[JPRT 112-1-11]
[From the U.S. Government Publishing Office]
JCS-1-11
[JOINT COMMITTEE PRINT]
PRESENT LAW
AND BACKGROUND INFORMATION
ON FEDERAL EXCISE TAXES
__________
Prepared by the Staff
of the
JOINT COMMITTEE ON TAXATION
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
JANUARY 2011
C O N T E N T S
----------
Page
Introduction..................................................... 1
I. Excise Taxes Dedicated to Trust Funds.............................2
A. Excise Taxes Dedicated to Transportation Trust Funds.. 2
1. Highway Trust Fund Excise Taxes................... 2
2. Airport and Airway Trust Fund Excise Taxes........ 11
3. Inland Waterways Trust Fund Excise Tax............ 16
4. Harbor Maintenance Trust Fund Excise Tax.......... 17
B. Excise Taxes Dedicated to Environmental Trust Funds or
Designated Funds..................................... 18
1. Leaking Underground Storage Tank Trust Fund Excise
Taxes............................................ 18
2. Oil Spill Liability Trust Fund Excise Tax......... 19
3. Sport Fish Restoration and Boating Trust Fund
Excise Taxes..................................... 2
4. Land and Water Conservation Fund (Federal Aid to
Wildlife Restoration Program) and Dedicated
Excise Taxes..................................... 22
C. Excise Taxes Dedicated to Health-Related Trust Funds.. 24
1. Black Lung Disability Trust Fund Excise Taxes..... 24
2. Vaccine Injury Compensation Trust Fund Excise
Taxes............................................ 26
3. Patient-Centered Outcomes Research Trust Fund
Excise Taxes..................................... 27
4. Annual Fee on Branded Prescription Pharmaceutical
Manufacturers and Importers...................... 29
II. General Fund Excise Taxes........................................31
A. Principal General Fund Excise Taxes................... 31
1. Distilled Spirits, Wine and Beer Excise Taxes..... 31
2. Tobacco Excise Taxes.............................. 33
3. Communications Excise Tax......................... 35
4. Gas Guzzler Excise Tax............................ 36
5. Water Transportation Passenger Excise Tax......... 37
6. Ozone-Depleting Chemicals Excise Tax.............. 37
B. Foreign Procurement Excise Tax........................ 38
C. General Fund Excise Taxes Related to Health Care...... 38
1. Excise Tax on Indoor Tanning Services............. 38
2. Excise Tax on Certain Medical Devices............. 39
3. Annual Fee on Health Insurance Providers.......... 39
4. Excise Tax on Individuals Without Essential
Coverage......................................... 41
5. Excise Tax on Large Employers Not Offering Health
Care Coverage.................................... 43
6. Failure To Satisfy Continuation Coverage
Requirements of Group Health Plans............... 44
7. Failure to Meet Certain Group Health Plan
Requirements..................................... 45
8. Failure of Employer to Make Comparable Archer MSA
Contributions.................................... 46
9. Failure By Employer to Make Comparable Health
Savings Account Contributions.................... 47
10. Excise Tax on Issuers of Qualified Long Term Care
Contracts........................................ 48
11. Nonconforming Group Health Plans................. 49
12. Excise Tax on Insurers For High-Cost Employer-
Sponsored Health Coverage........................ 50
D. Miscellaneous Regulatory Excise Taxes................. 51
III.Information on Selected Trust Fund Balances and Related Federal
Excise Tax Receipts..............................................60
A. Background............................................ 60
B. Estimated Revenues and Outlays for Selected Federal
Trust Funds (FY 2011-2020)........................... 62
Appendices....................................................... 69
A. Schedule of Present Federal Excise Tax Rates.......... 69
B. Expired Hazardous Substance Superfund Excise Taxes.... 85
INTRODUCTION
The Internal Revenue Code (the ``Code'') imposes numerous
excise taxes on goods and services.\1\ In addition to excise
taxes the primary purpose of which is revenue production,
excise taxes also are imposed to promote adherence to other
policies (e.g., penalty excise taxes). Many trust funds
established by the Federal Government are financed with
dedicated excise tax receipts. This document \2\ provides a
description of present-law Federal excise taxes, and when
applicable, background information on trust funds financed with
excise tax revenues.
---------------------------------------------------------------------------
\1\ Unless otherwise stated, all section references are to the
Internal Revenue Code of 1986, as amended.
\2\ This document may be cited as follows: Joint Committee on
Taxation, Present Law and Background Information on Federal Excise
Taxes (JCS-1-11), January 2011. This document is available at
www.jct.gov.
---------------------------------------------------------------------------
Revenues from certain Federal excise taxes are dedicated to
trust funds (e.g., the Highway Trust Fund) for designated
expenditure programs, and revenues from other excise taxes
(e.g., alcoholic beverages) go to the General Fund for general
purpose expenditures. The largest excise taxes in terms of
revenue (for fiscal year 2009) are those for gasoline motor
fuels ($25.1 billion), domestic cigarettes ($11.0 billion),
diesel motor fuel ($8.5 billion), and domestic air ticket ($7.3
billion).\3\
---------------------------------------------------------------------------
\3\ Internal Revenue Service, Statistics of Income Bulletin,
Historical Table 20, Federal Excise Taxes Reported to or Collected By
the Internal Revenue Service, Alcohol and Tobacco Tax and Trade Bureau,
and Customs Service, By Type of Excise Tax, Fiscal Years 1997-2009,
http://www.irs.gov/taxstats/bustaxstats/article/0,,id=97148,00.html
(2010).
---------------------------------------------------------------------------
Part I of the document discusses excise taxes dedicated to
trust funds. Part II discusses General Fund excise taxes. Part
III provides background information, projected excise tax
receipts, and information on the projected fiscal status of
various trust funds. Appendix A includes a summary rate
schedule for the principal excise taxes that are presently
imposed, and Appendix B provides background information on the
expired Hazardous Substance Superfund taxes and related trust
fund.
I. EXCISE TAXES DEDICATED TO TRUST FUNDS
A. Excise Taxes Dedicated to Transportation Trust Funds
1. Highway Trust Fund excise taxes
In general
Excise taxes are imposed on fuels, and heavy vehicles and
tires used in highway transportation to fund the Highway Trust
Fund. The Highway Trust Fund was established in 1956, with what
were General Fund excise taxes being expanded and revenues
transferred to the Highway Trust Fund. Since 1983, the Highway
Trust Fund has financed certain mass transit programs as well
as traditional highway construction and maintenance programs.
Historically, the excise taxes have included statutory
expiration dates that coordinate with the Highway Trust Fund
expenditure authorization periods. Currently, the excise taxes
(except for 4.3 cents per gallon of the motor fuels taxes which
is permanent) are scheduled to expire after September 30,
2011.\4\
---------------------------------------------------------------------------
\4\ The 4.3-cents-per-gallon component of the taxes was enacted in
1993 as a General Fund deficit reduction measure. Provisions for
transfer of these revenues to the Highway Trust Fund were enacted in
1997. Despite the statutory expiration dates, the full amount of the
excise taxes is assumed to be permanent for Federal budget scorekeeping
purposes. See, Part III.A., for a description of these Federal budget
rules.
---------------------------------------------------------------------------
A majority of the revenue received from the highway
transportation excise taxes is derived from taxes on highway
motor fuels. Although the Code provides several refundable fuel
excise tax credits, such as the alcohol, biodiesel, and
alternative fuel mixture credits, the Highway Trust Fund is
credited with the full amount of tax imposed, without reduction
for the fuel excise tax credits.\5\ The present highway
transportation excise taxes consist of:
---------------------------------------------------------------------------
\5\ Sec. 9503(b)(1).
------------------------------------------------------------------------
Tax rates \6\ and
nonrefundable income tax/
Tax/credit (and Code section) refundable excise tax
credits
------------------------------------------------------------------------
Major highway motor fuels excise taxes and credits
Taxable fuels:
a. Gasoline and gasoline 18.3 cents per gallon
blendstocks (sec. 4081).\7\......
b. Diesel fuel and kerosene (secs. 24.3 cents per gallon
4081 and 4041)...................
c. Diesel-water fuel emulsion 19.7 cents per gallon
(sec. 4081).\8\..................
d. Alcohol fuels (sec. 4041)...... 18.3 cents per gallon
Alcohol credits:
a. Ethanol and ethanol fuel 45 cents per gallon of
mixtures (secs. 40, 6426 and ethanol (E-100 eligible for
6427(e)). nonrefundable section 40
income tax credit only)
b. Alcohol or alcohol fuel 60 cents per gallon of
mixtures (other than ethanol) alcohol (100 percent
(secs. 40, 6426 and 6427(e)). alcohol fuel not in a
mixture eligible for
nonrefundable income tax
credit only)
c. Small ethanol producer credit 10 cents per gallon
(sec. 40). (nonrefundable income tax
credit only)
d. Cellulosic biofuel producer 41 cents per gallon; 46
credit (for alcohol fuel) (sec. cents per gallon for
40). ethanol (nonrefundable
income tax credit only)
------------------------------------------------------------------------
\6\ With the exception of liquefied petroleum gas (propane), compressed
natural gas (``CNG''), and liquefied natural gas (``LNG''), highway
motor fuels are subject to an additional 0.1 cent-per-gallon tax to
fund the Leaking Underground Storage Tank (``LUST'') Trust Fund
(through September 30, 2011). See, Part I.B.1., for a description of
this excise tax and Trust Fund.
\7\ Gasoline blendstocks are defined in Treasury Department regulations
as: alkylate, butane, catalytically cracked gasoline, coker gasoline,
ethyl tertiary butyl ether (``ETBE''), hexane, hydrocrackate,
isomerate, methyl tertiary butyl ether (``MTBE''), mixed xylene
(including any separated isomer of xylene), natural gasoline, pentane,
pentane mixture, polymer gasoline, raffinate, reformate, straight-run
gasoline, straight-run naphtha, tertiary amyl methyl ether (``TAME''),
tertiary butyl alcohol (gasoline grade), thermally cracked gasoline,
and toluene. See, Treas. Reg. sec. 48.4081-1(c)(3).
\8\ Diesel-water fuel emulsion consists of a mixture of diesel fuel and
at least 14 percent water combined with an emulsion additive that is
registered by a U.S. manufacturer with the EPA pursuant to section 211
of the Clean Air Act (as in effect on March 31, 2003) (sec.
4081(a)(2)(D)).
------------------------------------------------------------------------
Tax rates \6\ and
nonrefundable income tax/
Tax/credit (and Code section) refundable excise tax
credits
------------------------------------------------------------------------
Special motor fuel, alternative fuels, and biodiesel taxes and credits
Tax on taxable fuels:
a. Liquid fuel produced from coal 24.3 cents per gallon
(sec. 4041)......................
b. Partially exempt ethanol 11.3 cents per gallon
produced from natural gas (sec.
4041(m)).\9\.....................
c. Partially exempt methanol fuel 9.15 cents per gallon
produced from natural gas (sec.
4041(m)..........................
d. B-100 (100% biodiesel) and 24.3 cents per gallon
renewable diesel (sec. 4081).\10\
e. Biodiesel and renewable diesel 24.3 cents per gallon
fuel mixtures (sec. 4081)........
f. Compressed natural gas 18.3 cents per gasoline
(``CNG'') (sec. 4041)............ gallon equivalent
(GGE = 126.67 c.f.)
g. Liquefied petroleum gas 18.3 cents per gallon
(``LPG'') (sec. 4041)............
h. Liquefied natural gas (``LNG'') 24.3 cents per gallon
(sec. 4041)......................
i. Liquid fuel derived from 24.3 cents per gallon
biomass (sec. 4041)..............
j. ``P Series'' fuels (sec. 4041). 18.3 cents per gallon
k. Liquefied hydrogen fuel (sec. 18.3 cents per gallon
4041)............................
l. Qualified ethanol and methanol 18.3 cents per gallon
fuels produced from coal (sec.
4041)............................
------------------------------------------------------------------------
\9\ Partially exempt ethanol and methanol fuel means a liquid at least
85 percent of which consists of ethanol, methanol, or other alcohol
produced from natural gas. After September 30, 2011, the tax rates on
these fuels are scheduled to decline to 4.3 cents per gallon (ethanol)
and 2.15 cents per gallon (methanol and other non-ethanol alcohol).
\10\ Biodiesel contains monoalkyl esters of long chain fatty acids
derived from plant or animal matter which meet EPA requirements and
ASTM D6751. Renewable diesel is defined as a liquid fuel meeting EPA
requirements and ASTM D975 and D396 (or other equivalent standards
approved by the Treasury Department). Renewable diesel fuel does not
include any fuel derived by co-processing biomass with a feedstock
that is not biomass.
------------------------------------------------------------------------
Tax rates \6\ and
nonrefundable income tax/
Tax/credit (and Code section) refundable excise tax
credits
------------------------------------------------------------------------
Tax credits:
a. Biodiesel and biodiesel fuel $1.00 per gallon of
mixtures (secs. 40A, 6426, and biodiesel (B-100 eligible
6427(e))......................... for nonrefundable income
tax credit only)
b. Renewable diesel and renewable $1.00 per gallon of
fuel mixtures renewable diesel renewable diesel (100%
fuel eligible for (secs. 40A, nonrefundable income tax
6426 and 6427(e))................ credit only)
c. Small agri-biodiesel producer 10 cents per gallon
credit (sec. 40A)................ (nonrefundable income tax
credit only)
d. Cellulosic biofuel producer $1.01 per gallon
credit (sec. 40)................. (nonrefundable income tax
credit only)
e. Alternative fuels and 50 cents per gallon
alternative fuel mixtures (LPG, (refundable excise tax
``P Series'' fuels, CNG, LNG, credit)
liquefied hydrogen, liquid fuel
derived from coal,\11\ and liquid
fuel derived from biomass) (sec.
6426 and 6427(e))................
------------------------------------------------------------------------
\11\ To be an alternative fuel, liquid fuel from coal (including peat)
must be derived through the ``Fischer-Tropsch'' process, and certain
carbon capture requirements applicable to the gasification facility
also must be met. Sec. 6426(d)(2)(E) and 6426(d)(4).
------------------------------------------------------------------------
Tax rates \6\ and
nonrefundable income tax/
Tax/credit (and Code section) refundable excise tax
credits
------------------------------------------------------------------------
Non-fuels taxes imposed on heavy highway vehicles:
a. Retail sales tax on highway 12 percent of retail price
tractors (over 19,500 lbs), heavy
trucks (over 33,000 lbs.), and
trailers (over 26,000 lbs.) (sec.
4051).\12\.......................
b. Manufacturers' excise tax on 9.45 cents for each 10 lbs.
tires for heavy vehicles (sec. in excess of 3,500 lbs. of
4071)............................ maximum rated load capacity
(4.725 cents for biasply
tires and super single
tires) \13\
c. Annual heavy vehicle use tax Under 55,000 lbs.--No tax
(sec. 4481).\14\................. 55,000-75,000 lbs.--$100
plus $22 per 1,000 lbs.
over 55,000 lbs.
Over 75,000 lbs.--$550
------------------------------------------------------------------------
Administration of taxes
Fuels excise taxes.--The highway motor fuels excise taxes
on fuels other than ``alternative fuels'' are imposed on
removal of the fuel from a refinery or on importation, unless
the fuel is transferred in bulk by pipeline or barge to a
registered terminal facility. In such a case, tax is imposed
upon removal from the terminal facility. The bulk removal
exception to refinery or importation taxation applies only if
the person removing or entering the fuel and the operator of
the pipeline or barge also are registered with the Treasury
Department.\15\
---------------------------------------------------------------------------
\12\ Weight is determined on ``gross vehicle weight,'' which is the
fully-loaded, certificated weight for the vehicle.
\13\ Biasply tire means a pneumatic tire on which the ply cords
that extend to the beads are laid at alternate angles substantially
less than 90 degrees to the centerline of the tread (sec. 4072(d)).
Super single tires are single tires greater than 13 inches in cross
section width designed to replace two tires in a dual fitment (other
than for steering) (sec. 4072(c)).
\14\ Weight is defined as ``taxable gross weight,'' which is the
customary fully loaded weight.
\15\ Deep-draft vessels are not required to be registered for the
bulk transfer exception to apply.
---------------------------------------------------------------------------
Present law imposes tax on all gasoline (including gasoline
blendstocks), diesel fuel, and kerosene that is removed, except
diesel fuel and kerosene that is destined for a nontaxable use
(including a partially taxable use in an intercity bus) and
that is indelibly dyed in accordance with Treasury Department
regulations.\16\ The refiner, importer, or person holding an
inventory position in a terminal (the ``position holder'')
generally is liable for payment of the tax.
---------------------------------------------------------------------------
\16\ The dyeing requirement does not apply in rural areas of
Alaska. A further exception applies to kerosene received by pipeline or
vessel for use in the manufacture or production of non-fuel feedstocks.
---------------------------------------------------------------------------
The taxes on alternative fuels are imposed at the retail or
user level.
Other taxes.--The sales tax on heavy highway vehicles is
imposed at the retail level. To prevent sales of ``stripped
down'' vehicles which subsequently are completed, special rules
apply to sales of parts and accessories (in excess of $1,000)
installed on a taxable vehicle within six months after the date
the vehicle is first placed in service. This tax is primarily
imposed on the truck owner, with installers secondarily liable
for its payment.\17\ Similarly, special rules apply for
determining whether repairs or other modifications to heavy
highway vehicles constitute a taxable re-manufacture of a new
vehicle.\18\
---------------------------------------------------------------------------
\17\ Sec. 4051(b).
\18\ Sec. 4052(f).
---------------------------------------------------------------------------
The excise tax on heavy vehicle tires is a manufacturers'
excise tax.
The annual heavy vehicle use tax is imposed with respect to
a taxable period of July 1-June 30. Tax liability is incurred
as of the first month the vehicle is used during the taxable
period (subject to proration rules). Tax also is prorated for
vehicles sold, destroyed, or stolen (and not subsequently used)
during the taxable period.
