[Federal Register Volume 88, Number 60 (Wednesday, March 29, 2023)]
[Proposed Rules]
[Pages 18446-18471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06278]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 52
[REG-105954-22]
RIN 1545-BQ40
Superfund Chemical Taxes
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to the
excise taxes imposed on certain chemicals and certain imported
substances, effective July 1, 2022. Such taxes are known as the
Superfund chemical taxes. The excise tax on taxable chemicals is
imposed on the sale or use of taxable chemicals by manufacturers,
producers, and importers of such chemicals. The excise tax on taxable
substances is imposed on the sale or use of taxable substances by
importers of such taxable substances. The proposed regulations affect
manufacturers, producers, and importers that sell or use taxable
chemicals and importers that sell or use taxable substances.
DATES: Written or electronic comments and requests for a public hearing
must be received by May 30, 2023. Requests for a public hearing must be
submitted as prescribed in the ``Comments and Requests for a Public
Hearing'' section.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at https://www.regulations.gov (indicate IRS and
REG-105954-22) by following the online instructions for submitting
comments. Comments cannot be edited or withdrawn once submitted to the
Federal eRulemaking Portal. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comment submitted electronically or on paper to its public docket.
Send paper submissions to: CC:PA:LPD:PR (REG-105954-22), Room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Stephanie Bland or Amanda Dunlap at (202) 317-6855 (not a toll-free
number); concerning the submission of comments and/or requests for a
public hearing, Vivian Hayes by phone at (202) 317-5177 (not a toll-
free number) or by email at [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed regulations under sections 4661,
4662, 4671, and 4672 of the Internal Revenue Code (Code) to amend the
Environmental Tax Regulations (26 CFR part 52). Section 4661(a) imposes
an excise tax on the sale or use of ``taxable chemicals'' by
manufacturers, producers, or importers (section 4661 tax), and section
4662 provides definitions and special rules for applying the section
4661 tax. Section 4671(a) imposes an excise tax on the sale or use of
``taxable substances'' by importers (section 4671 tax), and section
4672 provides definitions and special rules for applying the section
4671 tax. The section 4661 tax and the section 4671 tax are
collectively referred to as the ``Superfund chemical taxes'' because
these excise taxes fund the Hazardous Substance Response Trust Fund
established by section 221 of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA), Public Law 96-510, 94
Stat. 2767 (1980), informally referred to as ``Superfund.''
The Superfund chemical taxes previously expired on December 31,
1995, but were reinstated with certain modifications, effective July 1,
2022, through December 31, 2031, by section 80201 of the Infrastructure
Investment and Jobs Act (IIJA), Public Law 117-58, 135 Stat. 429
(November 15, 2021). The proposed regulations provide guidance on the
application of the reinstated Superfund chemical taxes. As explained
later in this Background section, the Treasury Department and the IRS
have issued additional guidance on topics related to the reinstated
Superfund chemical taxes that are not covered by the proposed
regulations.
II. Section 4661 Tax on Taxable Chemicals
A. In General
The section 4661 tax was enacted as part of CERCLA to impose an
excise tax on the sale or use of any taxable chemical by the
manufacturer, producer, or importer of the taxable chemical. While
section 4661(a) imposes tax on the sale of any taxable chemical,
section 4662(c)(1) treats the use of a taxable chemical as a sale of
the taxable chemical.
Section 4661(b) provides a table of 42 chemicals and the per-ton
tax rate for each chemical. As reinstated by the IIJA, the per-ton tax
rate for each of the 42 taxable chemicals in the table under section
4661(b) is double the per-ton tax rate previously imposed by section
4661 as in effect at the end of 1995.
The IIJA also amends section 4661(c), effective July 1, 2022, to
provide that no section 4661 tax will be imposed after December 31,
2031.
B. Definition of Taxable Chemical and Other Terms
Under section 4662(a)(1), any chemical listed in the table under
section 4661(b) is a ``taxable chemical'' if it is manufactured or
produced in the
[[Page 18447]]
United States or entered into the United States for consumption, use,
or warehousing. Section 4662(a) also provides definitions of the terms
``United States,'' ``importer,'' and ``ton,'' as well as a rule that
clarifies how the per-ton section 4661 tax is imposed on fractional
parts of a ton.
