Environmental Excise Taxes Simplified | eFile720

What You Need to Know First

• Environmental excise taxes apply to specific products that, when produced and manufactured, come into contact with the Environment and are used to fund federal clean-up programs.
• These taxes must be paid only by those who manufacture, produce or import the taxable items as defined in the IRS Publication 46.
• In addition, the Superfund excise tax was re-enacted in July 2022 and provides funding for the Hazardous Substance Superfund Trust Fund.
• Tax will be calculated using the rates established by the IRS for the chemical or the chemical will be taxed using an alternate valuation method as determined by the IRS.
• Companies will complete the payment and filing process through the use of IRS forms or by filing electronically through the IRS-approved online service eFile720.

Definition

The Environmental Excise Tax is a federal tax on certain chemical products that are considered hazardous to the environment. When taxable chemicals/products are manufactured, produced or imported into the United States, these types of taxes apply.

This tax is commonly referred to as a Superfund Tax because the revenue will help fund Superfund activities, which are the clean-up of hazardous waste sites.

All revenues received from the Environmental Excise Tax are deposited into the Hazardous Substance Superfund Trust Fund, which will provide funds for the clean-up of hazardous waste sites to protect our health and environment.

These taxes were created under the Hazardous Substance Response Revenue Act of 1980 and they expired in 1995 when they were no longer in existence. Subsequently, they were reinstated by the Internal Revenue Code and became effective again as of July 1, 2022. Current law requires that taxes imposed will remain in effect until the end of 2031.

Who Is Required to Pay Environmental Taxes?

These taxes are not universally applicable. They specifically target entities involved in certain stages of the chemical supply chain. The obligation generally falls on:

• Manufacturers that produce taxable chemicals in the U.S.
• Producers that refine or process listed substances.
• Importers bringing taxable chemicals or substances into the U.S.

Sections 4661 and 4672 of the Internal Revenue Code define the chemicals and substances that are subject to the excise tax.

Companies are required to review their chemical composition and determine if there were any taxable components present when they sold, manufactured or imported that product.

A company needs to perform this review to determine the date and location of when the taxable chemical entered commerce in the U.S.

Exemptions Available

Although these taxes apply broadly to certain chemicals, the law provides important exemptions. These exemptions reduce unnecessary tax burdens when chemicals are used in limited or low-risk contexts.

Key exemptions include:

• Exports: Exporters are exempt. If a tax was paid before export, a refund may be claimed.
• Specified Uses: Chemicals used in fertilizers, animal feed, or fuels may be exempt. For example, methane and butane are exempt when used strictly as fuel.
• Transitory Presence: Chemicals that appear only temporarily during smelting or refining processes may qualify for exemption.
• Coal-Derived Substances: Certain chemicals derived from coal are excluded from taxation.

At present, the IRS has not released comprehensive procedural guidance for claiming these exemptions. Until official instructions are issued, businesses should maintain detailed records to substantiate exemption claims.

Tax Rates and How the Superfund Excise Tax Is Calculated

The Superfund excise tax rates are established under IRC Section 4661. Each taxable chemical is assigned a specific rate, generally calculated per ton. For imported substances, the tax may depend on the proportion of taxable chemicals contained within the product.

Standard Calculation Method

Tax is calculated by multiplying the applicable IRS rate by the percentage of each taxable chemical in the mixture.

Illustrative Example

If a product contains:

• 50% Ethyl Chloride at $4.52 per ton
• 50% Isopropyl Acetate at $4.54 per ton

The tax per ton would be:

• Ethyl Chloride: $4.52 × 0.50 = $2.26
• Isopropyl Acetate: $4.54 × 0.50 = $2.27
• Total Tax: $4.53 per ton

Alternative Method

Importers may elect to self-assess tax at 10% of the appraised value of the substance. While permitted, this method often results in a higher liability than the chemical-composition approach and is generally used only when detailed chemical data is unavailable.

How to Pay Environmental Excise Taxes

Like other federal excise obligations, these taxes can be paid using either a manual or electronic method.

Manual Filing

Manual filing requires submitting:

• Form 720 (Quarterly Federal Excise Tax Return)
• Form 6627 (Environmental Taxes), when applicable

Form 6627 details the quantities and rates for specific taxable chemicals. The calculated amounts are then transferred to Form 720 using IRS-assigned reference numbers to ensure consistency.

This method is accurate but time-intensive, requiring careful coordination between forms.

Online Filing

Online filing simplifies the process significantly. As noted by excise tax professionals, electronic filing reduces errors and eliminates paperwork. Using an IRS-approved platform such as eFile720 allows businesses to complete filing and payment in a single workflow.

How to File Online

The online process is straightforward:

• Enter business and EIN details.
• Select the applicable environmental tax category.
• Input quantities of taxable chemicals.
• Review the system-generated tax calculation.
• Submit payment securely.

Once payment is processed, the filing is complete and confirmation records are available for compliance documentation.

Conclusion

Manufacturers, producers and importers of regulated chemicals need to understand how to comply with the Environmental Excise Tax.

Having a clear understanding of who must pay, which exemptions can be taken from paying taxes, how taxes are calculated and what filing methods are available allows businesses to stay compliant and decrease risks.

By providing accurate reporting, whether the filing is done manually or electronically, a company can comply with 2031 and beyond. For simplified filing, visit eFile720.

FAQs

1. What are environmental excise taxes used for?
   They fund federal programs dedicated to cleaning up hazardous waste sites and mitigating environmental contamination.
2. Are environmental taxes paid by consumers?
   No. These taxes are imposed on manufacturers, producers and importers, not directly on end consumers.
3. When did the Superfund excise tax come back into effect?
   It was reinstated on July 1, 2022, under the Internal Revenue Code.
4. Can companies choose between calculation methods?
   Yes. Businesses may calculate tax using chemical composition rates or, in limited cases, an alternative valuation method.
5. Is electronic filing mandatory?
   Electronic filing is optional, but it is widely recommended due to efficiency, accuracy and faster processing. Learn more about electronic filing benefits.