Exemptions and reduced rates
Fuels excise taxes.--Present law includes numerous
exemptions (including partial exemptions) for specified uses
(or users) of taxable fuels. Because most highway motor fuels
excise taxes are imposed before the end use (or user) of the
fuel is known, most of these exemptions are administered
through refunds to end users of tax paid by a party that
processed the fuel earlier in the distribution chain. The
present exempt uses (and users) include:
1. Use by State and local government;
2. Use by nonprofit educational organizations;
3. Use in private local mass transit buses having a
seating capacity of at least 20 adults (not including
the driver) when the buses operate under contract with
(or are subsidized by) a State or local governmental
unit to furnish transportation;
4. Use in private intercity buses serving the general
public along scheduled routes; \19\ and,
---------------------------------------------------------------------------
\19\ This use is exempt from the full 18.3-cents-per-gallon
gasoline excise tax (sec. 6421(b)) and is subject to 7.3 cents per
gallon of the 24.3-cents-per-gallon diesel fuel and kerosene excise
taxes (sec. 6427(b)).
---------------------------------------------------------------------------
5. Use in an off-highway business use (gasoline), or
an off-highway use (diesel fuel and kerosene). Examples
of such uses include use for non-fuel feedstock
purposes and the use of diesel fuel or kerosene as
heating fuel.
Other taxes.--The non-fuels excise taxes imposed on heavy
highway vehicles include numerous partial and full exemptions
and special rules for coordinating the taxes on vehicles that
otherwise could be subject (in part) to more than one of these
taxes.
1. Tractors for use with a trailer or semi-trailer are not
subject to the retail sales tax if the combination has a gross
weight of 33,000 pounds or less.
2. The cost of idling reduction devices is not subject to
the retail sales tax on tractors and trucks.
3. A credit is allowed against the retail sales tax for tax
previously imposed on tires sold in connection with a taxable
tractor, trailer, or truck.
4. Various vehicles and components are exempt from the
retail sales tax: camper coaches for self-propelled mobile
homes, certain agricultural vehicles, house trailers,
ambulances and hearses, concrete mixers, rail/highway
combination trailers and vans, trash containers that are not
designed to be permanently mounted on a taxable vehicle,
insulation having an ``R value'' of not less than R35 per inch,
and certain mobile machinery.
5. State and local government vehicles, certain local
transit buses, certain blood collector vehicles, and certain
mobile machinery are exempt from the annual heavy vehicle use
tax as are vehicles used fewer than 5,000 miles on public
highways during a taxable period (7,500 miles in the case of
farm vehicles).
6. The annual heavy vehicle use tax is reduced by 25
percent for vehicles used exclusively in transporting harvested
forest products to and from the forested site if the vehicles
are under for such purpose in the State where the vehicle is
required to be registered.
Special rules for alcohol fuels, biodiesel, and alternative
fuels
Before 2005, alcohol fuels mixtures generally were subject
to reduced rates of tax.\20\ Beginning on January 1, 2005,
however, the full 18.3-cents-per-gallon and 24.3-cents-per-
gallon highway fuels tax rates were nominally extended to these
fuels. At that time, a new refundable excise tax credit also
was enacted for alcohol fuel mixtures and new refundable excise
tax credits were enacted for biodiesel mixtures as well.\21\
Later, refundable excise tax credits were enacted for
alternative fuels and alternative fuel mixtures. The amount of
the excise tax credits exceeds the amount of the excise tax
imposed, resulting in a net Federal outlay for each gallon of
these fuels.
---------------------------------------------------------------------------
\20\ Alcohol is defined as methanol and ethanol that is not
produced from petroleum, natural gas, or coal (including peat) and
having a proof of at least 150. Alcohol having a proof or at least 150,
but less than 190, receives a reduced credit.
The credit is allowed for qualifying alcohol consumed in the
production of ETBE and MTBE.
\21\ Secs. 6426 and 6427(e).
---------------------------------------------------------------------------
Through December 31, 2011, the refundable excise tax credit
rates for these fuels are: 45 cents per gallon for ethanol
mixtures; 60 cents per gallon for methanol (or other non-
ethanol alcohol) mixtures, $1.00 per gallon for biodiesel and
renewable diesel mixtures; and 50 cents per gallon for
alternative fuels (including compressed gas derived from
biomass).\22\ The alternative fuels credit is allowed without
regard to whether the fuels are mixed with other taxable motor
fuels but only if the fuel is used or sold for use in a motor
vehicle, motorboat or for use as a fuel in aviation.
---------------------------------------------------------------------------
\22\ The scheduled expiration date for the alternative fuel credit
for liquefied hydrogen is September 30, 2014.
---------------------------------------------------------------------------
The following illustrates the interaction of the taxes and
credits. If one gallon of ethanol is blended with nine gallons
of gasoline to make 10 gallons of gasoline, the tax is $1.83
(10 .183) on the 10 gallons of gasohol. However, the
alcohol fuel mixture credit for the gallon of ethanol is 45
cents, so after the credit is taken into account, the tax on
each gallon of gasohol is 13.8 cents per gallon (($1.83 - .45)/
10 = .138), rather than 18.3 cents per gallon. Nonetheless, the
Highway Trust Fund is credited for the full amount of the tax,
18.3 cents per gallon, without regard to the credit. As another
example, a gallon of liquified natural gas is taxed at 24.3
cents per gallon. The alternative fuel credit, when it was in
effect, was 50 cents per gallon, thus after taking into account
the credit, the taxpayer received a refundable credit of 24.7
cents per gallon or the full 50 cents if the fuel was to be
used for a nontaxable purpose, such as for use by a State or
local government.
Through December 31, 2011, nonrefundable income tax credits
are allowed in the same amounts as described above for
qualifying fuels mixtures, and for alcohol fuel, biodiesel, and
renewable diesel.\23\
---------------------------------------------------------------------------
\23\ Secs. 40 and 40A. Adding a denaturants not exceeding two
percent of the volume of alcohol is not treated as the creation of an
alcohol fuels mixture (sec. 40(b)(5)). Denaturants in such amounts are
disregarded in determining the volume of qualifying alcohol in an
alcohol mixture (sec. 40(d)(4)).
---------------------------------------------------------------------------
The income tax credits generally are available to the
person selling the qualifying product for use as a fuel or
using it as a fuel. In addition to the general excise tax and
income tax credits, add-on income tax credits of 10 cents per
gallon are allowed to qualifying small producers of ethanol and
agri-biodiesel producers (through December 31, 2011).\24\ A
$1.01 per gallon income tax credit is allowed to producers of
``cellulosic biofuel'' through December 31, 2012. Cellulosic
biofuel is defined as a liquid fuel produced from any
lignocellulosic or hemicellulosic matter that is available on a
renewable or recurring basis and meets the registration
requirements for fuels and fuel additives established under the
Clean Air Act.\25\ Cellulosic biofuel does not include certain
unprocessed fuels if more than four percent of such fuel
(determined by weight) is any combination of water or sediment,
or the ash content of such fuel is more than one percent
(determined by weight).
---------------------------------------------------------------------------
\24\ Agri-biodiesel is defined as biodiesel derived solely from
virgin oils, including esters derived from virgin vegetable oils from
corn, soybeans, sunflower seeds, cottonseeds, canola, crambe,
rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and
camelina, or from animal fats (sec. 40A(d)(2)).
\25\ 42 U.S.C. 7545.
---------------------------------------------------------------------------
Overview of Highway Trust Fund expenditure provisions
In general.--Dedication of highway excise tax revenues to
the Highway Trust Fund and expenditures from the Highway Trust
Fund are governed by provisions of the Code.\26\ The Code
authorizes expenditures (subject to appropriations) from the
Highway Trust Fund through March 4, 2011, for the purposes
provided in authorizing legislation in effect on the date of
enactment of the Surface Transportation Extension Act of 2010,
Part II.\27\
---------------------------------------------------------------------------
\26\ Sec. 9503.
\27\ Pub. L. No. 111-322.
---------------------------------------------------------------------------
Revenues from the highway excise taxes, as imposed through
September 30, 2011, generally are dedicated to the Highway
Trust Fund. However, certain transfers are made from the
Highway Trust Fund into the General Fund of the Treasury,
relating to tax revenues on gasoline used on farms, gasoline
used for certain non-highway purposes or by local transit
systems, fuels not used for taxable purposes, and income tax
credits for certain uses of fuels.\28\
---------------------------------------------------------------------------
\28\ Sec. 9503(c)(2).
---------------------------------------------------------------------------
In addition, revenues attributable to the excise taxes
imposed on motorboat gasoline and special motor fuels and on
gasoline used as a fuel in the non-business use of small-engine
outdoor power equipment are transferred to the Sport Fish
Restoration and Boating Trust Fund through September 30, 2011,
with the first $1,000,000 per fiscal year of such monies going
to the Land and Water Conservation Fund instead.\29\
---------------------------------------------------------------------------
\29\ Sec. 9503(c)(4) and (5). See, Part I.B.3 relating to the Sport
Fish Restoration and Boating Trust Fund.
---------------------------------------------------------------------------
Highway Trust Fund expenditures.--The Highway Trust Fund
has two accounts: Mass Transit Account and Highway Account.\30\
Both accounts are funding sources for specific transit and
highway-related programs. Neither account receives interest on
unexpended balances. The Mass Transit Account receives revenues
equivalent to 2.86 cents per gallon of highway motor fuels
excise taxes generally, except 1.43 cents per gallon for any
partially exempt methanol or ethanol, 1.86 cents per gallon for
liquefied natural gas, 2.13 cents per gallon for liquefied
petroleum gas, and 9.71 cents per MCF for compressed natural
gas.
---------------------------------------------------------------------------
\30\ Highway Trust Fund expenditures are subject to appropriations
Acts. However, certain of the programs are classified as ``contract
spending'', a category of Federal spending in which executive agencies
are permitted to enter into contracts for spending with appropriations
being enacted subsequently to liquidate the contracted expenditures.
Highway Trust Fund spending further benefits from special Federal
budget ``firewalls'' designed to ensure that the monies are spent as
authorized rather than being subjected to obligations ceilings enacted
as part of deficit reduction measures.
---------------------------------------------------------------------------
Highway Trust Fund expenditure purposes have been updated
with each surface transportation Act enacted since
establishment of the Highway Trust Fund in 1956. In general,
expenditures authorized under those Acts (as the Acts were in
effect on the date of enactment of the most recent such
authorizing Act) are specifically approved by the Code as
Highway Trust Fund expenditure purposes. No Highway Trust Fund
monies may be spent for a purpose not approved by the Code. The
Code provides that authority to make expenditures from the
Highway Trust Fund expires after March 4, 2011.
Anti-deficit provisions of the Highway Trust Fund.--Because
some highway/mass transit projects can take multiple years to
complete, the Highway Trust Fund generally has carried a
positive unexpended balance--a large portion of which is
reserved to cover existing Highway Trust Fund obligations.
Highway Trust Fund spending is limited by the fund's internal
anti-deficit provisions--the so-called ``Harry Byrd rule.''
Generally, this rule is intended to prevent the further
obligation of Federal highway/transit funds from the Highway
Trust Fund if the current and expected balances of the fund are
projected to fall below a certain level. The rule requires the
Treasury Department to determine, on a quarterly basis, the
amount (if any) by which unfunded highway authorizations exceed
projected net fund tax receipts for the 48-month period
beginning at the close of each fiscal year.\31\ If unfunded
highway authorizations exceed projected 48-month trust fund
receipts, apportionments to the States for programs are to be
reduced proportionately. The Mass Transit Account has a 12-
month receipts rule.\32\ For purposes of this rule, Highway
Trust Fund excise taxes are assumed extended beyond their
statutory expiration date.
---------------------------------------------------------------------------
\31\ Sec. 9503(d).
\32\ Sec. 9503(e)(4).
---------------------------------------------------------------------------
Limitations on transfers to the Highway Trust Fund.--The
Code also contains a specific enforcement provision to prevent
expenditure of Highway Trust Fund monies for purposes not
authorized in the Code.\33\ Should such unapproved expenditures
occur, no further excise tax receipts will be transferred to
the Highway Trust Fund. Instead, the taxes will continue to be
imposed with receipts being retained in the General Fund. This
enforcement provision provides that it applies not only to
unauthorized expenditures under the current Code provisions,
but also to expenditures pursuant to future legislation that
does not amend section 9503's expenditure authorization
provisions or otherwise authorize the expenditure as part of a
revenue Act.
---------------------------------------------------------------------------
\33\ Sec. 9503(b)(5).
---------------------------------------------------------------------------
2. Airport and Airway Trust Fund excise taxes \34\
---------------------------------------------------------------------------
\34\ All Airport and Airway Trust Fund excise taxes except for 4.3
cents per gallon of the taxes on aviation fuels are scheduled to expire
after March 31, 2011. The 4.3-cents-per-gallon fuels tax rate is
permanent. However, for Federal budget scorekeeping purposes, the
statutory expiration date is disregarded and the full amount of the
taxes is assumed to be permanent. See, Part III.A.
---------------------------------------------------------------------------
Excise taxes are imposed on amounts paid for commercial air
passenger and freight transportation and on fuels used in
commercial and noncommercial (i.e., transportation that is not
``for hire'') aviation to fund the Airport and Airway Trust
Fund.\35\ The present aviation excise taxes are as follows:
---------------------------------------------------------------------------
\35\ Air transportation through U.S. airspace that neither lands in
nor takes off from a point in the United States (or the 225-mile zone,
described below) is exempt from the aviation excise taxes, but the
transportation provider is subject to certain ``overflight fees''
imposed by the Federal Aviation Administration pursuant to
Congressional authorization.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
a. Domestic air passengers (sec. 4261).... 7.5 percent of fare, plus
$3.70 (2011) per domestic
flight segment generally
\36\
a. International air passengers (sec. $16.30 (2011) per arrival or
4261).................................... departure \37\
b. Amounts paid for right to award free or 7.5 percent of amount paid
reduced rate passenger air transportation
(sec. 4261)..............................
c. Air cargo (freight) transportation 6.25 percent of amount
(sec. 4271).............................. charged for domestic
transportation; no tax on
international cargo
transportation
d. Aviation fuels (sec. 4081): \38\
i. Commercial aviation................ 4.3 cents per gallon
ii. Non-commercial (general) aviation:
Aviation gasoline................. 19.3 cents per gallon
Jet fuel.......................... 21.8 cents per gallon
------------------------------------------------------------------------
Administration of taxes
Air passenger and cargo taxes.--Persons purchasing air
transportation are liable for the commercial air passenger
excise taxes. Transportation providers are secondarily liable
if they fail to collect tax from their passengers. The amount
of tax must be separately disclosed on airline tickets. Like
the air passenger excise taxes, the air cargo tax is imposed on
the person paying for the service.
---------------------------------------------------------------------------
\36\ The domestic flight segment portion of the tax is adjusted
annually (effective each January 1) for inflation (adjustments based on
the changes in the consumer price index (the ``CPI'')).
\37\ The international arrival and departure tax rate is adjusted
annually for inflation (measured by changes in the CPI).
\38\ Like most other taxable motor fuels, aviation fuels are
subject to an additional 0.1-cent-per-gallon excise tax to fund the
LUST Trust Fund. See, Part I.B.1.
---------------------------------------------------------------------------
Aviation fuels taxes.--The aviation fuels excise taxes are
administered under rules similar to those that apply to the
Highway Trust Fund fuels taxes. That is, the taxes generally
are collected on removal of taxable fuels from a refinery
(subject to the bulk transfer exception also applicable to the
highway fuels excise taxes). Most aviation fuels excise tax is
collected upon removal of the fuel from a registered terminal
facility. Many airports include registered terminals within the
secured area of the airport. Under a special rule, certain
refueler trucks, tankers, or tank wagons are treated as part of
such terminals, thereby allowing imposition of tax on jet fuel
to be deferred until the kerosene is loaded into the fuel tank
of an aircraft.\39\ Qualifying trucks and tankers may not be
registered for highway use and must be operated by the owner of
the registered terminal facility. Jet fuel that is not
delivered directly into the fuel tank of an aircraft from a
registered terminal is taxed at the higher general aviation
rates. Commercial airlines and other commercial aircraft using
jet fuel taxed at the general aviation tax rate may recover tax
imposed at the higher rate through refund claims or credits
against excise tax liability (including air passenger and cargo
tax liability).
---------------------------------------------------------------------------
\39\ When fuel is delivered directly into the fuel tanks of a
commercial aircraft, commercial airlines may ``self-certify'' and
become the direct payors of the jet fuel excise tax.
---------------------------------------------------------------------------
Exemptions, reduced rates, and special rules
Air passenger taxes.--The domestic air passenger taxes
apply to transportation beginning and ending within the United
States or to or from a point within the continental United
States and a point within the ``225-mile zone'' of Canada or
Mexico. The 225-mile zone includes the portions of those
countries that are not more than 225 miles from the nearest
point in the continental United States. If passenger
transportation is purchased outside the United States, it is
subject to the domestic taxes only if the transportation both
begins and ends in this country.
Special rules apply to air transportation between the
continental United States and Alaska or Hawaii and between
Alaska and Hawaii.\40\ The portion of such transportation that
is not within the United States (e.g., the portion over the
Pacific Ocean) is not subject to the 7.5-percent domestic air
passenger excise tax. In addition to this pro-rated ad valorem
tax, an $8.20 (2011) international tax rate for the excluded
portion of the travel is imposed.\41\ The domestic flight
segment component of tax applies under the same rules as for
flights within the continental United States. Further,
transportation within Alaska or Hawaii is taxed in the same
manner as domestic transportation within the continental United
States.
---------------------------------------------------------------------------
\40\ The term ``continental United States'' includes the 48
contiguous States and the District of Columbia.
\41\ The $8.20 amount is adjusted annually for inflation (measured
by the CPI).
---------------------------------------------------------------------------
An additional special rule exempts domestic flight segments
to or from qualified rural airports from the flight segment
portion of the domestic air passenger excise tax. A qualified
rural airport is an airport (1) from which there were fewer
than 100,000 commercial passengers departing by air on flight
segments of at least 100 miles during the second preceding
calendar year, and (2) (a) which is not located within 75 miles
of another airport that is not a qualified rural airport or (b)
which is not connected by paved roads to another airport.