C. Statutory Exceptions and Special Rules
Section 4662(b) provides exceptions from the definition of taxable
chemical and special rules that apply to the section 4661 tax.
The following exceptions to the section 4661 tax provided by
section 4662(b)(1) through (b)(4) were first enacted as part of CERCLA.
Section 4662(b)(1) provides that methane or butane is treated as a
taxable chemical only if it is used otherwise than as a fuel or in the
manufacture or production of any motor fuel, diesel fuel, aviation
fuel, or jet fuel, and that the person so using the fuel is treated as
the manufacturer. Under section 4662(b)(2), generally no section 4661
tax is imposed on nitric acid, sulfuric acid, ammonia, or methane used
to produce ammonia if used as a qualified fertilizer substance. Section
4662(b)(3) provides that no section 4661 tax is imposed in the case of
sulfuric acid produced solely as a byproduct of and on the same site as
air pollution control equipment. Finally, section 4662(b)(4) provides
that the term taxable chemical does not include any substance to the
extent derived from coal.
In addition to modifying the exceptions for methane and butane in
section 4662(b)(1) and qualified fertilizer substances in section
4662(b)(2), section 1019 of the Tax Reform Act of 1984, enacted as
Division A of the Deficit Reduction Act of 1984, Public Law 98-369, 98
Stat. 494, 1022 (July 18, 1984), added section 4662(b)(5) (providing
generally that no section 4661 tax is imposed on several specified
taxable chemicals used as a qualified fuel substance) and section
4662(b)(6) (providing generally that no section 4661 tax is imposed on
several specified taxable chemicals by reason of the transitory
presence of such chemical during any process of smelting, refining, or
otherwise extracting any substance not subject to the section 4661
tax).
The Superfund Revenue Act of 1986 (Superfund Revenue Act), enacted
as Title V of the Superfund Amendments and Reauthorization Act of 1986,
Public Law 99-499, 100 Stat. 1613, 1760 (October 17, 1986), added the
exceptions and special rules in section 4662(b)(7) through (10).
Section 4662(b)(7) provides that except in the case of a substance
imported into the United States or exported from the United States, the
term xylene does not include any separated isomer of xylene. Section
4662(b)(8) generally provides that no section 4661 tax is imposed on
any chromium, cobalt, or nickel that is diverted or recovered in the
United States from any solid waste as part of a recycling process (and
not as part of the original manufacturing or production process), and
section 4662(b)(9) provides generally that no tax is imposed on certain
taxable chemicals used as a qualified animal feed substance. Section
4662(b)(10) provides an exception from tax for sales of organic taxable
chemicals while those chemicals are part of an intermediate hydrocarbon
stream and imposes a registration requirement on both parties to the
sale.
The Superfund Revenue Act also added section 4662(c)(2) to the
Code, which provides a special rule exempting certain inventory
exchanges of taxable chemicals from the section 4661 tax and imposes a
registration requirement on both parties to the exchange to qualify for
the exemption.
D. Credits and Refunds
Enacted as part of CERCLA, section 4662(d)(1) through (3) provides
rules authorizing the Secretary of the Treasury or her delegate
(Secretary) to provide regulations regarding credits and refunds of the
section 4661 tax for (i) the use of a taxable chemical in the
manufacture of another substance that is a taxable chemical, (ii) the
use of certain taxable chemicals in the production of fertilizer, and
(iii) the use of certain taxable chemicals as qualified fuel. Section
4662(d)(4), which was added by the Superfund Revenue Act, authorizes
the Secretary to provide regulations regarding credits and refunds of
the section 4661 tax for the use of certain taxable chemicals in the
production of animal feed.
E. Export Exemption
The Superfund Revenue Act added section 4662(e) to the Code to
provide an exemption for the exportation of taxable chemicals. Section
4662(e)(1)(A) allows for the tax-free sale of taxable chemicals for
export. Section 4662(e)(1)(B) imposes a proof of export requirement and
provides that rules similar to the rules of section 4221(b) (relating
to tax-free sales for purposes of the manufacturers excise taxes
codified in chapter 32 of the Code (chapter 32)) are to apply.
Section 4662(e)(2)(A) provides a mechanism for a credit or refund
of the section 4661 tax paid on a taxable chemical, or on a taxable
chemical that is used in the production of a taxable substance, that is
exported. Section 4662(e)(2)(B) establishes conditions to allowance for
a credit or refund under such circumstances.
