INSIGHT: Chem firms brace for new US Superfund taxes

Al Greenwood

28-Apr-2022

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 Chemical Alias $/Short Ton Cent/lb
Acetylene 9.74 0.487
Ammonia 5.28 0.264
Antimony Trioxide 7.40 0.370
Arsenic Trioxide 6.82 0.341
Barium sulphide 4.60 0.230
Benzene 9.74 0.487
Bromine 8.90 0.445
Butadiene BD 9.74 0.487
Butane 9.74 0.487
Butylene 9.74 0.487
Chlorine 5.40 0.270
Chromite 3.04 0.152
Cupric oxide 7.18 0.359
Cupric sulphate 3.74 0.187
Cuprous oxide 7.94 0.397
Ethylene 9.74 0.487
Hydrochloric acid HCl 0.58 0.029
Hydrogen fluoride hydrofluoric acid (HF) 8.46 0.423
Lead oxide 8.28 0.414
Methane 6.88 0.344
Naphthalene 9.74 0.487
Nitric acid 0.48 0.024
Phosphorus 8.90 0.445
Potassium dichromate 3.38 0.169
Potassium hydroxide Caustic potash 0.44 0.022
Propylene 9.74 0.487
Sodium dichromate 3.74 0.187
Sodium hydroxide Caustic soda 0.56 0.028
Stannic chloride 4.24 0.212
Stannous chloride 5.70 0.285
Sulphuric acid 0.52 0.026
Toluene 9.74 0.487
Xylene 9.74 0.487
Zinc chloride 4.44 0.222
Zinc sulphate 3.80 0.190
Antimony 8.90 0.445
Arsenic 8.90 0.445
Cadmium 8.90 0.445
Chromium 8.90 0.445
Cobalt 8.90 0.445
Mercury 8.90 0.445
Nickel 8.90 0.445

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.

Chemical Alias
1,4 butanediol BDO
acetic acid
acetone
acrylic and methacrylic acid resins
acrylonitrile ACN
adipic acid
adiponitrile ADN
bisphenol-A BPA
butanol normal butanol or NBA
butyl acetate butac
butyl acrylate butyl-a
cumene
cyclohexane CX
dimethyl terephthalate DMT
epichlorohydrin EPC
ethyl acetate etac
ethyl acrylate ethyl-A
ethyl alcohol for non-beverage use ethanol
ethylbenzene EB
ethylene dichloride EDC
ethylene glycol EG
ethylene oxide EO
formaldehyde
glycerine
isopropyl alcohol isopropanol (IPA)
linear alpha olefins LAOs or normal alpha olefins (NAOs)
maleic anhydride MA
melamine
methanol
methyl acrylate metyl-A
methyl ethyl ketone MEK
methyl isobutyl ketone MIBK
methyl methacrylate MMA
nylon 6/6
phenol
phenolic resins
phthalic anhydride PA
polyalphaolefins PAOs
polycarbonate PC
polyethylene resins, total PE
polyethylene terephthalate pellets PET
polypropylene PP
polypropylene resins PP
polystyrene homopolymer resins PS
polystyrene resins and copolymers PS
polyvinylchloride resins PVCC
propanol n-propanol
propylene glycol PG
propylene oxide PO
styrene
styrene-butadiene, latex
styrene-butadiene, snpf
synthetic linear fatty alcohol ethoxylates
synthetic linear fatty alcohols
synthetic rubber, not containing fillers
terephthalic acid purified terephthalic acid (PTA)
toluene diisocyanate TDI
urea
vinyl acetate VAM
vinyl chloride VCM
vinyl resins PVC
vinyl resins, nspf PVC

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.

Chemical Alias
1,4 butanediol BDO
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
adiponitrile ADN
allyl chloride
alpha- methylstyrene
aniline
benzaldehyde
benzoic acid
bisphenol-A BPA
butanol normal butanol or NBA
butyl acrylate butyl-a
butyl benzyl phthalate
chlorinated polyethylene
cyclododecanol
decabromodiphenyl oxide
di-2 ethyl hexyl phthalate
di-n-hexyl adipate
diethanolamine DEA
diglycidyl ether of bisphenol-A
diisopropano- lamine
dimethyl terephthalate DMT
dimethyl-2, 6-naphthalene dicarboxylate
diphenyl oxide
diphenylamine
epichlorohydrin EPC
ethyl acetate etac
ethyl acrylate ethyl-A
ethyl chloride
ethylene dibromide
ethylenebistetra- bromo- phthalimide
formic acid
glycerine
hexabromocyclod odecane
hexamethylenedia mine
isobutyl acetate
isopropyl acetate
linear alpha olefins LAOs or normal alpha olefins (NAOs)
methyl acrylate metyl-A
methyl chloroform
methyl isobutyl ketone MIBK
methyl methacrylate MMA
monochloro- benzene
monoethanolamine MEA
monoisopro- panolamine
normal butyl acetate butac
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
polyalphaolefins PAOs
polybutene
polybutylene
polybutylene/ ethylene
polycarbonate PC
polyethylene terephthalate pellets PET
propanol n-propanol
sodium nitriolotriacetate monohydrate
synthetic linear fatty alcohols
synthetic linear fatty alcohol ethoxylates
terephthalic acid purified terephthalic acid (PTA)
tetrabromo- bisphenol-A
tetrachloro-phthalic anhydride
tetrahydrofuran
texanol benzyl phthalate
toluene diisocyanate TDI
toluenediamine
trichloroethylene
triethanolamine TEA
triisopropanolamine
trimethylolpropane
vinyl acetate VAM
acetone
acrylic and methacrylic acid resins
acrylonitrile ACN
ammonium nitrate
carbon tetrachloride
chloroform
chromic acid
cumene
cyclohexane CX
ethyl alcohol for nonbeverage use ethanol
ethylbenzene EB
ethylene dichloride EDC
ethylene glycol EG
ethylene oxide EO
ethyl methyl ketone MEK
ferrochrome ov 3 pct. carbon
ferrochromium nov 3 pct
ferronickel
formaldehyde
hydrogen peroxide
isophtalic acid
isopropyl alcohol isopropanol (IPA)
maleic anhydride MA
melamine
methanol
methylene chloride
nickel oxide
nickel powders
nickel waste and scrap
phenolic resins
phthalic anyhydride PA
polybutadiene
polypropylene resins PP
polystyrene homopolymer resins PS
polyethylene resins, total PE
polypropylene PP
polystyrene resins and copolymers PS
polyvinylchloride resins PVCC
propylene glycol PG
propylene oxide PO
styrene
styrene-butadiene, latex
styrene-butadiene, snpf
synthetic rubber, not containing fillers
unwrought nickel
urea
vinyl chloride VCM
vinyl resins PVC
vinyl resins, nspf PVC
wrought nickel rods and wire

Source: Deloitte

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By Al Greenwood

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