The domestic air passenger excise tax does not apply to
domestic segments (i.e., wholly within the United States) that
are part of uninterrupted international air transportation.
Uninterrupted international air transportation means travel
(entirely by air) that does not both begin and end in the
United States (or the 225-mile zone) and during which there is
no more than a 12-hour scheduled period between arrival at and
departure from any point in the United States.\42\
---------------------------------------------------------------------------
\42\ A more liberal rule is provided for military personnel
traveling in uniform while on leave in transportation that involves
both international and domestic U.S. segments.
---------------------------------------------------------------------------
Both the domestic and international passenger taxes are
imposed on ``amounts paid'' for air transportation. Therefore,
no tax is imposed on transportation under airline frequent
flyer programs for which no charge is made. Similarly, no
excise tax is imposed on no-charge transportation provided to
airline employees as a fringe benefit. Excise tax is imposed
(determined by reference to actual amounts paid) for reduced-
cost travel available under both frequent-flyer and airline
employee and fringe-benefit programs. Further, the IRS has
ruled in at least one instance that separately-stated charges
for ``checked'' passenger baggage are not subject to the excise
tax.\43\
---------------------------------------------------------------------------
\43\ PLR 20102004, 2010 WL 147820 (January 15, 2010).
---------------------------------------------------------------------------
Air cargo tax.--Based on legislative history accompanying
the original enacting legislation, the air cargo excise tax has
been interpreted to exclude amounts paid for ``accessorial
ground services.'' This interpretation has allowed air cargo
providers to reduce the effective rate of tax below the
statutory 6.25 percent of price by allocating a portion of
waybill charges to ground operations. Accessorial services
charges are exempt from tax only if the service could be
performed by a party other than the transportation provider and
if the provider maintains in its records a separate accounting
for the charge.
Additional exemptions to air passenger and air cargo
taxes.--Special rules classify certain for-hire (i.e.,
commercial) transportation as general aviation (thereby making
the transportation subject to the higher-rate fuels excise tax
rather than the air passenger and cargo excise taxes). Under
these rules, flights for skydiving and flights on seaplanes
generally are subject to the general aviation fuels excise
taxes rather than the air passenger and air cargo excise taxes.
An additional rule classifies all air transportation on
aircraft having a maximum certificated takeoff weight of 6,000
pounds or less as general aviation when the aircraft are not
operating on established lines. Aircraft operated for the sole
purpose of sightseeing are not treated as operated on
established lines, notwithstanding that such aircraft may
operate on established schedules or routes.
Certain transportation on air ambulances providing
emergency services and on helicopters and fixed-wing aircraft
operating engaged in hard mineral, oil, or gas exploration
activities or as part of logging activities are exempt from
tax. The exemption is limited to aircraft not using Federal
aviation services or taking off or landing at an airport
eligible for Airport and Airway Trust Fund assistance in the
case of the latter uses.
Aviation fuels tax exemptions.--Fuels used in aircraft
owned and operated by certain aircraft museums are exempt from
the aviation fuels excise taxes. Qualifying museums are section
501(c)(3) organizations that are operated exclusively for the
procurement, care, and exhibition of World War II combat and
transport aircraft.
Kerosene, gasoline, or diesel fuel blended with blended
with alcohol and sold for use as aviation fuel by the person
producing the mixture qualify for the refundable excise tax
credit and the non-refundable income tax credit described in
Part I.A.1.
Overview of Airport and Airway Trust Fund expenditure
provisions
In general.--Operation of the Airport and Airway Trust Fund
is governed by parallel provisions of the Code and authorizing
statutes.\44\ The Code provisions govern deposit of revenues
into the trust fund and approve expenditure purposes in
authorizing statutes as in effect on the date of enactment of
the latest authorizing Act. The authorizing Acts provide for
specific trust fund expenditure programs. The Airport and
Airway Trust Fund was created in 1970 to finance a major
portion of Federal expenditures on national aviation programs.
Prior to that time, these expenditures had been financed with
General Fund monies.
---------------------------------------------------------------------------
\44\ Sec. 9502 and 49 U.S.C. sec. 48101, et. seq.
---------------------------------------------------------------------------
Authorized expenditures from the Airport and Airway Trust
Fund include the following principal programs:
1. Airport Improvement Program (``AIP'') (airport
planning, construction, noise compatibility programs,
and safety projects);
2. Facilities and Equipment (``F&E'') program (costs
of acquiring, establishing, and improving the air
traffic control facilities);
3. Research, Engineering, and Development (``RED'')
program (FAA research and development activities);
4. Federal Aviation Administration (``FAA'')
Operations and Maintenance (``O&M'') programs; and
5. Certain other aviation-related programs specified
in authorizing Acts.
Part of the O&M programs also is financed from General Fund
monies. Of the total FAA appropriations each year, the General
Fund has contributed about 24 to 25 percent.
Limits on Airport and Airway Trust Fund expenditures.--No
expenditures are currently permitted to be made from the
Airport and Airway Trust Fund after March 31, 2011. Because the
purposes for which Airport and Airway Trust Fund monies are
permitted to be expended are fixed as of the date of enactment
of the Airport and Airway Extension Act of 2010, Part IV, the
Code must be amended in order to authorize new Airport and
Airway Trust Fund expenditure purposes.\45\ In addition, the
Code contains a specific enforcement provision to prevent
expenditure of Airport and Airway Trust Fund monies for
purposes not authorized under section 9502.\46\ This provision
provides that, should such unapproved expenditures occur, no
further aviation excise tax receipts will be transferred to the
Airport and Airway Trust Fund. Rather, the aviation taxes would
continue to be imposed, but the receipts would be retained in
the General Fund.
---------------------------------------------------------------------------
\45\ Sec. 9502(d).
\46\ Sec. 9502(e)(1).
---------------------------------------------------------------------------
3. Inland Waterways Trust Fund excise tax
Tax and exemptions
A 20-cents-per-gallon excise tax is imposed on fuel used in
powering commercial cargo vessels on a designated system of
inland or intra-coastal waterways.\47\ This tax is permanent.
The tax applies to fuel used on any specified inland or
intracoastal waterway of the United States in the business of
transporting property for compensation or hire, or in
transporting property in the business of the owner, lessee, or
operator of the vessel (other than fish or other aquatic animal
life caught on the voyage).\48\ The inland waterways excise tax
is a use tax, imposed on the boat operator.
---------------------------------------------------------------------------
\47\ Sec. 4042. Like other taxable motor fuels, inland waterway
fuels are subject to an additional excise tax of 0.1 cents per gallon
to fund the LUST Trust Fund. See Part 1.B.1.
\48\ The term inland or intracoastal waterway of the United States
means any inland or intracoastal waterway of the United States which is
described in section 206 of the Inland Waterways Revenue Act of 1978
and includes the Mississippi River upstream from Baton Rouge, the
Mississippi River's tributaries, and specified waterways, including the
Gulf of Mexico and Atlantic Intra-coastal Waterways, and the Tennessee-
Tombigbee Waterway.
---------------------------------------------------------------------------
Exemptions are provided for vessels designed primarily for
use on the high seas which have a draft of more than 12 feet
(``deep-draft ocean-going vessels''), for vessels used
primarily for transportation of persons, for State or local
government vessels engaged in governmental business, and for
use in tugboat movement of LASH (``lighter-aboard-ship'') and
SEABEE ocean-going barges used exclusively to ferry
international cargoes to or from their carriers.
Overview of Inland Waterways Trust Fund expenditure
provisions
Operation of the Inland Waterways Trust Fund is governed by
parallel provisions of the Code and authorizing statutes.\49\
The Code provisions govern deposit of revenues from the fuel
tax into the Inland Waterways Trust Fund and approve general
expenditure programs. The authorizing statutes specify
expenditure programs.
---------------------------------------------------------------------------
\49\ Sec. 9506 and 33 U.S.C. sec. 2212.
---------------------------------------------------------------------------
Amounts in the Inland Waterways Trust Fund are available,
as provided by appropriation Acts, for making construction and
rehabilitation expenditures for navigation on the inland and
coastal waterways of the United States described in section 206
of the Inland Waterways Revenue Act of 1978, as in effect on
the date of the enactment of section 9506. There is a limit of
50 percent that can be paid from the Inland Waterways Trust
Fund for the cost of any construction under section 102(a) of
the Water Resources Development Act of 1986 (as in effect on
the date of enactment of section 9506). The remaining 50
percent is to be paid from the General Fund.
4. Harbor Maintenance Trust Fund excise tax
Tax and exemptions
A 0.125-percent excise tax is imposed on the value of
commercial cargo loaded or unloaded at taxable United States
ports and on charges for transportation of passengers to or
from such ports.\50\ No tax is imposed on cargo movements
within a U.S. port. The tax is permanent. Unlike most Federal
excise taxes, the harbor maintenance excise tax is administered
by the U.S. Customs Service (rather than the Internal Revenue
Service or the Treasury Department's Tax and Trade Bureau).
Administrative rules applicable to the tax are those applicable
to customs duties. Shippers and importers are liable for the
tax.
---------------------------------------------------------------------------
\50\ Sec. 4461.
---------------------------------------------------------------------------
The tax generally is imposed on all cargo (other than
exports) and passengers that are loaded or unloaded at U.S.
ports, defined as any channel or harbor in the United States
that is open to public navigation. The tax does not apply to
waterways where the inland waterways fuels excise tax is
imposed or to ports with respect to which no Federal funds have
been used since 1977 for construction, maintenance, or
operation, or which were de-authorized by Federal law before
1985. Transportation at ports on the Columbia River is taxable
only if the ports are downstream of the Bonneville lock and
dam.
In addition to exported cargo, the tax does not apply to
cargo shipped between the continental United States and Alaska
(except for crude oil), Hawaii, and/or U.S. possessions, or to
cargo shipped between Alaska, Hawaii, and/or such possessions.
This exemption includes passenger cruises within Alaska or
Hawaii that also include travel in international waters, if the
cruises do not include any stops at ports of call located
outside the State from which the cruise begins. Transportation
on regularly scheduled ferries transporting passengers (and
their vehicles) that operate within the United States or
between the U.S. and contiguous countries (e.g., Canada) are
not subject to tax. There is an exemption for cargo owned by
nonprofit organizations intended for use in humanitarian or
development assistance overseas. Ships' stores and fish (not
previously loaded on shore) also are exempt.
Overview of Harbor Maintenance Trust Fund expenditure
provisions
Operation of the Harbor Maintenance Trust Fund is governed
by parallel provisions of the Code and authorizing
statutes.\51\ The Code provisions govern deposit of revenues
into the Harbor Maintenance Trust Fund and approve general
expenditure programs. The authorizing statutes specify
expenditure programs.
---------------------------------------------------------------------------
\51\ Sec. 9505 and Pub. L. No. 104-303.
---------------------------------------------------------------------------
The Harbor Maintenance Trust Fund generally is limited to
financing the operations and maintenance costs for federally-
authorized public harbors and channels for commercial
navigation incurred by the U. S. Corps of Engineers under
section 210 of the Water Resources Development Act of 1986 (as
in effect on the date of the enactment of the Water Resources
Development Act of 1996). Harbor Maintenance Trust Fund
expenditures have principally been for operations and
maintenance costs of access channels to deep-draft harbors,
i.e., dredging expenses and not channel deepening projects.
Also, St. Lawrence Seaway Development Corporation
operations and maintenance expenditures related to the seaway
are financed from the Harbor Maintenance Trust Fund, as well as
rebates of tolls or charges pursuant to section 13(b) of the
Act of May 13, 1954 (as in effect on April 1, 1987).
Certain ancillary activities directly related to
maintenance dredging or related to keeping a waterway
unobstructed also are financed from the Harbor Maintenance
Trust Fund.\52\ Further, the administrative costs of collecting
the harbor maintenance tax (not to exceed $5 million for any
fiscal year) are authorized to be paid from the Harbor
Maintenance Trust Fund.
---------------------------------------------------------------------------
\52\ See, 33 U.S.C. 2241(2).
---------------------------------------------------------------------------
B. Excise Taxes Dedicated to Environmental Trust Funds or Designated
Funds
1. Leaking Underground Storage Tank Trust Fund excise taxes
Tax and exemptions
Fuels of a type subject to other trust fund excise taxes
generally are subject to an add-on excise tax of 0.1 cent per
gallon to fund the Leaking Underground Storage Tank (``LUST'')
Trust Fund.\53\ For example, the LUST excise tax applies, to
gasoline, diesel fuel, kerosene, and most alternative fuels
subject to highway and aviation fuels excise taxes, and to
fuels subject to the inland waterways fuel excise tax. This
excise tax is imposed on both uses and parties subject to the
other taxes, and to situations (other than export) in which the
fuel otherwise is tax-exempt. For example, off-highway business
use of gasoline and off-highway use of diesel fuel and kerosene
generally are exempt from highway motor fuels excise tax.
Similarly, States and local governments and certain other
parties are exempt from such tax. Nonetheless, all such uses
and parties are subject to the 0.1-cent-per-gallon LUST excise
tax.
---------------------------------------------------------------------------
\53\ Secs. 4041, 4042, and 4081.
---------------------------------------------------------------------------
Liquefied natural gas, compressed natural gas, and
liquefied petroleum gas are exempt from the LUST tax.
Additionally, methanol and ethanol fuels produced from coal
(including peat) are taxed at a reduce rate of 0.05 cents per
gallon.
The LUST tax is scheduled to expire after September 30,
2011.\54\
---------------------------------------------------------------------------
\54\ For Federal budget scorekeeping purposes, the LUST Trust Fund
tax, like other excise taxes dedicated to trust funds, is assumed to be
permanent. See, Part III.A. for a description of these Federal budget
rules.
---------------------------------------------------------------------------
Overview of Leaking Underground Storage Tank Trust Fund
expenditure provisions
Amounts in the LUST Trust Fund are available, as provided
in appropriations Acts, for purposes of making expenditures to
carry out sections 9003(h)-(j), 9004(f), 9005(c), and 9010-9013
of the Solid Waste Disposal Act, as in effect on the date of
enactment of Public Law 109-168. Any claim filed against the
LUST Trust Fund may be paid only out of such fund, and the
liability of the United States for claims is limited to the
amount in the fund.
The monies in the LUST Trust Fund are used to pay expenses
incurred by the Environmental Protection Agency (the ``EPA'')
and the States for preventing, detecting, and cleaning up leaks
from petroleum underground storage tanks, as well as programs
to evaluate the compatibility of fuel storage tanks with
alternative fuels, MTBE additives, and ethanol and biodiesel
blends.
The EPA makes grants to States to implement the program,
and States use cleanup funds primarily to oversee and enforce
corrective actions by responsible parties. States and EPA also
use cleanup funds to conduct corrective actions where no
responsible party has been identified, where a responsible
party fails to comply with a cleanup order, in the event of an
emergency, and to take cost recovery actions against parties.
In 2005, Congress authorized EPA and States to use trust fund
monies for non-cleanup purposes as well, specifically for
administration and enforcement of the leak prevention
requirements of the UST program.\55\ Although States report
that trust fund allotments are insufficient to cover the costs
of federal program mandates, annual appropriations have
remained less than the annual amounts earned in interest on the
LUST Trust Fund.
---------------------------------------------------------------------------
\55\ Pub. L. No. 109-58.
---------------------------------------------------------------------------
2. Oil Spill Liability Trust Fund excise tax
Tax and exemptions
The Oil Spill Liability Trust Fund is financed with
revenues from an eight-cents-per-barrel \56\ excise tax on
crude oil received at a United States refinery and on imported
petroleum products.\57\ The tax rate is scheduled to increase
to nine cents per barrel in calendar year 2017, after which it
currently is scheduled to expire.\58\ A back-up ``use tax'' is
imposed on crude oil that is used in or exported from the
United States before being received at a refinery (sec.
4611(b)). Crude oil is defined to include oil condensates and
natural gas. Under a special rule, natural gasoline produced
from natural gas at a refinery is treated as received at the
refinery at the time of its production and is subject to tax at
that time.
---------------------------------------------------------------------------
\56\ A barrel equals 42 gallons.
\57\ Sec. 4611(a). Petroleum products include crude oil (sec.
4612(a)(3)). Statutorily, the tax also applies to domestic crude oil
exported from the United States before being received at a U.S.
refinery (sec. 4611(b)(1)).
\58\ For Federal budget scorekeeping purposes, the oil spill excise
tax is assumed to be permanent. See, Part III.A., for a description of
these Federal budget rules. Under prior law, the tax was required to
terminate if the trust fund balance were to reach $2.7 billion in a
calendar quarter. That requirement was repealed in the Emergency
Economic Stabilization Act of 2008 (Pub. L. No. 110-343, sec. 405(b)(1)
Div. B).
---------------------------------------------------------------------------
Unlike the excise taxes dedicated to transportation trust
funds, the oil spill liability excise tax applies in Puerto
Rico, all U.S. possessions, the Commonwealth of the Northern
Mariana Islands, and the Trust Territory of the Pacific Islands
as well as in the 50 States and the District of Columbia.\59\
The term ``United States'' is defined for purposes of this tax
to include foreign trade zones and the U.S. continental shelf.
---------------------------------------------------------------------------
\59\ Revenues from the tax imposed in Puerto Rico and the U.S.
Virgin Islands are retained in the Federal Treasury, unlike revenues
from the excise tax on rum imported or brought in to the United States
(and certain tobacco products produced in those possessions), which are
``covered over'' to the two possessions.
---------------------------------------------------------------------------
Overview of the Oil Spill Liability Trust Fund provisions
Operation of the Oil Spill Liability Trust Fund is governed
by parallel provisions of the Code and authorizing
statutes.\60\ The Code provisions govern deposit of revenues
into the Oil Spill Liability Trust Fund and approve general Oil
Spill Liability Trust Fund expenditure programs. The
authorizing statutes specify expenditure programs.
---------------------------------------------------------------------------
\60\ Sec. 9509 and 33 U.S.C. secs. 2701-2761, et. seq.