Section 2001 of the Technical and Miscellaneous Revenue Act of 1988
(TAMRA), Public Law 100-647, 102 Stat. 3342, 3593 (November 10, 1988),
redesignated section 4662(e)(3) as section 4662(e)(4) and added a new
section 4662(e)(3), which requires the Secretary to provide, by
regulation, the circumstances under which a credit or refund may be
allowed or made directly to the party that exported a taxable chemical
or taxable substance. Section 4662(e)(4), as redesignated by TAMRA,
requires the Secretary to issue regulations to carry out the purposes
of section 4662(e).
III. Section 4671 Tax on Taxable Substances
A. In General
The section 4671 tax is imposed on any taxable substance sold or
used by the importer thereof. The tax was added to the Code by section
515 of the Superfund Revenue Act. The term ``taxable substance'' is
defined by section 4672(a), which is described in part III.B. of this
Background section.
Section 4671(b) provides rules regarding how the amount of section
4671 tax is calculated. Section 4671(b)(1) provides that the amount of
section 4671 tax is the amount of section 4661 tax that would have been
imposed on the taxable chemicals used as materials in the manufacture
or production of the taxable substance if such taxable chemicals had
been sold in the United States for use in the manufacture or production
of the taxable substance. If the importer does not furnish to the
Secretary sufficient information to determine under section 4671(b)(1)
the amount of section 4671 tax imposed on any taxable substance,
section 4671(b)(2), as reinstated by the IIJA, provides that the amount
of section 4671 tax imposed is 10 percent (instead of 5 percent as
originally enacted) of the appraised value of the substance as of the
time the taxable substance was entered into the United States for
consumption, use, or warehousing. Section 4671(b)(3) provides that the
Secretary may prescribe an amount of section 4671 tax for each taxable
substance that will apply in lieu of the tax specified in section
4671(b)(2), equal to the amount of section 4671 tax that would be
imposed with respect to a taxable substance if such substance were
produced using the predominant
[[Page 18448]]
method of production of such substance.
Section 4671(c) provides that no section 4671 tax is imposed on the
sale or use of any substance if tax is imposed on such sale or use
under section 4611 (imposing an excise tax on crude oil received at a
United States refinery and on imported petroleum products entered into
the United States for consumption, use, or warehousing). Section
4671(c) further provides that no section 4671 tax is imposed on the
sale or use of any substance if such sale or use was subject to the
section 4661 tax.
Section 4671(d) generally provides that rules similar to certain
rules in section 4662(b) and (d) relating to exemptions for using
substances as certain fuels or in the production of fertilizer or
animal feed will apply with respect to taxable substances. Section
4671(d)(1) provides that rules similar to section 4662(b)(2), (5), and
(9) (relating to tax-free sales of chemicals used as fuel or in the
production of fertilizer or animal feed) apply with respect to taxable
substances. Section 4671(d)(2) provides that rules similar to section
4662(d)(2), (3), and (4) (relating to credit or refund of tax on
certain chemicals used as fuel or in the production of fertilizer or
animal feed) apply with respect to taxable substances.
Section 4671(e), as amended by the IIJA effective July 1, 2022,
provides that no section 4671 tax will be imposed after December 31,
2031.
B. List of Taxable Substances
For purposes of the section 4671 tax, section 4672(a)(1) provides
that the term ``taxable substance'' means any substance that, at the
time of sale or use by the importer, is listed as a taxable substance
by the Secretary.
Section 4672(a) provides an initial list of taxable substances and
mechanisms for adding substances to and removing substances from such
list. There are two ways that a substance can be listed as a taxable
substance. The first way a substance can be listed as a taxable
substance, provided by section 4672(a)(2)(A), is if the substance is
included in the initial list of taxable substances under section
4672(a)(3), as enacted by the Superfund Revenue Act. The second way,
provided by section 4672(a)(2)(B) as amended by the IIJA, effective
July 1, 2022, is if the Secretary determines, in consultation with the
Administrator of the Environmental Protection Agency (EPA) and the
Commissioner of U.S. Customs and Border Protection (CBP), that taxable
chemicals constitute more than 20 percent of the weight or more than 20
percent of the value of the materials used to produce such substance,
determined on the basis of the predominant method of production (more
than 20-percent weight or value test). The last sentence of section
4672(a)(2) provides that if an importer or exporter of any substance
requests that the Secretary determine whether such substance should be
listed as a taxable substance under section 4672(a)(1) or be removed
from such listing, the Secretary must make such determination within
180 days after the date the request was filed. See Rev. Proc. 2022-26
(2022-29 I.R.B. 90) for the exclusive process for making such requests.
