Emailsupport@efile720.com
Support+1 510 474
1376 | +1 224
215 5888 (Spanish)
(Monday - Friday 7AM to 8PM CST)
In this blog, you will gain a comprehensive understanding of Environmental Excise Tax, including the following key topics:
Who is Required to Pay Environmental Tax: Learn about the individuals and businesses obligated to pay this tax.
Exemptions from Environmental Tax: Discover who is exempt from paying Environmental Tax and under what circumstances.
Tax Rates and Calculation Methods: Understand how the Environmental Tax is calculated, including current tax rates and examples.
An Environmental Tax is a tax imposed on certain chemical substances that have a significant impact on the environment. These taxes are applied to manufacturers, producers, or importers who sell or use “taxable chemicals” or “taxable substances.” Commonly referred to as the Superfund Tax, it came back into effect on July 1, 2022.
The funds collected from this tax are used to support the Hazardous Substance Superfund Trust Fund, which is dedicated to cleaning up hazardous waste sites and addressing environmental pollution.
The tax was originally introduced under the Hazardous Substance Response Revenue Act of 1980 but expired in 1995. Under the Internal Revenue Code, the Superfund Tax was reinstated and is set to remain in effect until the end of 2031.The Superfund Chemical Excise Taxes apply to manufacturers, producers, or importers who sell or use "taxable chemicals" or "taxable substances" in the U.S. These chemicals or substances are defined under Section 4661 and Section 4672 of the Internal Revenue Code. Companies involved in the production or importation of such substances need to evaluate the chemical composition of their products and identify at which point in the supply chain any taxable chemicals or substances are imported into or produced in the U.S.
Manufacturers, producers, and importers of taxable chemicals or substances produced or imported into the U.S. are required to pay the tax.
The tax applies if the chemicals or substances are considered "taxable" under IRS Sections 4661 or 4672.
Certain exemptions are available, including:
Exporters: The tax applies only to manufacturers, producers, and importers. Exporters are exempt. If taxes were paid prior to export, companies can claim a refund.
Specific Uses: Some chemicals and substances are exempt when used for particular purposes, such as:
Chemicals in fertilizers, animal feed, or fuel. For instance, butane and methane are exempt if used as fuel, but not if used for other purposes.
Transitory Presence: Chemicals that have only a "transitory presence" during the smelting or refining process are exempt.
Substances Derived from Coal: Certain chemicals derived from coal may also be exempt.
Tax Based on Chemical Composition: The tax is calculated based on the rate assigned to each taxable chemical and the percentage of that chemical in the mixture or product.
Example:
If a chemical mixture contains:
50% Ethyl Chloride (taxed at $4.52 per ton)
50% Isopropyl Acetate (taxed at $4.54 per ton)
The tax would be calculated as follows:
Ethyl Chloride: $4.52 × 0.50 = $2.26
Isopropyl Acetate: $4.54 × 0.50 = $2.27
Total Tax Per Ton = $2.26 + $2.27 = $4.53 per ton
Alternative Method:
Companies may also self-assess the tax rate based on 10% of the appraised value of the imported substances. However, this method often results in a higher tax liability compared to the tax rate calculated using the specific chemical composition.
The choice of calculation method depends on the company’s products and import processes, but the direct calculation based on chemical composition is typically more accurate and cost-effective.
Like other Federal Excise Taxes, there are two methods for paying the Superfund Environmental Tax: manual filing and online filing.
1. Manual Filing Method
To manually pay the Superfund tax, you need to submit two forms:
Form 720: Quarterly Federal Excise Tax Return
Form 6627: Environmental Taxes (specific for certain taxable chemicals)
Important Notes:
Form 720: This form includes a section for Environmental Taxes under Part I. Many environmental taxes can be paid using this form.
Form 6627: If your tax includes ozone-depleting chemicals (ODCs) or other specific taxable chemicals, you must attach Form 6627 to Form 720. Fill the Form 6627 with these basic steps,
Name: Enter your business name as it appears on Form 720.
Quarter Ending: Input the date for the end of the quarter you're filing for.
EIN: Provide your Employer Identification Number.
Column B: Use the IRS-specified tax rate for each chemical.
Column A: Enter the quantity of each taxable chemical.
Column C: Multiply Column A (quantity) by Column B (tax rate) to get the tax owed.
After calculating the tax amount for each part in Form 6627, you must transfer the same tax amount to Form 720. Use the corresponding IRS number listed at the end of each part in Form 6627 to enter the tax on Form 720 in the appropriate section. This ensures the amounts are reported correctly on both forms.
For more information on which chemicals require Form 6627, you can refer to the IRS guidelines.
Form 6627 provides a list of taxable chemicals along with their respective tax rates. You need to input the quantities of the taxable chemicals you are reporting.
2. Online Filing Method
“The manual method can be time-consuming, requiring both forms to be completed and mailed to the IRS. However, you can streamline this process by filing online” says Bill West, Excise Tax Expert.
Use the IRS-approved online portal eFile720 to file and pay the tax electronically.
Fill in your business details on the portal.
Select the applicable category under the “Environmental Tax” section.
Enter the quantity of taxable chemicals, and the portal will automatically calculate the tax based on the current rates.
Review the summary of your filing.
Proceed to payment using your preferred method.
By using the online portal, you eliminate the need for separate forms and can complete your filing in one step. Once the payment is processed, your environmental tax filing is successfully completed.
WRAP:
By the end of this blog, you'll gain a clear understanding of what Environmental Tax is, who is required to pay it, how to accurately calculate the tax, and the available methods for paying it, both manually and online.