---------------------------------------------------------------------------
Amounts in the Oil Spill Liability Trust Fund are
available, as provided in appropriation Acts or section 6002(b)
of the Oil Pollution Act of 1990, for the following oil spill-
related expenditures:
1. Payment of removal costs and other costs,
expenses, claims, and damages under section 1012 of the
1990 Act;
2. Costs relating to oil pollution or the substantial
threat of oil pollution (under sections 5 and 7 of the
Intervention on the High Seas Act);
3. Payment of liabilities incurred by the revolving
fund under section 311(k) of the Federal Water
Pollution Control Act;
4. Payments for prevention, removal, and enforcement
related to oil discharges (under section 311(b)-(d),
(j), and (l) of the Federal Water Pollution Control
Act);
5. Payment of liabilities incurred by the Deepwater
Port Liability Fund; and
6. Payment of liabilities incurred by the Offshore
Pollution Compensation Fund.
There is a general limit of $1 billion per incident that
may be paid out of the Oil Spill Liability Trust Fund, with
costs of natural resource damage assessments and claims for any
single incident limited to $500 million. Except in the case of
payments of oil removal costs, payments may be made from the
Trust Fund only if the Fund maintains a minimum balance of $30
million after such payment. Any claim filed against the Oil
Spill Liability Trust Fund may be paid only out of the Fund.
Under prior law, the Oil Spill Liability Trust Fund had the
authority to borrow monies from the General Fund, as repayable
advances, with a limit of $1 billion of repayable advances at
any one time. Such advances were to be repaid to the General
Fund with interest. The authority to make advances to the Oil
Spill Liability Trust Fund expired after December 31, 1994.
3. Sport Fish Restoration and Boating Trust Fund excise taxes
In general
The Sport Fish Restoration and Boating Trust Fund \61\ is
financed by revenues from three principal excise taxes.\62\
First, revenue equivalent to the highway excise taxes collected
on gasoline and other motor fuels used in motorboats is
transferred from the Highway Trust Fund to this trust fund in
lieu of allowing refunds to consumers for this off-highway
use.\63\ Second, the trust fund receives revenues (also
transferred from the Highway Trust Fund) equivalent to excise
taxes collected on ``small engine fuel.'' Small-engine fuel
means gasoline used as a fuel in the nonbusiness use of small-
engine outdoor power equipment (i.e., non-commercial off-
highway vehicles such as snowmobiles and small-engine outdoor
power equipment such as snow blowers and lawn mowers).\64\
---------------------------------------------------------------------------
\61\ Formerly the ``Aquatic Resources Trust Fund.''
\62\ In addition to the excise tax revenue sources, the Trust Fund
receives revenue from import duties on fishing tackle and on yachts and
pleasure craft.
\63\ The first $1 million of such revenues is transferred to the
Land and Water Conservation Fund, discussed in Part I.A.4. Off-highway
business use generally is exempt from the highway gasoline excise tax,
and off-highway use generally is exempt from those taxes on diesel fuel
and kerosene (sec. 4082, 4041, and 6421).
\64\ The fuels subject from which tax revenues are transferred to
the Trust Fund are subject to an additional 0.1-cent-per-gallon excise
tax for the LUST Trust fund in the same manner as other highway motor
fuels.
---------------------------------------------------------------------------
The third excise tax revenue source for the trust fund is
imposed on manufacturers and importers of ``sport fishing
equipment.'' \65\ The articles subject to tax, and the
applicable tax rates, are shown in the following table.
---------------------------------------------------------------------------
\65\ Sec. 4161.
\66\ The tax on fishing rods and poles is limited to a maximum of
$10 per taxable article.
------------------------------------------------------------------------
-------------------------------------------------------------------------
Articles subject to tax at 10 percent rate:
Fishing rods and poles (and component parts therefor) \66\
Fishing reels
Fly fishing lines, and other fishing lines not over 130 pounds test
Fishing spears, spear guns, and spear tips
Items of terminal tackle, including leaders, artificial lures,
artificial baits, and artificial flies, fishing hooks, bobbers,
sinkers, snaps, drayles, and swivels \67\
Fish stringers
Creels
Bags, baskets, or other containers designed to hold fish
Portable bait containers
Fishing vests
Gaff hooks
Fishing hook disgorgers
Dressing for fishing lines and artificial flies
Fishing rod belts, fishing rodholders, fishing harnesses, fish
fighting chairs, fishing outriggers, and fishing downriggers
Articles subject to tax at 3 percent rate:
Tackle boxes
Electric outboard motors
------------------------------------------------------------------------
Parts and accessories sold by manufacturers or importers in
connection with the sale of any taxable article are included in
the tax base for the article.
---------------------------------------------------------------------------
\67\ Terminal tackle does not include natural bait or any item of
terminal tackle designed for use and ordinarily used on fishing lines
over 130 pounds test.
---------------------------------------------------------------------------
Overview of Sport Fish Restoration and Boating Trust Fund
expenditure provisions
Operation of the Sport Fish Restoration and Boating Trust
Fund is governed by parallel provisions of the Internal Revenue
Code and authorizing statutes.\68\ The Code provisions govern
deposit of revenues into the trust fund and approve general
expenditure programs. The authorizing statutes specify
expenditure programs.
---------------------------------------------------------------------------
\68\ Sec. 9504. 16 U.S.C. sec. 777, 16 USC sec. 3951, et. seq., and
Pub. L. No. 105-178, sec. 7204.
---------------------------------------------------------------------------
Income received in this trust fund in any fiscal year is to
be allocated to eligible programs in the following fiscal year.
The following eight programs are funded from the trust fund:
\69\
---------------------------------------------------------------------------
\69\ See, Ranger, The Sport Fish Restoration and Boating Trust Fund
(CRS Report RS22060, January 25, 2010).
---------------------------------------------------------------------------
1. Coastal wetlands conservation and restoration
programs, the majority of which is for Corps of
Engineers Louisiana Coastal Wetlands Restoration;
2. Recreational boating safety grant program to the
States, administered by the U.S. Coast Guard's Office
of Boating Safety;
3. Grant program for states to construct sewage pump-
out and dump stations for recreational boating sewage
disposal;
4. State grant programs for construction or upgrade
of docking facilities for transient large recreational
boats (26 feet or more in length);
5. Grants for national aquatic resource outreach and
communications programs to encourage participation in
recreational boating and fishing and greater public
involvement in aquatic stewardship and to improve
communication with anglers, boaters, and the general
public;
6. State conservation grants for wildlife and sport
fish restoration;
7. Interstate fishery commissions and the Sport
Fishing and Boating Partnership Council; and
8. After the previously listed programs are funded,
the remaining amounts are to be used for State grants
for sport fish restoration programs, with 60% of the
grants based on the number of anglers and 40 percent on
its land and water area.
4. Land and Water Conservation Fund (Federal Aid to Wildlife
Restoration Program) and dedicated excise taxes
In general
The Federal Aid to Wildlife Program (the ``Fund''),
although not a formal trust fund, receives revenues from three
dedicated excise tax sources. First, the Fund receives $1
million per year of the excise taxes imposed on motorboat
fuels. Second, revenues from an 11-percent manufacturers' or
importers' excise tax on certain bows and arrows and taxes on
certain ``regular'' firearms are dedicated to the Fund. The
latter two excise taxes are outlined in the following table.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
Bows and arrows (sec. 4161)
Bows having a peak draw weight of 30 11 percent of price
pounds or more.......................
Archery equipment \70\................ 11 percent of price
Arrow shafts for use as part of an 45 cents per shaft (2011)
arrow (a) that measures at least 18 \72\
inches in length, or (b) if shorter,
that is suitable for use with a
taxable bow \71\.....................
Regular firearms and ammunition (sec.
4181) \73\
Pistols and revolvers................. 10 percent of price
Other firearms \74\................... 11 percent of price
Shells and cartridges................. 11 percent of price
------------------------------------------------------------------------
Overview of Federal Aid to Wildlife Restoration Fund
provisions
In general.--The Federal Aid to Wildlife Restoration Act of
September 2, 1937, commonly referred to as the ``Pittman-
Robertson Act'' \75\ became effective on July 1, 1938. As
amended by the Dingell-Johnson Act and other amendments, the
program provides dedicated funds in the Treasury for Federal
aid to States for management and restoration of fish and game
wildlife (including acquisition and improvement of wildlife
habitat), hunter education programs (including operation of
target ranges), hunter safety programs, and development of fish
and wildlife management plans.
---------------------------------------------------------------------------
\ 70\ Taxable archery equipment is any part or accessory suitable
for inclusion in or attachment to a taxable bow, and any quiver,
broadhead, or point suitable for use with a taxable bow.
\71\ The tax applies to shafts sold separately or as part of a
finished arrow.
Otherwise taxable shafts consisting of all natural wood with no
laminations or artificial means of enhancing the spine, which are
designed to be (or are) incorporated into a finished arrow measuring 5/
16 of an inch or less in diameter and which are not suitable for use
with a taxable bow are exempt from tax.
\72\ The tax rate is adjusted annually for inflation (measured by
the CPI).
\73\ Otherwise taxable firearms manufactured by persons that
manufacture or import fewer than 50 such articles during a calendar
year are exempt from tax. Sales to the U.S. Department of Defense also
are exempt.
\74\ ``Other firearms'' are firearms (other than pistols and
revolvers) such as regular rifles and shotguns that are exempt from the
``non-regular firearms'' excise tax of sec. 5811 of the National
Firearms Act. See, Part II.C.
\75\ 16 U.S.C. 669-669i; 50 Stat. 917.
---------------------------------------------------------------------------
Specific Federal Wildlife Restoration Fund expenditure
purposes.--The Federal Aid to Wildlife Restoration Act
authorizes appropriations from the Fund attributable to
revenues from Federal excises on regular firearms (rifles,
shotguns, pistols and revolvers), ammunition, and bows and
arrows received during the prior fiscal year to be made
available until expended. Any State-apportioned amounts that
are unspent or unobligated at the end of the following fiscal
year may be used by the Secretary of the Interior to carry out
the provisions of the Migratory Bird Conservation Act.
Monies attributable to the excise tax on sporting firearms
(rifles and shotguns) and ammunition are appropriated to the
Secretary of the Interior and apportioned to States for paying
up to 75 percent of the approved wildlife restoration projects
(including acquisition and development of access facilities for
public use) and hunter education programs.
One-half of the monies accruing to the Fund from the excise
taxes on pistols, revolvers, and bows and arrows are to be
apportioned among the states based on population. One half of
the other 50 percent of the monies is apportioned among the
States based on geographic size, and the balance is apportioned
based on the number of paid hunting license holders in each
State. The States may use such apportioned amounts to finance
up to 75 percent of the costs of the approved plan or project
(not to include law enforcement or public relation costs),
i.e., 25 percent must come from State and local government
sources. States may use funds apportioned on the basis of
population for up to 75 percent of the costs of hunter safety
programs and the construction and operation of public target
ranges.
Federal administrative expenses are allowed from the Fund
monies. Limited monies are also available for such aid to U. S.
territories and possessions. For fiscal year 2003, $8,212,000
of the monies in the Fund may be used for administering the
Federal Aid in Wildlife Restoration Act and the Migratory Bird
Conservation Act. This amount is indexed for inflation for
fiscal years 2004 and thereafter.\76\ For fiscal year 2010, the
administration cap amount was $9.798 million.
---------------------------------------------------------------------------
\76\ 16 U.S.C. sec. 669c(a)(1)(B).
---------------------------------------------------------------------------
C. Excise Taxes Dedicated to Health-Related Trust Funds
1. Black Lung Disability Trust Fund excise taxes
Coal excise tax
To finance the Black Lung Disability Trust Fund, a producer
(manufacturer) excise tax is imposed on coal (other than
lignite) mined in the United States.\77\ The present tax rate
is $1.10 per ton for coal from underground mines and 55 cents
per ton for coal from surface mines. Both rates are limited to
a maximum of 4.4 percent of the coal's selling price. The coal
excise tax rates are scheduled to decline to 50 cents per ton
for underground mines and 25 cents per ton for surface mines
(both limited to two percent of the coal's selling price) on
the earlier of January 1, 2019 or the first January 1 after
which there is no balance of repayable advances that have been
made to the Trust Fund and no unpaid interest on previous such
advances.\78\
---------------------------------------------------------------------------
\77\ Sec. 4121.
\78\ Sec. 4121(e).
---------------------------------------------------------------------------
The tax does not apply to lignite \79\ or to coal mined in
the United States that is to be exported.\80\
---------------------------------------------------------------------------
\79\ Sec. 4121(c).
\80\ See, Ranger Fuel Corp. v. U.S., 33 F.Supp.2d 466 (E.D. Va.,
1998).
---------------------------------------------------------------------------
Black lung benefit trusts and penalty excise taxes
Present law allows coal mine operators that are liable for
paying black lung benefits to miners or their survivors to fund
that liability through deductible contributions to a qualified
tax-exempt trust.\81\ To qualify, the trust must be established
for the sole purpose of satisfying the operator's liability
under Black Lung Acts, paying premiums for insurance
exclusively covering such liability, and paying administrative
expenses of the trust.
---------------------------------------------------------------------------
\81\ Sec. 501(c)(21).
---------------------------------------------------------------------------
The Code imposes three ``penalty excise taxes'' to regulate
potential misuse of monies in these trusts. Revenues from the
penalty excise taxes are dedicated to the Black Lung Disability
Trust Fund. Because raising revenue is not the primary purpose
of these taxes, revenues raised by the penalty excise taxes
historically have been relatively small. The following table
summarizes these penalty excise taxes.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
Self-dealing (sec. 4951) \82\............. Initial tax.--10 percent of
the amount of self-dealing
on the self dealer; 2.5
percent of such amount on
the trustee
Additional tax.--If not
corrected, additional tax
of 100 percent of amount
involved on the self
dealer; 50 percent of such
amount on the trustee
Taxable expenditures (sec. 4952) \83\ Initial tax.--10 percent of
taxable expenditure on the
fund; 2.5 percent of such
amount on the trustee
Additional tax.--If not
corrected, additional tax
of 100 percent of amount of
expenditure on the fund; 50
percent of such amount on
the trustee
Excess contributions to benefit trust Five percent of excess
(sec. 4953) contribution on the
contributor
------------------------------------------------------------------------
Overview of Black Lung Disability Trust Fund expenditure
provisions
In general.--Operation of the Black Lung Disability Trust
Fund is governed by parallel provisions of the Code and
authorizing statutes.\84\ The Code provisions govern deposit of
revenues into the trust fund and approve general expenditure
programs. The authorizing statutes specify expenditure
programs.
---------------------------------------------------------------------------
\82\ Self-dealing is defined as sale, leasing, etc. of real or
personal property, lending of money or other extension of credit,
furnishing of goods, services or facilities, and payment of
compensation between a benefit trust and a disqualified person. A
disqualified person is a contributor to the benefit trust, a trustee,
or an owner of more than 10 percent of the combined voting power of a
corporation, the profits interest of a partnership, or the beneficial
interest of a trust or unincorporated entity that is a contributor to
the benefit trust. Officers, directors, and employees of contributors
to the benefit trust and spouses, family members, and certain related
corporations and trusts also are disqualified persons.
\83\ A taxable expenditure is any expenditure other than for a
purpose described in sec. 501(c)(21).
\84\ Sec. 9501 and 30 U.S.C. sec. 901 et seq.
---------------------------------------------------------------------------
Black Lung Disability Trust Fund expenditure purposes.--
Amounts in the trust fund are available, as provided in
appropriation Acts, for the following purposes:
1. Payment of benefits under section 422 of the Black
Lung Benefits Act in cases where the Secretary of Labor
determines that (a) the coal mine operator liable for
the payment of such benefits has not commenced payment
of benefits within 30 days after the date of an initial
determination of eligibility or has not made a payment
within 30 days after the payment is due, or (b) there
is no operator who is liable for payment of such
benefits;
2. Payment of obligations incurred by the Secretary
of Labor for claims of miners or their survivors where
the miner's last coal mine employment was before
January 1, 1970;
3. Repayment to the General Fund of amounts paid by
the Secretary of Labor for claims under part C of the
Black Lung Benefits Act that were attributable to
eligibility between January 1, 1974-March 31, 1978;
4. Repayment of advances (and interest on advances)
to the General Fund;
5. Payment of administrative expenses incurred on or
after March 1, 1978, by the Department of Labor or
Department of Health and Human Services under Part C of
the Black Lung Benefits Act (other than sections 427(a)
or 433), or by the Department of the Treasury in
administering the excise tax and the Trust Fund;
6. Reimbursement of operators for amounts paid (other
than for penalties or interest) before April 1, 1978,
in satisfaction of claims of miners employed before
Payment January 1, 1970; and
7. Reimbursement of operators and insurers for
amounts paid (other than for penalties, interest, or
attorney's fees) for any claim denied before March 1,
1978, and which is or has been approved under section
435 of the Black Lung Benefits Act.
2. Vaccine Injury Compensation Trust Fund excise taxes
In general
A 75-cents-per-dose \85\ excise tax is imposed on the sale
or use by a manufacturer or importer of listed vaccines to
finance the Vaccine Injury Compensation Trust Fund program.\86\
The tax is imposed on sale or use by private parties and
governmental entities, including the Federal, State, and local
governments. The tax further is imposed within the 50 States
and the District of Columbia and in Puerto Rico, the
Commonwealth of the Northern Marianas, the Trust Territory of
the Pacific, and all other U.S. possessions.
---------------------------------------------------------------------------
\85\ Vaccines comprised of more than one taxable component vaccine
are taxed as if the components were separate doses.
\86\ Sec. 4131.
---------------------------------------------------------------------------
The following table lists the currently taxable vaccines.
------------------------------------------------------------------------
Taxable vaccines:
-------------------------------------------------------------------------
Any vaccine containing diphtheria toxoid
------------------------------------------------------------------------
Any vaccine containing tetanus toxoid
------------------------------------------------------------------------
Any vaccine containing pertussis bacteria, extracted or partial cell
bacteria, or specific pertussis antigens
------------------------------------------------------------------------
Any vaccine against measles, mumps, or rubella
------------------------------------------------------------------------
Any vaccine containing polio virus
------------------------------------------------------------------------
Any vaccine against hepatitis A, hepatitis B, chicken pox, or rotavirus
gastroenteritis
------------------------------------------------------------------------
Any conjugate vaccine against streptococcus pneumoniae
------------------------------------------------------------------------
Any trivalent vaccine against influenza
------------------------------------------------------------------------
Any meningococcal vaccine
------------------------------------------------------------------------
Any vaccine against the human papillomavirus
------------------------------------------------------------------------
Overview of Vaccine Injury Compensation Trust Fund
provisions
Operation of the Vaccine Injury Compensation Trust Fund is
governed by parallel provisions of the Code and authorizing
statutes.\87\ The Code provisions govern deposit of revenues
into the trust fund and approve general expenditure programs.