Further, section 4672(a)(4) provides that the Secretary must add to the
list of taxable substances under section 4672(a)(3) those substances
that meet the more than 20-percent weight or value test, and that the
Secretary may remove from the list only substances that meet neither of
such tests. The complete list of taxable substances under section
4672(a) is referred to in this preamble as the ``Taxable Substances
List.'' The IRS will maintain the Taxable Substances List at https://www.irs.gov/businesses/small-businesses-self-employed/superfund-chemical-excise-taxes.
Section 4672(b)(1) and (2) provides additional definitions
applicable to sections 4671 and 4672. Section 4672(b)(1) provides that
the term ``importer'' means the person entering the taxable substance
for consumption, use, or warehousing. Section 4672(b)(2) provides that
the terms ``taxable chemical'' and ``United States'' have the
respective meanings given such terms by section 4662(a).
IV. Procedural Rules
The Superfund chemical taxes are codified in chapter 38 of the Code
(chapter 38), which pertains to environmental excise taxes.
The procedural regulations governing chapter 38 taxes are contained
in 26 CFR part 40 (Excise Tax Procedural Regulations). See 26 CFR 52.0-
1 and 40.0-1(a). Chapter 38 taxes are reported on Form 6627,
Environmental Taxes, which is required to be attached to Form 720,
Quarterly Federal Excise Tax Return (Form 720 return). See Sec. Sec.
40.0-1(a) and 40.6011(a)-1(a)(1) of the Excise Tax Procedural
Regulations.
The procedural regulations in part 40 also provide that each
business unit that has, or is required to have, a separate employer
identification number (EIN) is treated as a separate person. See Sec.
40.0-1(d). Therefore, business units (for example, a parent corporation
and a subsidiary corporation, a partner and the partner's partnership,
or the various members of a consolidated group), each of which has, or
is required to have, a different EIN, are separate persons for purposes
of filing quarterly Form 720 returns, quarterly payments of excise tax,
semimonthly deposits of excise tax, and registration for certain excise
tax activities.
V. Recent Published Guidance Related to the Superfund Chemical Taxes
A. Notice 2021-66 (Preliminary Guidance and Request for Comments)
Notice 2021-66 (2021-52 I.R.B. 901) provided guidance related to
the Superfund chemical taxes, including the initial list of taxable
substances as required by section 80201(c)(3) of the IIJA, guidance on
registration requirements, and guidance on the procedural rules that
apply to the Superfund chemical taxes. Notice 2021-66 also requested
comments on whether any issues related to the reinstated Superfund
chemical taxes require clarification or additional guidance.
The comments can be accessed via the Federal Rulemaking Portal at
https://www.regulations.gov (type IRS-2021-0018 or Notice 2021-66 in
the search field on the regulations.gov homepage to find the comments).
B. Notice 2022-15 (Deposit Penalty Relief)
Under Sec. 40.6302(c)-1, taxpayers must make semimonthly deposits
of the Superfund chemical excise taxes. Section 40.0-1(c) provides that
a semimonthly period is the first fifteen (15) days of a calendar month
or the portion of a calendar month following the 15th day of the month.
One commenter to Notice 2021-66 (commenter) requested deposit
penalty relief. After considering the comment, the Treasury Department
and the IRS issued Notice 2022-15 (2022-18 I.R.B. 1043) to provide
transitional relief for the third and fourth calendar quarters of 2022,
and the first calendar quarter of 2023, regarding the failure to
deposit penalty imposed by section 6656 of the Code for failures to
deposit Superfund chemical taxes through March 31, 2023, provided
certain requirements are met.
