deposited semimonthly for the tax incurred in that period. The deposit is due by the 14^th day of the following semimonthly period, or the preceding eligible day if the due date falls on a weekend or legal holiday in the District of Columbia. The deposit needs to reflect 95% of the net tax liability of that period. However, the IRS provides temporary relief for the third and fourth quarter of 2022 and the first quarter of 2023. During this period, the IRS will not apply failure to deposit penalties. Taxpayers are deemed to have satisfied the reasonable cause standard.

Additionally, the IRS provides a deposit safe harbor rule. Under this rule, the semimonthly deposit requirements are met if the taxpayer deposits 1/6 of the net tax liability of the second preceding quarter, makes the deposit on time and any underpaid tax is deposited by the due date of the excise tax return. As the requirement to pay and report Superfund excise taxes is first applicable for the third quarter of 2022, the deposit safe harbor rule begins in the first quarter of 2023, for which the third quarter of 2022 is the look-back period. During the first three quarters of 2023 the IRS will also not deny the right to use the deposit safe harbor rule if the deposits are not made as required.

Certain taxpayers may want to participate in tax-free sales of intermediate hydrocarbon streams or make inventory exchanges of taxable chemicals. In this case, a registration under Form 637 - Activity Letter G is required. Additionally, excise tax registration on Form 637 is required for some taxpayers, including pipeline operators, producers or importers of alcohol, biodiesel/biofuel, etc. Penalties for failure to register when required are significant.

The IRS has issued a number of FAQs regarding the Superfund excise taxes.
You can find them here: IRS issues Superfund Chemical Excise Taxes FAQs | Internal Revenue Service

If you are using taxable chemicals and / or taxable substances in your business, please contact your
Rödl & Partner representative to determine if you are subject to the Superfund excise tax.

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