The authorizing statutes specify expenditure programs.
---------------------------------------------------------------------------
\87\ Sec. 9510 and 42 U.S.C. sec. 300aa.
---------------------------------------------------------------------------
Amounts in the Vaccine Injury Compensation Trust Fund are
available, as provided in appropriations Acts, only for the
following:
1. Payment of compensation under subtitle 2 of Title
XXI of the Public Health Service Act (as in effect on
October 18, 2000) for vaccine-related injury or death
with respect to any vaccine which is (a) administered
after September 30, 1988, and (b) a taxable vaccine
(defined in sec. 4132(a)(1)) at the time compensation
is paid; or
2. Payment of expenses of administration (not to
exceed $9.5 million for any fiscal year) incurred by
the Federal Government in administering subtitle 2.
Liability of the United States relating to vaccine injury
compensation is limited to the amount in the Vaccine Injury
Compensation Trust Fund, and any claim filed against the fund
may be paid only out of the fund.
3. Patient-Centered Outcomes Research Trust Fund excise taxes
In general
The ``Patient Protection and Affordable Care Act,'' as
amended by the ``Health and Education Reconciliation Act of
2010'' (the ``Health-Care Reform Act'') \88\ imposed two new
excise taxes, or ``fees'' on insured and self-insured health
plans.\89\ Revenues from the taxes are dedicated to the
Patient-Centered Outcomes Research Trust Fund. These excise
taxes become effective for policy years ending after September
30, 2012.
---------------------------------------------------------------------------
\88\ Pub. L. No. 111-148 and Pub. L. No. 111-152 (2010).
\89\ Secs. 4375 and 4376.
---------------------------------------------------------------------------
The tax rates are phased in, beginning at $1.00 for
``specified health insurance policies'' for insured plans in FY
2013 and $2.00 for such policies in FY 2014. For self-insured
plans, the tax rates are $1.00 for self-insured plans in FY
2013 and $2.00 in FY 2014. In both cases, the tax is determined
by applying the applicable rate to the average number of lives
covered under the policy or plan. After FY 2014, the tax rate
is indexed to reflect projected annual increases in the per
capita amount of national health expenditures.
The taxes are imposed on all persons issuing taxable
insurance policies or providing self-insured plans, including
governmental entities (other than Medicare, Medicaid, the State
Children's Health Insurance Program (``SCHIP''), and Federal
programs for providing medical care (other than through
insurance policies) to members of the Armed Forces, veterans,
or members of Indian tribes). The taxes further are imposed
both within the 50 States and the District of Columbia, and in
all U.S. possessions (including Puerto Rico, the Commonwealth
of the Northern Marianas, and the Trust Territory of the
Pacific).
A ``specified health insurance policy'' is an accident or
health insurance policy that is issued with respect to
individuals residing in the United States.\90\
---------------------------------------------------------------------------
\90\ A specified health insurance policy does not include a policy
substantially all of the benefits of which are excepted benefits under
section 9832(c). Examples of excepted benefits are coverage for only
accident or disability insurance, or any combination thereof, liability
insurance, workers' compensation or similar insurance, automobile
medical payment insurance, coverage for on-site medical clinics,
limited scope dental or vision benefits, benefits for long-term care,
nursing home care, community-based care, coverage for only a specified
disease or illness, hospital indemnity or other fixed indemnity
insurance, and Medicare supplemental coverage.
---------------------------------------------------------------------------
A taxable self-insured plan is any plan providing accident
or health coverage if any portion of the coverage is provided
other than through an insurance policy and such plan is
established or maintained by (1) an employer for benefit of its
employees, (2) an employee organization for the benefit of its
members (or former members), (3) a Voluntary Employee
Beneficiary Association (``VEBA'') under section 501(c)(9), (4)
any section 501(c)(6) organization, or (5) a multiple employer
welfare arrangement or rural electric or telephone cooperative.
Overview of Patient-Centered Outcomes Research Trust Fund
provisions
The Health-Care Reform Act establishes the Patient-Centered
Outcomes Research Institute, a non-government, non-profit
corporation to support research, evidence synthesis, and
dissemination of research findings on ``the manner in which
diseases, disorders, and other health conditions can
effectively and appropriately be prevented, diagnosed, treated,
monitored and managed.'' The Patient-Centered Outcomes Research
Institute is funded through a newly established Patient-
Centered Outcomes Research Trust Fund.\91\
---------------------------------------------------------------------------
\91\ Sec. 9512.
---------------------------------------------------------------------------
4. Annual fee on branded prescription pharmaceutical manufacturers and
importers
An annual fee is imposed on certain manufacturers and
importers of branded prescription drugs for sale to any
specified government program or pursuant to coverage under any
such program. Fees collected are credited to the Medicare Part
B trust fund.
The aggregate annual fee imposed on all covered
manufacturers and importers is $2.5 billion for calendar year
2011, $2.8 billion for calendar years 2012 and 2013, $3 billion
for calendar years 2014 through 2016, $4 billion for calendar
year 2017, $4.1 billion for calendar year 2018, and $2.8
billion for calendar year 2019 and thereafter. The aggregate
fee is apportioned among the covered manufacturers and
importers each year based on their relative share of branded
prescription drug sales taken into account during the previous
calendar year.
A covered manufacturer's or importer's relative market
share for a calendar year is the manufacturer's or importer's
branded prescription drug sales taken into account during the
preceding calendar year as a percentage of the aggregate
branded prescription drug sales of all manufacturers and
importers taken into account during the preceding calendar
year. Sales taken into account during any calendar year with
respect to a manufacturer or importer is: (1) zero percent of
sales not more than $5 million; (2) 10 percent of sales over $5
million but not more than $125 million; (3) 40 percent of sales
over $125 million but not more than $225 million; (4) 75
percent of sales over $225 million but not more than $400
million; and (5) 100 percent of sales over $400 million.
Branded prescription drug sales are sales of branded
prescription drugs made to any specified government program, or
pursuant to coverage under any such program. The term ``branded
prescription drug'' includes any drug which is subject to
section 503(b) of the Federal Food, Drug, and Cosmetic Act and
for which an application was submitted under section 505(b) of
such Act. Branded prescription drugs also include any
biological product the license for which was submitted under
section 351(a) of the Public Health Service Act. Branded
prescription drug sales does not include sales of any drug or
biological product with respect to which an orphan drug tax
credit was allowed for any taxable year under section 45C. The
exception for orphan drug sales does not apply to any drug or
biological product after such drug or biological product is
approved by the Food and Drug Administration for marketing for
any indication other than the rare disease or condition with
respect to which the section 45C credit was allowed.
Specified government programs include: (1) the Medicare
Part D program under part D of title XVIII of the Social
Security Act; (2) the Medicare Part B program under part B of
title XVIII of the Social Security Act; (3) the Medicaid
program under title XIX of the Social Security Act; (4) any
program under which branded prescription drugs are procured by
the Department of Veterans Affairs; (5) any program under which
branded prescription drugs are procured by the Department of
Defense; or (6) the TRICARE retail pharmacy program under
section 1074g of title 10, United States Code.
For purposes of procedure and administration under the
rules of Subtitle F of the Code, the fee under this provision
is treated as an excise tax with respect to which only civil
actions for refund under Subtitle F apply. The Secretary of the
Treasury may redetermine the amount of a covered entity's fee
for any calendar year for which the statute of limitations
remains open.
For purposes of section 275, relating to the
nondeductibility of specified taxes, the fee is considered to
be a nondeductible tax described in section 275(a)(6).
The fees apply to covered manufacturers and importers for
calendar years beginning after December 31, 2010.
II. GENERAL FUND EXCISE TAXES
A. Principal General Fund Excise Taxes
1. Distilled spirits, wine and beer excise taxes
In general
Federal excise taxes on alcohol were first imposed by the
Distilled Spirits Tax Act of 1791, but the origins of most of
the excise taxes on distilled spirits, wine, and beer dates
from the 1860s when they were enacted to fund the Federal
Government's costs of the Civil War. Under present law, taxes
are imposed at different rates for distilled spirits, wine, and
beer and are imposed on these products when produced or
imported. Generally, these excise taxes are administered and
enforced by the Alcohol and Tobacco Tax and Trade Bureau (TTB),
Department of the Treasury, except these taxes on imported
bottled distilled spirits, wine, and beer are collected by the
Customs and Border Protection Bureau (CBP), Department of
Homeland Security, under delegation by the Secretary of the
Treasury.
The following table outlines the present rates of tax on
distilled spirits, wine, and beer:
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
Distilled spirits (sec. 5001)............. $13.50 per proof gallon \92\
Wines (sec. 5041)
``Still wines'' \93\ not more than 14 $1.07 per wine gallon \94\
percent alcohol......................
``Still wines'' more than 14 percent, $1.57 per wine gallon
but not more than 21 percent, alcohol
``Still wines'' more than 21 percent, $3.15 per wine gallon
but not more than 24 percent, alcohol
``Still wines'' more than 24 percent $13.50 per proof gallon
alcohol.............................. (taxed as distilled
spirits)
Champagne and other sparkling wines... $3.40 per wine gallon
Artificially carbonated wines......... $3.30 per wine gallon
Hard apple cider \95\................. $0.226 per wine gallon
Beer (sec. 5051).......................... $18 per barrel (31 gallons)
generally
------------------------------------------------------------------------
The liability for the excise tax on distilled spirits comes
into existence at the moment the alcohol is produced but is not
determined and payable until the bottled distilled spirits are
removed from the bonded premises of the distilled spirits
plant. The liability for the excise taxes on wine and beer also
come into existence when the alcohol is produced but is not
payable until the wine or beer is removed from the bonded wine
cellar or winery or brewery for consumption or sale. Generally,
bulk distilled spirits and bulk and bottled wine may be
transferred in bond between bonded premises and beer may be
transferred between commonly owned breweries without payment of
the tax; however, the tax liability follows these products.
Imported bulk distilled spirits, bulk natural wine, and bulk
beer may be released from customs custody without payment of
the tax and transferred in bond to a distillery, winery, or
brewery. Distilled spirits, wine, and beer may be exported
without payment of the tax and these products may be withdrawn
without payment of tax or free of tax from the production
facility for certain authorized uses, including industrial uses
and non-beverage uses.
---------------------------------------------------------------------------
\92\ A proof gallon is a U.S. liquid gallon consisting of 50
percent alcohol.
\93\ A ``still wine'' is a non-carbonated wine. Most common table
wines are still wines.
\94\ A wine gallon is a U.S. liquid gallon.
\95\ Hard apple cider is defined as apple cider otherwise
classified as a still wine, the alcohol content of which is at least
one-half of one percent but less than seven percent by volume.
---------------------------------------------------------------------------
A portion of the revenues from the distilled spirits excise
tax imposed on rum imported or brought into \96\ the United
States (less certain administrative costs) is transferred
(``covered over'') to Puerto Rico and the U.S. Virgin
Islands.\97\ The amount covered over is $10.50 per proof gallon
($13.25 per proof gallon during the period from July 1, 1999,
through December 31, 2011).
---------------------------------------------------------------------------
\96\ Because Puerto Rico is inside U.S. customs territory, articles
entering the United States from that commonwealth are ``brought into''
rather than ``imported into'' the U.S.
\97\ Sec. 7652.
---------------------------------------------------------------------------
Eligible distilled spirits wholesale distributors and
distillers receive an income tax credit for the average cost of
carrying previously imposed excise tax on beverages stored in
their warehouses.\98\
---------------------------------------------------------------------------
\98\ Sec. 5011. Section 5011 is administered and enforced by the
Internal Revenue Service.
---------------------------------------------------------------------------
Reduced rates and exemptions for certain wine and beer
producers
Domestic wineries having aggregate annual production not
exceeding 250,000 gallons receive a credit against the wine
excise tax equal to 90 cents per gallon (the amount of a wine
tax increase enacted in 1990) on the first 100,000 gallons of
wine removed during a calendar year.\99\ The credit is reduced
by one percent for each 1,000 gallons produced in excess of
150,000 gallons. The credit does not apply to champagne and
other sparkling wines. The credit rate is 5.6 cents per gallon
for hard apple cider. Production of hard cider and other wines
produced by a qualifying winery are aggregated in applying the
per-winery volume limits of the credit.
---------------------------------------------------------------------------
\99\ Sec. 5041(c).
---------------------------------------------------------------------------
Small domestic brewers are subject to a reduced tax rate of
$7 per barrel on the first 60,000 barrels of beer removed each
year.\100\ Small brewers are defined as brewers producing fewer
than two million barrels of beer during a calendar year. The
credit reduces the effective per-gallon tax rate from
approximately 58 cents per gallon to approximately 22.6 cents
per gallon for this beer.
---------------------------------------------------------------------------
\100\ Sec. 5051(a)(2).
---------------------------------------------------------------------------
Individuals may produce limited quantities of wine and beer
for personal or family use without payment of tax during each
calendar year. The limits for each beverage are 200 gallons per
calendar year for households of two or more adults and 100
gallons per calendar year for single-adult households.
2. Tobacco excise taxes
In general
Excise taxes are imposed on tobacco products and cigarette
papers and tubes that are manufactured or imported into the
United States. ``Tobacco products'' means cigars, cigarettes,
smokeless tobacco (snuff and chewing tobacco), pipe tobacco,
and roll your own tobacco. Processed tobacco is regulated under
the internal revenue laws but no excise tax is imposed on it.
The tax liability comes into existence when the domestic
tobacco products are manufactured and is determined and payable
when the tobacco products or cigarette papers and tubes are
removed in packages from the bonded premises of the
manufacturer. Manufacturers and export warehouse proprietors
are subject to an annual special (occupational) tax. These
excise taxes are administered and enforced by TTB, except that
the taxes on imported tobacco products and cigarette papers and
tubes are collected by CBP, under a delegation from the
Secretary of the Treasury, except where such imported products
are transferred in bond to the bonded premises of a
manufacturer of tobacco products or cigarette papers and tubes
or export warehouse proprietor. Tobacco products and cigarette
papers and tubes may be exported from the United States without
payment of tax.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
Tobacco products (sec. 5701)
``Small cigarettes'' (weighing three $50.33 per thousand \101\
pounds or less per thousand).........
``Large cigarettes'' (weighing more $105.69 per thousand \102\
than three pounds per thousand)......
``Small cigars'' (weighing three $50.33 per thousand
pounds or less per thousand).........
``Large cigars'' (weighing more than 52.75 percent of
three pounds per thousand). manufacturer's sales price,
but not more than 40.26
cents per cigar \103\
Snuff................................. $1.51 per pound
(proportionate rate on
fractional parts of a
pound)
Chewing tobacco....................... 50.33 cents per pound
(proportionate rate on
fractional parts of a
pound)
Pipe tobacco.......................... $2.8311 per pound
(proportionate rate on
fractional parts of a
pound)
``Roll-your-own'' tobacco............. $24.78 per pound
(proportionate rate on
fractional parts of a
pound)
Cigarette papers \104\................ 3.15 cents for each 50
papers (or fractional part
thereof)
Cigarette tubes....................... 6.30 cents for each 50 tubes
(or fractional part
thereof)
Manufacturers and export warehouse $1,000 per taxable year, per
proprietors occupational tax (sec. 5731). premise ($500 per year, per
premise for businesses
having gross receipts of
less than $500,000 in the
preceding taxable year)
\105\
------------------------------------------------------------------------
3. Communications excise tax
Local telephone service, teletypewriter service, and
prepaid telephone cards (that are expressly for local-only
service) are subject to a three-percent excise tax.\106\ The
taxes on local telephone service and teletypewriter service are
imposed on the amount billed to consumers. The consumer is
liable for the tax, with service providers being responsible
for collecting and remitting tax to the Government. The tax on
prepaid telephone cards is based on the face amount of the card
and is imposed when the cards are transferred from a
telecommunications carrier to any person who is not such a
carrier.
---------------------------------------------------------------------------
\101\ The tax rate equals $1.0066 per pack of 20 cigarettes.
\102\ Large cigarettes more than 6.5 inches long are taxed as small
cigarettes, counting each 2.75 inches in length (or fraction) as one
cigarette.
\103\ The price of large cigars on which tax is based is inclusive
of any charge for putting the cigar into a condition ready for sale,
and is exclusive of (1) Federal excise tax and (2) separately stated
retail sales taxes imposed by any State or local government (regardless
of whether the vendor or purchaser is liable for the tax).
\104\ Cigarette papers measuring more than 6.5 inches in length are
taxed at the rate prescribed, counting each 2.75 inches (or fraction
thereof) as one cigarette paper. An identical rule applies to cigarette
tubes more than 6.5 inches in length.
\105\ The taxable year is July 1 through June 30.
\106\ Sec. 4251.
---------------------------------------------------------------------------
Statutorily, the tax applies to ``toll,'' or long distance,
telephone service as well. However, toll service is defined in
the Code as service for which charges vary based on both
distance and elapsed time. Present long distance service
typically does not vary based on both of these elements;
therefore, tax is not imposed on such service. After July 31,
2006, collectors stopped collecting and paying over the tax on
long distance service. The Internal Revenue Service allowed
taxpayers to claim income tax credits for past excise tax
collected on non-taxable service that was billed after February
28, 2003, and before August 1, 2006, on their 2006 Federal
income tax returns.\107\
---------------------------------------------------------------------------
\107\ Notice 2006-50, 2006 I.R.B. 25, and Notice 2007-11, 2007
I.R.B. 261.
---------------------------------------------------------------------------
4. Gas Guzzler excise tax
Automobiles with a fuel efficiency rating less than 22.5
miles per gallon (``mpg'') are subject to an excise tax ranging
from $1,000 to $7,700.\108\ The tax is imposed on manufacturers
and importers. Taxable automobiles include four-wheeled highway
vehicles rated at 6,000 pounds unloaded gross vehicle weight or
less. The following table outlines the rates imposed on
vehicles at different fuel efficiency levels.
---------------------------------------------------------------------------
\108\ Sec. 4064.
------------------------------------------------------------------------
Fuel economy rating (in mpg) Tax per vehicle
------------------------------------------------------------------------
At least 22.5...................... No tax
At least 21.5, but less than 22.5.. $1,000
At least 20.5 but less than 21.5... $1,300
At least 19.5 but less than 20.5... $1,700
At least 18.5 but less than 19.5... $2,100
At least 17.5 but less than 18.5... $2,600
At least 16.5 but less than 17.5... $3,000
At least 15.5 but less than 16.5... $3,700
At least 14.5 but less than 15.5... $4,500
At least 13.5 but less than 14.5... $5,400
At least 12.5 but less than 13.5... $6,400
Less than 12.5..................... $7,700
------------------------------------------------------------------------
Fuel economy ratings are determined by the Environmental
Protection Agency based upon the average number of miles
traveled by the automobile per gallon of gasoline.
Exemptions are provided for automobiles classified as non-
passenger vehicles under rules prescribed by the Department of
Transportation for purposes of section 501 of the Motor
Vehicles Information and Cost Savings Act (as in effect on
November 9, 1978), emergency vehicles used as ambulances or
ambulance/hearses, police and law-enforcement vehicles, and
other emergency-use vehicles specified in Treasury Department
regulations. The Treasury Department further has excluded
certain sport utility vehicles (and trucks) from the term
``automobile'' as defined for purposes of the tax.
5. Water Transportation Passenger excise tax
A $3 per passenger retail excise tax is imposed on
``covered voyages'' on commercial vessels.\109\ The ship
operator is liable for payment of the tax. A covered voyage is
defined generally as any voyage during which passengers embark
or disembark the vessel in the United States, and (1) which
extends for one or more nights on a passenger vessel having
berth or stateroom accommodations for more than 16 passengers,
or (2) on which passengers may engage in gambling aboard the
vessel while beyond the territorial waters of the United States
(i.e., more than three nautical miles from shore). The tax does
not apply to voyages on any vessel owned or operated by the
United States or a State or any agency or political
subdivision, nor does it apply to a voyage of fewer than 12
hours between two U.S. ports.
---------------------------------------------------------------------------
\109\ Sec. 4471.
---------------------------------------------------------------------------
6. Ozone-Depleting Chemicals excise tax
Chemicals
A manufacturers and importers excise tax is imposed on
listed ozone-depleting chemicals sold or used in the United
States.\110\ The tax rate per pound of listed chemicals is
determined as the product of a base tax amount and each
chemical's statutorily prescribed ``ozone depleting factor.''
The base tax amount is $12.55 for calendar year 2011; this
amount increases by $0.45 each year. The following table
outlines the chemicals subject to tax, their statutorily
prescribed ozone-depleting factors, and the 2011 tax applicable
to those chemicals.
---------------------------------------------------------------------------
\110\ Sec. 4681.
------------------------------------------------------------------------
Ozone-
Chemicals depleting 2011 Tax
factor per pound
------------------------------------------------------------------------
CFC-11, CFC-12, CFC-13, CFC-111, CFC-112, CFC- 1.0 $12.55
114, and CFC-211 through CFC-217............
CFC-113...................................... 0.8 $10.04
CFC-115...................................... 0.6 $7.53
Halon-1211................................... 3.0 $37.65
Halon-1301................................... 10.0 $125.50
Halon-2402................................... 6.0 $75.30
Carbon tetrachloride......................... 1.1 $13.80
Methyl chloroform............................ 0.1 $1.25
------------------------------------------------------------------------
Ozone-depleting chemicals that are diverted or recovered in
the United States as part of a recycling process (and not as
part of an original manufacturing or production process) and
certain exported chemicals are exempt from tax. Chemicals used
as propellants in metered-dose inhalers are exempt from tax.
Imported taxable products
Imported products manufactured or produced using taxable
ozone-depleting chemicals as materials are subject to tax at a
rate that would have been imposed on the ozone-depleting
chemicals had those chemicals used been sold in the United
States. If an importer does not furnish adequate information to
the Treasury Department to determine a tax rate for a product,
the assumed rate is one percent of the value of the imported
product.
B. Foreign Procurement Excise Tax
Foreign persons are subject to an excise tax of two percent
on any specified procurement payment.\111\ A specified
procurement payment is a payment made by the United States
government or its agents, pursuant to a contract under which
the United States purchases goods or services from a source in
a country that is not party to an international government
procurement agreement (``GPA'') with the United States. Goods
are from such a source if produced or manufactured in such
country. Payments for services are subject to the tax if the
services are provided in a country that is not a party to such
an agreement with the United States. If the origin of the goods
or services is in a country that is not a member of the GPA,
payments made to a foreign parent located in a country that is
a member of the GPA are subject to the excise tax.
---------------------------------------------------------------------------
\111\ Sec. 5000C.
---------------------------------------------------------------------------
The excise tax is imposed on the gross amount of the
payment under contracts entered into on or after January 2,
2011.\112\ It is treated as an income tax solely for purposes
of subtitle F of the Internal Revenue Code, permitting
assessment and collection of the amounts in a manner similar to
the withholding taxes under chapter 3.
---------------------------------------------------------------------------
\112\ The provision was enacted as section 301 of the James Zadroga
9/11 Health and Compensation Act of 2010, Pub. L. No. 111-347. The
President signed the bill on January 2, 2011.
---------------------------------------------------------------------------
C. General Fund Excise Taxes Related to Health Care \113\
---------------------------------------------------------------------------
\113\ For purposes of this pamphlet, Pub. L. No. 111-148 (2010),
the ``Patient Protection and Affordable Care Act'' and Pub. L. No. 111-
152 (2010), the ``Healthcare and Education Reconciliation Act of 2010''
are collectively referred to as the ``Health-Care Reform Act.'' The
annual fee on branded prescription pharmaceutical manufacturers and
importers, added by the Health-Care Reform Act, is discussed, supra, in
I.C.4, relating to excise taxes dedicated to health-related trust
funds.
---------------------------------------------------------------------------
1. Excise Tax on Indoor Tanning Services
A retail sales tax is imposed on indoor tanning
services.\114\ The tax rate is 10 percent of the amount paid
for such services. Consumers are liable for the tax, with
service providers being responsible for collecting and
remitting the tax to the Federal Government.\115\ The tax
applies to tanning services provided after June 30, 2010.
---------------------------------------------------------------------------
\114\ Sec. 5000B.
\115\ This structure is like that of the communications excise tax
on local telephone service and the domestic air passenger excise tax.
---------------------------------------------------------------------------
Indoor tanning services are services employing any
electronic product designed to induce skin tanning and which
incorporate one or more ultraviolet lamps with wavelengths in
air between 200 and 400 nanometers. Taxable services do not
include phototherapy service performed by a licensed medical
professional.
2. Excise Tax on Certain Medical Devices
A 2.3-percent excise tax is imposed on the sale of medical
devices by the manufacturer of importer. ``Medical device'' is
defined in section 201(h) of the Federal Food, Drug, and
Cosmetic Act.\116\ Section 201(h) defines ``device'' as an
instrument, apparatus, implement, machine, contrivance,
implant, in vitro reagent, or other similar or related article,
including any component part or accessory which is (1)
recognized in the official National Formulary, or the United
States Pharmacopeia, or any supplement to them, (2) intended
for use in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment, or prevention of disease, in
man or other animals, or (3) intended to affect the structure
or any function of the body of man or other animals, and which
does not achieve its primary intended purposes through chemical
action within or on the body of man or other animals and which
is not dependent upon being metabolized for the achievement of
its primary intended purposes.
---------------------------------------------------------------------------
\116\ Sec. 4191; 21 U.S.C. sec. 321.
---------------------------------------------------------------------------
The tax does not apply to eyeglasses, contact lenses,
hearing aids, or to other medical devices specified by the
Treasury Department to be generally sold in retail
establishments or over the Internet to individuals for their
personal use. Examples of such items could be pregnancy test
kits, diabetes testing supplies, denture adhesives, and certain
bandages and tipped applicators.
The tax, which takes effect after December 31, 2012,
applies to sales to State or local governments, nonprofit
organizations, and qualified blood collectors as well to sales
to private parties.
3. Annual Fee on Health Insurance Providers
An annual fee is imposed on any covered entity engaged in
the business of providing health insurance with respect to
United States health risks. The aggregate annual fee for all
covered entities is $8 billion for calendar year 2014, $11.3
billion for calendar years 2015 and 2016, $13.9 billion for
calendar year 2017, and $14.3 billion for calendar year 2018.
For calendar years after 2018, the fee is the amount for the
preceding calendar year indexed to the rate of premium growth.
The aggregate annual fee is apportioned among the providers
based on a ratio designed to reflect relative market share of
U.S. health insurance business. For each covered entity, the
fee for a calendar year is an amount that bears the same ration
to the aggregate annual fee as (1) the covered entity's net
premiums written during the preceding calendar year with
respect to health insurance for any United States health risk,
bears to (2) the aggregate net written premiums of all covered
entities during such preceding calendar year with respect to
such health insurance.
Net written premiums means premiums written, including
reinsurance premiums written, reduced by reinsurance ceded, and
reduced by ceding commissions. Net written premiums do not
include amounts arising under arrangements that are not treated
as insurance (i.e., in the absence of sufficient risk shifting
and risk distribution for the arrangement to constitute
insurance).\117\
---------------------------------------------------------------------------
\117\ See Helvering v. Le Gierse, 312 U.S. 531 (1941).
---------------------------------------------------------------------------
The amount of net premiums written that are taken into
account for purposes of determining a covered entity's market
share is subject to dollar thresholds. A covered entity's net
premiums written during the calendar year that are not more
than $25 million are not taken into account for this purpose.
With respect to a covered entity's net premiums written during
the calendar year that are more than $25 million but not more
than $50 million, 50 percent are taken into account, and 100
percent of net premiums written in excess of $50 million are
taken into account.
After application of the above dollar thresholds, a special
rule provides an exclusion, for purposes of determining an
otherwise covered entity's market share, of 50 percent of net
premiums written that are attributable to the exempt activities
\118\ of a health insurance organization that is exempt from
Federal income tax \119\ by reason of being described in
section 501(c)(3) (generally, a public charity), section
501(c)(4) (generally, a social welfare organization), section
501(c)(26) (generally, a high-risk health insurance pool), or
section 501(c)(29) (a consumer operated and oriented plan
(``CO-OP'') health insurance issuer).
---------------------------------------------------------------------------
\118\ The exempt activities for this purpose are activities other
than activities of an unrelated trade or business defined in section
513 of the Code.
\119\ Section 501(m) of the Code provides that an organization
described in section 501(c)(3) or (4) is exempt from Federal income tax
only if no substantial part of its activities consists of providing
commercial-type insurance. Thus, an organization otherwise described in
section 501(c)(3) or (4) that is taxable (under the Federal income tax
rules) by reason of section 501(m) is not eligible for the 50-percent
exclusion under the insurance fee.
---------------------------------------------------------------------------
A covered entity generally is an entity that provides
health insurance with respect to United States health risks
during the calendar year in which the fee under this section is
due. Thus for example, an insurance company subject to tax
under part I or II of subchapter L, an organization exempt from
tax under section 501(a), a foreign insurer that provides
health insurance with respect to United States health risks, or
an insurer that provides health insurance with respect to
United States health risks under Medicare Advantage, Medicare
Part D, or Medicaid, is a covered entity except as provided in
specific exceptions.
Specific exceptions are provided to the definition of a
covered entity. A covered entity does not include an employer
to the extent that the employer self-insures the health risks
of its employees. A covered entity does not include any
governmental entity, or an entity that (1) qualifies as
nonprofit under applicable State law, (2) meets the private
inurement and limitation on lobbying provisions described in
section 501(c)(3), and (3) receives more than 80 percent of its
gross revenue from government programs that target low-income,
elderly, or disabled populations (including Medicare, Medicaid,
the State Children's Health Insurance Plan (``SCHIP''), and
dual-eligible plans).
A covered entity does not include an organization that
qualifies as a VEBA under section 501(c)(9) that is established
by an entity other than the employer (i.e., a union) for the
purpose of providing health care benefits. This exclusion does
not apply to multi-employer welfare arrangements (``MEWAs'').
A United States heath risk means the health risk of an
individual who is a U.S. citizen, is a U.S. resident within the
meaning of section 7701(b)(1)(A) (whether or not located in the
United States), or is located in the United States, with
respect to the period that the individual is located there.
Health insurance does not include coverage only for
accident, or disability income insurance, or a combination
thereof. Health insurance does not include coverage only for a
specified disease or illness, nor does health insurance include
hospital indemnity or other fixed indemnity insurance. Health
insurance does not include any insurance for long-term care or
any Medicare supplemental health insurance (as defined in
section 1882(g)(1) of the Social Security Act).
For purposes of procedure and administration under the
rules of Subtitle F of the Code, the fee is treated as an
excise tax with respect to which only civil actions for refund
under Subtitle F apply. The Secretary of the Treasury may
redetermine the amount of a covered entity's fee for any
calendar year for which the statute of limitations remains
open.
For purposes of section 275, relating to the
nondeductibility of specified taxes, the fee is considered to
be a nondeductible tax described in section 275(a)(6).
The annual fee is required to be paid in each calendar year
beginning after December 31, 2013. The fee is determined with
respect to net premiums written after December 31, 2012, with
respect to health insurance for any United States health risk.
4. Excise Tax on Individuals Without Essential Coverage
Effective after December 31, 2013, most United States
citizens and legal residents will be required to maintain a
minimum level of health insurance coverage (``minimum essential
coverage'' or ``MEC''). Minimum essential coverage includes
government-sponsored programs, eligible employer-sponsored
plans, certain plans in the individual market, grandfathered
group health plans, or other coverage recognized by the
Departments of Treasury and Health and Human Services.
Individuals who fail to maintain minimum essential coverage may
be subject to an excise tax.\120\
---------------------------------------------------------------------------
\120\ Sec. 5000A.
---------------------------------------------------------------------------
The amount of the excise tax is the lesser of (1) the sum
of the monthly penalty amounts for months during a taxable year
when an applicable individual is not covered under MEC, or (2)
the national average premium for ``bronze level'' coverage
applicable to the taxpayer's family size under qualified health
plans offered through the applicable local insurance exchange
established under the Health-Care Reform Act for the taxable
year in issue. The monthly penalty amount for any taxpayer for
any month is \1/12\ of the greater of (1) the flat dollar
amount or (2) a percentage (set at one percent for 2014, two
percent for 2015, and 2.5 percent for 2016 and all subsequent
taxable years) of the excess of the taxpayer's household income
for the taxable year over the income tax return filing
threshold (under section 6012) for that taxpayer for that
taxable year. The flat dollar amount is the lesser of (1) the
sum of the applicable dollar amounts for all applicable
individuals who do not have MEC in that month, or (2) 300
percent of the applicable dollar amount. The applicable dollar
amount is phased in for 2014 and for 2015 at $95 and $325
respectively, and reaches $695 for 2016. For subsequent taxable
years, the applicable dollar amount is indexed. For an
applicable individual under the age of 18, the applicable
dollar amount is 50 percent of that for an adult.
Exemptions are provided for the following classes of
taxpayers: (1) those who cannot afford coverage because of the
required contribution for MEC would exceed eight percent of
their household incomes,\121\ (2) those whose household incomes
fall below the income tax return filing threshold, (3) members
of Indian tribes, (4) those whose coverage gaps last for a
continuous period of less than three months, and (5) those for
whom obtaining coverage under a qualified health plan would
cause hardships as certified by the Secretary of Health and
Human Services.\122\
---------------------------------------------------------------------------
\121\ The eight percent affordability measure is subject to
indexing for tax years after 2014.
\122\ The eight percent amount is increased annually after 2014 by
the amount by which health insurance premium growth exceeds income
growth.
---------------------------------------------------------------------------
For employees, and individuals who are eligible for minimum
essential coverage through an employer by reason of a
relationship to an employee, the determination of whether
coverage is affordable to the employee and any such individual
is made by reference to the required contribution of the
employee for self-only coverage. For individuals not eligible
for employer sponsored minimum essential coverage the
determination will be made by reference to the cost of a bronze
plan in the applicable exchange. Individuals are liable for
penalties imposed with respect to their dependents (as defined
in section 152). An individual filing a joint return with a
spouse is jointly liable for any penalty imposed with respect
to the spouse.
No tax is imposed on individuals if the failure to maintain
minimum coverage lasts for a continuous period of less than
three months (determined without regard to the calendar year in
which the months in the period occur). If a continuous period
is greater than three months the penalty will be applied to the
entire time of the failure.
Subject to the exception for brief coverage gaps, the
excise tax applies to any period the individual does not
maintain minimum essential coverage and is determined on a
monthly basis. The excise tax is assessed in the same manner as
an assessable penalty under the enforcement provisions of
subtitle F of the Code.\123\ As a result, it is assessable
without regard to the restrictions of section 6213(b). Although
assessable and collectible under the Code, the IRS authority to
use certain collection methods is limited. Specifically, the
filing of notices of liens and levies otherwise authorized for
collection of taxes does not apply to the collection of this
penalty. In addition, the statute waives criminal penalties for
non-compliance with the requirement to maintain minimum
essential coverage. However, the authority to offset refunds or
credits is not limited by this provision.
---------------------------------------------------------------------------
\123\ IRS authority to assess and collect taxes is generally
provided in subtitle F, ``Procedure and Administration'' in the Code.
That subtitle establishes the rules governing both how taxpayers are
required to report information to the IRS and pay their taxes as well
as their rights. It also establishes the duties and authority of the
IRS to enforce the Code, including civil and criminal penalties.
---------------------------------------------------------------------------
5. Excise Tax on Large Employers Not Offering Health Care Coverage
Effective after December 31, 2013, large employers who fail
to offer minimum affordable health care coverage to all full-
time employees under the Health-Care Reform Act may be subject
to a penalty excise tax.\124\ A large employer is defined as an
employer having an average of at least 50 full-time employees
during the preceding calendar year.\125\ A large employer that
does not offer coverage for all of its full-time employees,
offers minimum coverage that is unaffordable, or offers minimum
coverage that consists of a plan under which the plan's share
of the total allowed cost of benefits is less than 60 percent,
is subject to a penalty excise tax if any full-time employee is
certified to the employer as having purchased health insurance
through an exchange established pursuant to the Health-Care
Reform Act and a tax credit or cost-sharing reduction provided
under that Act is allowed or paid to the employee.\126\
---------------------------------------------------------------------------
\124\ Health insurance coverage is considered to be unaffordable if
the coverage has an employee-paid premium that is more than 9.5 percent
of the employee's household income. This percentage is indexed to the
per capita growth in premiums for the insurance market after 2014.
\125\ An employer is not treated as being below this threshold if
(1) its workforce exceeds 50 for 120 days or fewer during the calendar
year or (2) the employees who cause the workforce to exceed 50 are
seasonal workers.
\126\ An employee who is offered minimum essential coverage by his
or her employer is only eligible for a premium tax credit and cost
sharing reduction if the coverage is either unaffordable or consists of
a plan under which the plan's share of the total allowed cost of
benefits is less than 60 percent, and the employee declines to enroll
in the coverage and purchases coverage through the exchange instead.
Unaffordable is defined as coverage with a premium required to be paid
by the employee that is more than 9.5 percent of the employee's
household income. The percentage of the employee's income is indexed to
the per capita growth in premiums for the insured market as determined
by the Secretary of Health and Human Services. Also, an employee is not
eligible for a premium tax credit for any month in which the employee
has a ``free choice voucher'' (an employer-provided voucher for certain
lower-income employees allowed to secure insurance coverage through a
local exchange).
---------------------------------------------------------------------------
Tax for not offering coverage.--The tax for not offering
coverage is imposed monthly. The tax is equal to the total
number of full-time employees of the employer in excess of 30
during the applicable month (regardless of how many employees
receive tax credits or cost-sharing reductions) multiplied by
one-twelfth of $2,000.\127\ For calendar years after 2014, the
$2,000 amount is increased by the percentage by which the
average per capita premium for health insurance coverage in the
United States for the preceding calendar year exceeds the
average per capita premium for calendar year 2013.
---------------------------------------------------------------------------
\127\ Only one 30-employee threshold is allowed when a group of
employers are aggregated and treated as a single employer, such as for
a controlled group of employers.
---------------------------------------------------------------------------
Penalty tax if employer offers coverage.--The tax on
employers offering coverage any of whose full-time employees
are certified as having enrolled in health insurance plans
under an exchange and who are allowed either tax credits or
cost-sharing reductions on such plans is imposed monthly at a
rate of one-twelfth of $3,000 for each such employee. The tax
on employers offering coverage is limited to the amount of the
tax that would apply if the employer was not offering coverage.
For calendar years after 2014, the $3,000 amount is increased
by the percentage by which the average per capita premium for
health insurance coverage in the United States for the
preceding calendar year exceeds the average per capita premium
for calendar year 2013.
6. Failure To Satisfy Continuation Coverage Requirements of Group
Health Plans
The Code contains rules that require certain group health
plans to offer certain individuals (``qualified
beneficiaries'') the opportunity to continue to participate for
a specified period of time in the group health plan
(``continuation coverage'') after the occurrence of certain
events that otherwise would have terminated such participation
(``qualifying events'').\128\ These continuation coverage rules
are often referred to as ``COBRA continuation coverage'' or
``COBRA,'' which is a reference to the acronym for the law that
added the continuation coverage rules to the Code.\129\
---------------------------------------------------------------------------
\128\ Sec. 4980B.
\129\ The COBRA rules were added to the Code by the Consolidated
Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272. The
rules were originally added as Code sections 162(i) and (k). The rules
were later restated as Code section 4980B, pursuant to the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647.
---------------------------------------------------------------------------
The Code imposes excise tax penalties on group health plans
that violate COBRA continuation coverage rules.\130\ Generally,
the excise tax is $100 per qualified beneficiary per day in the
``noncompliance period'' ($200 per day when the failure relates
to two or more qualified beneficiaries). The ``noncompliance
period'' begins on the date the failure to comply with COBRA
occurs, and ends when the failure is corrected, or if earlier,
six months after the last date on which the employer could have
been required to provide COBRA coverage, without regard to the
payment of premiums.\131\ A failure to satisfy COBRA
continuation coverage requirements is corrected if the failure
is retroactively undone to the extent possible, and the
qualified beneficiary is placed in a financial position which
is as good as if the failure had not occurred.
---------------------------------------------------------------------------
\130\ Sec. 4980B.
\131\ A person that provides coverage under a group health plan may
be liable for the penalty if requested in writing to provide COBRA
continuation coverage to a qualified beneficiary. Sec. 4908B(e)(2)(B).
In such a case, the noncompliance period does not begin until 45 days
after the written request is provided to the person. Sec. 4980B(b)(2).
---------------------------------------------------------------------------
The Code provides for various limitations on the amount of
excise tax imposed on noncompliant plans. First, if none of the
persons who could be liable for the tax knew, or exercising
reasonable diligence would have known, of the plan's failure to
comply, the noncompliance period does not begin until the first
date on which the individual knew or should have known of the
failure.\132\ This is widely known as the ``inadvertent failure
rule.'' Second, the excise tax does not apply to failures due
to reasonable cause (and not to willful neglect) that are
corrected within 30 days after any person liable for the tax
knew, or exercising reasonable diligence would have known, of
the plan's failure to comply.\133\ This is widely known as the
``self correction rule.'' Both the inadvertent failure rule and
the self correction rule are overridden if the relevant failure
is not corrected before the IRS sends the employer maintaining
the plan an audit letter and the failure occurred or continued
during the period under examination. In such a case, the excise
tax may not be less than the lesser of (1) $2,500 ($15,000 if
the failures for any year are more than de minimis), or (2) the
excise tax determined without regard to the inadvertent failure
rule and the self correction rule.\134\
---------------------------------------------------------------------------
\132\ Sec. 4980B(c)(1).
\133\ Sec. 4980B(c)(2).
\134\ Sec. 4980B(c)(3).
---------------------------------------------------------------------------
There is an overall limitation on the penalty tax liability
for failures during the taxable year, which are due to
reasonable cause (and not willful neglect).\135\ For single
employer plans the overall limit is $500,000, or if less, 10%
of the amount the employer paid or incurred during the
preceding taxable year for group health plans. For
multiemployer plans the limit is $500,000, or if less, 10% of
the amount paid or incurred by the trust to provide medical
care during the taxable year in which the failure occurred.
Coverage providers who may become liable for the penalty tax on
receipt of a written request to provide COBRA continuation
coverage have an overall limitation of $2,000,000 for a taxable
year with respect to all plans for which they provide coverage.
There are no overall limitations in cases of willful neglect.
---------------------------------------------------------------------------
\135\ Sec. 4980B(c)(4).
---------------------------------------------------------------------------
The Secretary of the Treasury may waive part or all of the
penalty tax if it is excessive relative to the failure
involved. There is no waiver allowed in cases of willful
neglect.
In general, the penalty tax is imposed on the employer
maintaining the plan for single employer plans, and on the plan
itself for multiemployer plans. The employer includes any
entity that is a member of a controlled group of corporations,
a group of trade or businesses under common control, and an
affiliated service group under Code section 414(b), (c), (m) or
(o), and any successor employer.\136\ Under certain conditions,
however, other persons (e.g., insurer, third party
administrators) may be liable for the penalty tax.\137\
---------------------------------------------------------------------------
\136\ Treas. Reg. sec. 54.4980B-2.
\137\ Sec. 4980B(e).
---------------------------------------------------------------------------
7. Failure to Meet Certain Group Health Plan Requirements
The Health Insurance Portability and Accountability Act of
1996 (``HIPAA'') \138\ created a new chapter 100 to the Code,
which, among other things, provides for increased portability
of coverage through limitations on preexisting condition
exclusions and prohibits discrimination against individual
participants and beneficiaries based on health status. Chapter
100 has been expanded in the wake of HIPAA, notably, the
Genetic Information Nondiscrimination Act of 2008 (``GINA'')
\139\ amended HIPAA portability rules in the Code and added new
provisions regarding genetic information.
---------------------------------------------------------------------------
\138\ Pub. L. No. 104-191.
\139\ Sec. 4980D.
---------------------------------------------------------------------------
An excise tax is imposed on group health plans for failure
to comply Chapter 100 of the Code. Generally, the amount of the
excise tax is $100 per day of noncompliance for each individual
to whom the failure relates.\140\ The excise tax is imposed on
the plan sponsor for noncompliance by single employer plans,
and on plan for noncompliance by multiple employer plans. There
are, however, certain exceptions to the imposition of the tax.
First, the tax may not apply if the noncompliant group health
plan can demonstrate that it did not know--and in exercising
reasonable diligence would not have known--that it was
noncompliant.\141\ The tax may also not apply if the failure
was due to reasonable cause (and not willful neglect) and was
corrected within 30 days after the plan first knew (or in
exercising reasonable diligence should have known) of the
failure.\142\
---------------------------------------------------------------------------
\140\ The excise tax does not apply to group health insurance
issuers because the requirements imposed on such issuers are not
contained in the Code.
\141\ Sec. 4980D(c)(1).
\142\ Sec. 4980D(c)(2).
---------------------------------------------------------------------------
The minimum tax imposed on a plan which has uncorrected
compliance issues and to which an audit letter has been sent is
$2,500, increased to $15,000 if violations are more than de
minimis.\143\ The maximum tax imposed for unintentional
failures is the lesser of 10% of the amount paid during the
preceding tax year by the employer for group health plans, or
$500,000. The excise tax does not apply to certain small
employers \144\ providing health coverage only through a fully
insured plan through a contract with a health insurance issuer
if the failure is only due to the health insurance coverage
offered by the issuer.\145\ The Secretary of the Treasury may
waive part or all of the tax if it is excessive relative to the
failure involved. There is, however, no waiver allowed in cases
of willful neglect.
---------------------------------------------------------------------------
\143\ Sec. 4980D(b).
\144\ For this purpose a small employer is one that employed an
average of at least two, but no more than 50, employees in the
preceding calendar year and that employs at least two employees on the
first day of the plan year. Entities treated as a single employer for
purposes of the controlled group rules of section 414 are treated as
one employer. Sec. 4980D(d)(2).
\145\ Sec. 4980D(d).
---------------------------------------------------------------------------
8. Failure of Employer to Make Comparable Archer MSA Contributions
An Archer medical savings account (``Archer MSA'') \146\ is
a tax-exempt trust or custodial account established for the
purpose of paying medical expenses. Within limits,
contributions to an Archer MSA are deductible if made by an
eligible individual (or excludable if made by an employer on
behalf of an eligible individual). Earnings on amounts in an
Archer MSA, and distributions from an Archer MSA for medical
expenses, are generally not taxable. Generally, an individual
is eligible to make tax-free contributions to an Archer MSA if
he or she is covered under a high deductible health plan
(``HDHP'') sponsored by a small employer (or is self employed
and covered by a HDHP), and is not covered under any other
plan.
---------------------------------------------------------------------------
\146\ Sec. 220. After 2007, no new contributions can be made to
Archer MSA, except by or for individuals who previously had Archer MSA
contributions and employees who are employed by a participating
employer.
---------------------------------------------------------------------------
A tax is imposed on the failure of an employer to meet the
``comparability rule'' for the calendar year in which the
employer makes a contribution to the Archer MSA of any employee
with respect to coverage under a high HDHP of the
employer.\147\ Generally, the amount of the tax imposed on any
failure for any calendar year is equal to 35 percent of the
aggregate amount contributed by the employer to Archer MSAs of
employees for tax years of the employees ending with or within
the calendar year.\148\ If, however, the failure is due to
reasonable cause and not to willful neglect, part or all of the
tax may be waived, to the extent that the payment of the tax
would be excessive relative to the failure involved.\149\
---------------------------------------------------------------------------
\147\ Sec. 4980E(a).
\148\ Sec. 4980E(b).
\149\ Sec. 4980E(c).
---------------------------------------------------------------------------
A comparability rule provides that if an employer provides
HDHP coverage coupled with an Archer MSA to employees, and
makes employer contributions to the Archer MSAs, the employer
must make available a comparable contribution on behalf of all
employees with comparable coverage during the same period.\150\
An employer meets the requirements of the comparability rule
for any calendar year if the employer makes available
``comparable contributions'' to the Archer MSAs of all
``comparable participating employees'' for each coverage period
during the calendar year.\151\ For purposes of the
comparability rule, all persons treated as a single employer
for employee benefit plan purposes are treated as one
employer.\152\
---------------------------------------------------------------------------
\150\ Conf. Rept. No. 104-736 (Pub. L. No. 104-191).
\151\ Sec. 4980E(d)(1).
\152\ Sec. 4980E(e).
---------------------------------------------------------------------------
``Comparable contributions'' means contributions that are
the same amount or the same percentage of the annual deductible
limit under the HDHP covering the employees.\153\ ``Comparable
participating employees'' means all employees who (1) are
eligible individuals covered under any HDHP of the employer,
and (2) have the same category of coverage (that is, self-only
or family coverage).\154\ The provision with respect to
``comparable participating employees'' is applied separately to
part-time employees and other employees. For this purpose,
``part-time employee'' means any employee who is customarily
employed for fewer than 30 hours per week.\155\
---------------------------------------------------------------------------
\153\ Sec. 4980E(d)(2)(A).
\154\ Sec. 4980E(d)(3).
\155\ Ibid.
---------------------------------------------------------------------------
9. Failure By Employer To Make Comparable Health Savings Account
Contributions
A health savings account (``HSA'') is a tax-exempt trust or
custodial account established for the purpose of paying
qualified medical expenses. An individual who is covered under
a qualifying HDHP \156\ (purchased either through the
individual market or through an employer) is permitted to
establish and make contributions (or have contribution made on
his or her behalf) to an HSA. Subject to certain
limitations,\157\ contributions made to an HSA by an employer,
including contributions made through a cafeteria plan through
salary reduction, are excluded from income (and from wages for
payroll tax purposes). Contributions made by individuals are
deductible for income tax purposes, regardless of whether the
individuals itemize their tax deductions. Distributions from
HSAs that are used for qualified medical expenses are
excludible from gross income.
---------------------------------------------------------------------------
\156\ For 2011, a qualifying HDFP must have a deduction of at least
$1,200 for self only coverage or $2,400 for family coverage and must
limit annual out-of-pocket expenses beneficiary to $5,950 for self only
coverage and $11,900 for family coverage.
\157\ For 2011, the maximum aggregate annual contribution that can
be made to an HSA is $3,050 in the case of self-only coverage and
$6,150 in the case of family coverage. The annual contribution limits
are increased by $1,000 for individuals who have attained age 55 by the
end of the taxable year (referred to as ``catch-up contributions'').
Contributions, including catch-up contributions, cannot be made once an
individual is enrolled in Medicare.
---------------------------------------------------------------------------
An employer is not required to contribute to the HSAs of
its employees. In general, however, if an employer makes
contributions to any employee's HSA, the employer must make
comparable contributions to the HSAs of all comparable
participating employees.\158\ If employer contributions do not
satisfy the comparability rules for a calendar year, the
employer is subject to an excise tax equal to 35 percent of the
aggregate amount contributed by the employer to HSAs for that
period.\159\
---------------------------------------------------------------------------
\158\ Treas. Reg. sec. 54.4980G-1, A-1.
\159\ Treas. Reg. sec. 54.4980G-1, A-4. In the case of a failure
which is due to reasonable cause and not to willful neglect, all or a
portion of the excise tax imposed under section 4980G may be waived to
the extent that the payment of the tax would be excessive relative to
the failure involved. See sections 4980G(b) and 4980E(c). See Treas.
Reg. sec. 54.4980G-5, A-4.
---------------------------------------------------------------------------
Contributions are comparable if, for each month in a
calendar year, the contributions are either the same amount or
the same percentage of the deductible under the HDHP for
employees who are eligible individuals with the same category
of coverage on the first day of that month.\160\
---------------------------------------------------------------------------
\160\ Treas. Reg. sec. 54.4980G-4, A-1. Employers may make larger
HSA contributions for employees who are not highly compensated
employees (as defined in section 414(q)) and who are comparable
participating employees than for highly compensated employees who are
comparable participating employees. See Treas. Reg. 54.4980G-6, A-1.
The comparability rules do not apply to HSA contributions that an
employer makes through a section 125 cafeteria plan. However,
contributions to an HSA made through a cafeteria plan are subject to
the section 125 nondiscrimination rules (eligibility rules,
contributions and benefits tests and key employee concentration tests).
See Treas. Reg. sec. 54.4980G-5, A-1.
---------------------------------------------------------------------------
Comparable participating employees are eligible individuals
who are in the same category of employees and who have the same
category of HDHP coverage.\161\ Generally, the categories of
coverage are self-only coverage and family coverage.\162\ The
categories of employees for comparability testing are generally
(1) current full-time employees; (2) current part-time
employees; and (3) former employees.\163\ For purposes of
section 4980G, part-time employees are employees who are
customarily employed for fewer than 30 hours per week.
Collectively bargained employees are not comparable
participating employees.
---------------------------------------------------------------------------
\161\ Treas. Reg. sec. 54.4980G-1, A-1.
\162\ Treas. Reg. sec. 54.4980G-1, A-2.
\163\ The is an exception for former employees with coverage under
the employer's HDHP because of an election under a COBRA continuation
provision (as defined in section 9832(d)(1)).
---------------------------------------------------------------------------
10. Excise Tax on Issuers of Qualified Long Term Care Contracts
Long term care contract terms, and issuers of such
contracts, are required to satisfy certain consumer protection
provisions of the long-term care insurance model Act and model
regulations promulgated by the National Association of
Insurance Commissioners (``NAIC'') (as adopted as of January
1993).\164\ The consumer protection provisions that apply with
respect to the terms of the contract apply only for purposes of
determining whether a contract is a qualified long-term care
insurance contract.
---------------------------------------------------------------------------
\164\ Sec. 7702B(g)(2)(B)(i).
---------------------------------------------------------------------------
An excise tax is imposed on the issuers of a long term care
insurance contract equal to $100 per insured per day for
failure to satisfy the consumer protection requirements.\165\
The consumer protection requirements for issuers apply with
respect to contracts that are qualified long-term care
insurance contracts within the meaning of section 7702B.
---------------------------------------------------------------------------
\165\ Sec. 4980C(b). In the case of a failure that is due to
reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax to the extent that payment of the tax would be
excessive relative to the failure involved.
---------------------------------------------------------------------------
The issuers of long term care insurance contracts must meet
the consumer protection requirements under the model regulation
relating to application forms and replacement coverage,
reporting requirements, marketing, appropriateness of purchase,
format, delivering a shopper's guide, right to return, outline
of coverage, group plans, policy summary, monthly reports on
accelerated death benefits, and incontestability period.
Further, under the consumer protection requirements for
issuers, if an application for a qualified long term contract
(or certificate under such contract) is approved, the issuer
must deliver the applicant (or policyholder or certificate
holder) the contract (or certificate) of the insurance not
later than 30 days after the date of approval. If a claim under
a qualified long-term care contract is denied, the issuer must,
within 60 days of a written request by the policy holder or
certificate holder, provide a written explanation of the
reasons for the denial and make available all information
relating to the denial. Also, the issuer must disclose in the
policy and outline of coverage that the policy is intended to
be a qualified long term care insurance contract within the
meaning of section 7702B.
For purposes of both the requirements as to contract terms
and the requirements relating to issuers of contracts, the
determination of whether any requirement of a model regulation
or model Act has been met is made by the Secretary.\166\
---------------------------------------------------------------------------
\166\ Sec. 7702B(g)(2)(B)(iii).
---------------------------------------------------------------------------
11. Nonconforming group health plans
An excise tax is imposed on any employer (including a self-
employed person) or employee organization that contributes to a
nonconforming group health plan.\167\ The tax is equal to 25
percent of the employer's, or employee organization's, expenses
incurred during the calendar year for each group health plan to
which the employer (including a self-employed person), or
employee organization, contributes. This tax does not apply to
an employer that is a Federal or other governmental entity.
---------------------------------------------------------------------------
\167\ A group health plan for this purpose is a plan (including a
self-insured plan) of, or contributed to by, an employer (including a
self-employed person) or employee organization to provide health care
(directly or otherwise) to the employees, former employees, the
employer, others associated or formerly associated with the employer in
a business relationship, or their families.
---------------------------------------------------------------------------
A nonconforming group health plan is a group health plan
that does not comply with the secondary payor requirements with
respect to Medicare under the Social Security Act which, with
certain exceptions, require a group health plan not to take
into account entitlement to benefits under Medicare and provide
that an individual subject to the secondary payor requirements
be entitled to the same benefits under the plan under the same
conditions as an individual not entitled to Medicare.\168\
Thus, the Social Security Act requires that Medicare be the
secondary payor for items and services covered by a group
health plan with respect to employees. The scope of this
requirement generally depends on the size of the employer,\169\
and the basis upon which the individual qualifies for Medicare.
Specifically, the secondary payor rules generally apply for any
group health plan that covers an employee or dependent who
qualifies for Medicare on the basis of end-stage renal disease
for the first 30 months of Medicare coverage.\170\ The
secondary payor rules also apply to a group health plan (other
than a group plan of a small employer) \171\ that covers
Medicare beneficiaries age 65 and older by virtue of an
individual's current employment status, or the current
employment status of a spouse of any age. Finally, for a large
group health plan,\172\ the secondary payor rules also apply in
the case of individuals under age 65 who are eligible for
Medicare on the basis of disability, where the group health
plan coverage is by virtue of the individual's or a family
member's current employment status with the employer.\173\
---------------------------------------------------------------------------
\168\ Sec. 1862(b) of the Social Security Act.
\169\ The employer aggregation rules under section 414(b), (c),
(m), and (o) apply for purposes of this provision. Under that rule,
generally all employees of entities under common control (e.g., members
of the same control group) are required to be aggregated and are
treated as a single employer.
\170\ Sec. 1862(b)(1)(A)(iii) of the Social Security Act.
\171\ A small employer is an employer that has 20 or more employees
for each working day in each of 20 or more calendar weeks in the
current calendar year or the preceding calendar year. See section
1862(b)(1)(A)(iv) of the Social Security Act.
\172\ Generally a large group health plan is a group health plan of
an employer with at least 100 employees on a typical day in the
previous calendar year.
\173\ Sec. 1862(b)(1)(A).
---------------------------------------------------------------------------
12. Excise Tax on Insurers For High-Cost Employer-Sponsored Health
Coverage
Effective after December 31, 2017, an excise tax will be
imposed on the aggregate value of employer-sponsored health
insurance for an employee that exceeds a threshold amount.\174\
The tax equals 40 percent of the aggregate value of the
coverage in excess of $10,200 for individual coverage and
$27,500 for family coverage (both multiplied by a ``health care
cost adjustment percentage,'' discussed below).\175\ This tax
further is increased by an age and gender adjusted ``excess
premium amount.'' \176\
---------------------------------------------------------------------------
\174\ The tax also is imposed if the threshold amount is exceeded
for any former employee, surviving spouse, or any other primary insured
individual.
\175\ In general, the family threshold applies to employees
enrolled in multi-employer plans regardless of whether the employees
maintain family or individual coverage.
\176\ Unlike most Federal excise taxes, the amount of this tax is
not deductible for Federal income tax purposes.
---------------------------------------------------------------------------
The value of health insurance coverage equals the sum of
(1) the aggregate premiums for the coverage, (2) the amount of
any salary reduction contributions to a Health FSA for the
taxable year, and (3) the dollar amount of employer
contributions to an HSA or an Archer MSA.
The ``health care adjustment percentage'' is designed to
account for possible increases in the cost of U.S. health care
in excess of projected growth for the period 2010 through 2017.
The adjustment percentage equals 100 percent of the excess, if
any, of (1) the percentage by which the per employee costs of
coverage under the Blue Cross/Blue Shield standard benefit
option of the Federal Employees Health Benefits plan
(``standard FEHBP coverage'') for plan year 2018 exceeds the
per employee costs of that plan for 2010 over (2) 55
percent.\177\ Beginning in 2019, the threshold amounts will be
indexed to the CPI-U plus one percentage point in 2019 and CPI-
U thereafter.
---------------------------------------------------------------------------
\177\ For purposes of this calculation, the 2010 benefit package is
to be priced in 2018 dollars.
---------------------------------------------------------------------------
In general, the age and gender adjustment equals the
excess, if any, of (1) the premium costs of standard Federal
Employee's health coverage for the coverage provided to the
individual (assuming age and gender characteristics of the
employer's workforce) over (2) premium costs for that coverage
priced for age and gender characteristics of the national
workforce. Special rules apply for certain retirees and
employees in high-risk professions.
The excise tax is imposed on issuers of the insurance. In
the case of self-insured group health insurance, a Health FSA
or an HRA, the tax is paid by the entity that administers the
benefits (or the employer, if the employer is the plan
administrator).
D. Miscellaneous Regulatory Excise Taxes
In addition to the excise taxes imposed to raise revenues
for trust fund programs and for the General Fund, the Code
historically has included numerous excise taxes imposed
primarily to regulate activities or products (e.g., wagering
and ``non-regular'' firearms) or to promote adherence to other
tax policies (e.g., penalty taxes on specified activities with
respect to private foundations and retirement plans).
Most of these regulatory excise taxes raise less than $50
million per year, with certain exceptions. For fiscal years
2011-2020, the excise tax on domestic private foundation net
investment income (sec. 4940) is projected to raise $13.3
billion. The excise tax on insurance policies issued by foreign
insurers (casualty insurance and indemnity bonds life
insurance, sickness and accident policies, and annuity
contracts; reinsurance) (sec. 4371) is projected to raise
approximately $6.3 billion during fiscal years 2011-2020. The
following table provides an overview of these excise taxes.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
1. ``Non-Regular'' Firearms \178\
a. Occupational taxes (sec. 5801)
\179\
Manufacturers and importers....... $1,000 per year, per premise
($500 for businesses with
gross receipts of less than
$500,000 in the preceding
taxable year).
Dealers........................... $500 per year, per premise.
b. Transfer taxes for certain $5.00 per transfer.
concealable weapons (sec. 5811)......
c. Making tax (sec. 5821)............. $200 per firearm.
2. Wagering Excise Taxes
a. Certain wagers (sec. 4401) \180\... Two percent of amount of
wager, except tax is 0.25
percent in States where
wagering is authorized by
State law.
b. Occupational taxes (sec. 4411)..... $500 per year on person
engaged or employed in
business of accepting
wagers, except that the tax
is $50 per year in States
where wagering is
authorized by State
law.\181\
------------------------------------------------------------------------
\178\ The taxes on non-regular firearms are administered by the Bureau
of Alcohol, Tobacco, Firearms, and Explosives in the Department of
Justice. The chapter of the Code imposing these excise taxes is named
the ``National Firearms Act''.
The term ``non-regular'' firearm includes machine guns, destructive
devices (e.g., explosive devices such as bombs, grenades, small
rockets, and mines), sawed-off shotguns or rifles, silencers, and
certain concealable weapons.
\179\ July 1-June 30 is the taxable year for the occupational taxes.
There also are Federal licensing fees for manufacturers, importers,
and dealers in destructive devices or ammunition for such devices.
See, 18 U.S.C. sec. 923.
\180\ The tax is imposed on any wager with respect to a sports event or
a contest placed with a person engaged in the business of accepting
such wagers, any wager placed in a wagering pool with respect to a
sports event or contest (if such pool is conducted for profit), and
certain lottery-type wagers (including numbers games and similar types
of wagering). No tax is imposed on pari-mutuel wagering licensed under
State law, coin-operated wagers, State-conducted lotteries, games
where wagers are placed and winners are determined and prizes are
distributed with all persons placing wagers present, or drawings by
tax-exempt organizations where no part of the proceeds inures to the
benefit of any private shareholder or individual. The person accepting
the wager is liable for the tax.
\181\ The taxable year is July 1-June 30.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
3. Excise Tax on Domestic Private Foundation Net Investment Income (sec.
4940)
Tax-exempt foundations.--Two
percent of net investment
income in general (one
percent where foundation
meets certain distribution
requirements).
Taxable foundations.--Excess
of section 4940 excuse tax
that would be imposed if
foundation were tax-exempt
plus unrelated business tax
that would have been
imposed over regular income
tax imposed on the
foundation.
4. Excise Tax on Foreign Private Foundation Net Investment Income (sec.
4948)
Four percent of gross
investment income from
sources within the United
States.
5. Excise Tax on Insurance Policies Issued by Foreign Insurers (sec.
4371) \182\
a. Casualty insurance and indemnity Four cents per dollar, or
bonds................................ fractional part, of premium
paid.
b. Life insurance, sickness and One cent per dollar, or
accident policies, and annuity fractional part, of premium
contracts............................ paid.
c. Reinsurance........................ One cent per dollar, or
fractional part, of premium
paid on reinsurance of
policies subject to tax
under a. or b.
6. Excise Tax on Lobbying Expenditures
a. Public charities making an election 25 percent of excess
under sec. 501(h) (sec. 4911)........ lobbying expenditures.
b. Charitable organizations Five percent of lobbying
disqualified from tax-exempt status expenditures on the
because of lobbying expenditures organization; five percent
(sec. 4912).......................... of lobbying expenditures on
the organization manager in
certain cases.
------------------------------------------------------------------------
\182\ The tax does not apply to insurance on exports. See, U.S. v.
International Business Machines, 517 U.S. 843 (1996).
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
7. Excise Taxes on Certain Private Foundation Activities
a. Self-dealing (sec. 4941)........... Initial tax.--Ten percent of
the amount of self-dealing
on the self-dealer; five
percent on the foundation
manager in certain cases
(up to $20,000 including
any additional tax).
Additional tax.--If not
corrected within specified
period, 200-percent tax on
self-dealer, 50-percent tax
on foundation manager in
certain cases (up to
$20,000 including any
additional tax).
b. Failure to distribute income (sec. Initial tax.--30-percent tax
4942)................................ on foundation on amount of
undistributed income
remaining undistributed at
beginning of succeeding
taxable year.
Additional tax.--If not
corrected within specified
period, tax of 100 percent
of amount not distributed.
c. Excess business holdings (sec. Initial tax.--Ten percent
4943)................................ tax on foundation on value
of excess holdings.
Additional tax.--If not
corrected within specified
period, tax of 200 percent
of excess holdings.
d. Investments jeopardizing charitable Initial tax.--Ten-percent
purpose (sec. 4944).................. tax on foundation on amount
of investment; ten-percent
tax on foundation manager
in certain cases (up to
$10,000).
Additional tax.--25-percent
tax on foundation if not
corrected within specified
period; five-percent tax on
foundation manager in
certain cases (up to
$20,000).
e. Taxable expenditures (sec. 4945)... Initial tax.--20 percent of
amount of expenditure on
foundation; five-percent
tax on foundation manager
in certain cases (up to
$10,000).
Additional tax.--If not
corrected within specified
period, tax of 100 percent
of taxable expenditure on
foundation; 50-percent tax
on foundation manager in
certain cases (up to
$10,000).
8. Excise Tax on Political Expenditures of Section 501(c)(3)
Organizations (sec. 4955)
Initial tax.--20 percent of
political expenditure on
organization; 2.5-percent
tax on organization manager
in certain cases (up to
$10,000).
Additional tax.--If not
corrected within specified
period, tax of 100 percent
of expenditure on
organization, 50-percent
tax on organization manager
in certain cases (up to
$20,000).
9. Excise Tax on Excess Benefit Transactions of Certain Section
501(c)(3) and 501(c)(4) Organizations (sec. 4958) \183\
Initial tax.--25 percent of
amount of excess benefit on
disqualified person who is
the beneficiary of the
transaction; 10-percent tax
on the organization manager
in certain cases (up to
$20,000).
Additional tax.--If not
corrected within specified
period, tax of 200 percent
of excess benefit on the
disqualified person.
------------------------------------------------------------------------
\183\ Private foundations are not subject to the excise tax.
------------------------------------------------------------------------
Tax (and Code section) Tax rates
------------------------------------------------------------------------
10. Excise Taxes Relating to Employee Pension and Benefit Plans
a. Failure to meet minimum funding Initial tax.--For simple-
standards (sec. 4971)................ employer plan, 10 percent
of unpaid required
contributions on employer;
for multiemployer plan of
five percent accumulated
funding deficiency on
employer.
Additional tax.--If not
corrected within specified
period, 100 percent of
unpaid required
contributions on
accumulated funding
deficiency on employer.
b. Nondeductible contributions to 10 percent of nondeductible
qualified employer plan (sec. 4972).. contributions under plan on
employer.
c. Excess contributions to IRA's, Six percent of excess
Archer MSA's, etc. (sec. 4973)....... contributions on account
owner.
d. Certain accumulations in IRA's, 50 percent of amount by
etc. (sec. 4974)..................... which minimum required to
be distributed during year
exceeds amount actually
distributed on the payee.
e. Prohibited transactions (sec. 4975) Initial tax.--15 percent of
amount involved in
prohibited transaction on
disqualified person
engaging in transaction.
Additional tax.--If not
corrected within specified
period, 100 percent of
amount involved on
disqualified person.
f. Disqualified welfare benefits (sec. 100 percent of disqualified
4976)................................ benefit amount on the
employer.
g. Excess fringe benefits provided by 30 percent of excess
an employer (sec. 4977).............. benefits on employer
electing aggregation of
lines of business.
h. Dispositions of sec. 1042 10 percent of amount
securities by ESOP's and worker-owned realized on disposition on
cooperatives (sec. 4978)............. employer or cooperative.
i. Dispositions of sec. 133 securities 10 percent of amount
by ESOP's (sec. 4978B)............... realized on disposition on
employer.
j. Excess contributions under a cash 10 percent of sum of excess
or deferred arrangement (sec. 4979).. contributions and any
excess aggregate
contributions under the
plan for plan year on
employer.
k. Prohibited allocations of qualified 50 percent of amount
securities by ESOP's and worker- involved in prohibited
owned cooperatives (sec. 4979A)...... allocation or ownership on
employer, cooperative or S
corporation.
l. Reversion of qualified plan assets 20 percent of amount of
to employer (sec. 4980).............. employer reversion on
employer (generally); 50
percent if employer does
not maintain a qualified
replacement plan or provide
certain pro-rata benefit
increases.
m. Failure to provide of benefit $100 per day per failure, up
accrual reduction (sec. 3980F)....... to specified maximum.
11. Excise Taxes on Real Estate Investment Trusts and Regulated
Investment Companies
a. Real estate investment trusts (sec. Four percent of excess
4981)................................ required distribution for
calendar year over
distributed amount.
b. Regulated investment companies Four percent of excess
(sec. 4982).......................... required distribution for
calendar year over
distributed amount.
12. Excise Tax on Issuers of ``Registration-Required Obligations'' Not
in Registered Form (sec. 4701)
One percent of principal
amount of obligation
multiplied by number of
years in obligation term.
13. Excise Tax on ``Golden Parachute'' Payments (sec. 4999)
20 percent of excess payment
as defined in sec. 280G(b).
14. Excise Tax on ``Greenmail'' (sec. 5881)
50 percent of ``greenmail''
\184\
15. Excise Tax on Certain Tax-Exempt Entities Entering into Prohibited
Tax Shelter Transactions (sec. 4965)
Entity.--In general, highest
corporate rate multiplied
by greater of entity's net
income for taxable year of
prohibited transaction
attributable to transaction
or 75 percent of proceeds
received for taxable year
(for subsequently listed
transactions, amount
allocable to period
beginning on date
transaction identified or
first day of taxable year).
For certain ``knowing
transactions,'' tax equals
greater of 100 percent of
income