C. Revenue Procedure 2022-26 (Exclusive Process for Requesting
Modifications to the Taxable Substances List)
Notice 89-61 (1989-1 C.B. 717), as modified by Notice 95-39 (1995-1
C.B. 312), provided the previous process by which importers and
exporters could request to add a substance to or remove a substance
from the Taxable Substances List. Several commenters
[[Page 18449]]
requested that the Treasury Department and the IRS provide an updated
procedure by which importers and exporters may petition to add a
substance to or remove a substance from the Taxable Substances List.
Those commenters also requested that any new guidance provide notice of
requests for modifications to the Taxable Substances List and an
opportunity for public comment.
Rev. Proc. 2022-26 sets forth the exclusive process by which
importers, exporters, and interested persons may petition to add a
substance to or remove a substance from the Taxable Substances List.
The process set forth in Rev Proc. 2022-26 provides for public notice
of any petition and the opportunity for public comment.
Explanation of Provisions
I. General Rules Regarding the Section 4661 Tax
Proposed Sec. 52.4661-1 sets forth general rules regarding the
section 4661 tax, including rules regarding the imposition of tax, the
attachment of tax, the persons liable for tax, the amount of tax, and
the calculation of the amount of tax.
A. Attachment of Tax
1. General Rule; Foreign Manufacturers
Proposed Sec. 52.4661-1(c)(1) clarifies that the section 4661 tax
attaches to the first sale or use of a taxable chemical by the
manufacturer, producer, or importer. This is consistent with
Congressional intent that the tax apply only once to a given quantity
of a taxable chemical. See S. Rep. No. 96-848, 96th Cong., 2d Sess. 21
(1980) (``A number of provisions are included in the fee system to
assure an equitable fee which avoids unintended economic impacts,
including: a provision which allows only one fee collection on any
given quantity.'').
Proposed Sec. 52.4661-1(c)(2) clarifies that in situations
involving a foreign manufacturer, the section 4661 tax does not attach
to the foreign manufacturer's sale of a substance listed in the table
under section 4661(b) to the importer because the substance is not a
taxable chemical at the time of such sale; rather, tax attaches to the
importer's first sale or use of the taxable chemical. This rule is
consistent with section 4661(a) and the definition of the term
``taxable chemical'' in section 4662(a)(1). It is also consistent with
the overall statutory scheme of excise taxes and relevant case law.
See, e.g., Indian Motorcycle Co. v. United States, 283 U.S. 570 (1931)
(excise tax is not imposed on the importation of a taxable motorcycle,
but rather on the first sale by the importer).
2. Dilution of Chemical Mixtures
Proposed Sec. 52.4661-1(c)(1) clarifies that in the case of
chemical mixtures containing one or more chemicals with respect to
which tax was paid (tax-paid chemicals), no section 4661 tax attaches
when the chemical mixture is diluted with a solvent to change the
concentration of the chemical mixture, provided the solvent is not a
taxable chemical. The proposed regulations take this approach because
the section 4661 tax has already been paid on the taxable chemicals in
the chemical mixture, and the taxable chemicals in the chemical mixture
do not lose their identity during the dilution process.
3. Chemical Mixtures and Chemical Compounds
A chemical mixture is generally any substance composed of two or
more physically-combined components that are not chemically bonded.
Chemical mixtures include solutions, suspensions, and alloys. If a
taxable chemical is a component of a chemical mixture, the taxable
chemical remains a taxable chemical while it is part of the chemical
mixture.
In contrast, a chemical compound is generally any substance
composed of identical molecules, each of which consists of two or more
atoms of the same or different elements held together by chemical
bonds. A taxable chemical used to produce a chemical compound does not
retain its individual properties.
With regard to domestically-produced chemical mixtures, the
manufacture or production of a chemical mixture is a ``use'' of the
taxable chemicals in the chemical mixture under proposed Sec. 52.4662-
1(c)(15), and the section 4661 tax attaches at the time of such use.
However, the ``use'' definition does not capture any taxable chemicals
found in imported chemical mixtures. Therefore, the taxable chemicals
found in an imported chemical mixture could completely escape the
section 4661 tax unless the importer engages in a manufacturing process
of separating the taxable chemicals in the mixture (such a process
would make the importer the manufacturer of the taxable chemicals in
the mixture) and then sells or uses those taxable chemicals. This would
give foreign manufacturers of chemical mixtures a competitive advantage
over domestic manufacturers of the same chemical mixtures.
To address this disparity, proposed Sec. 52.4661-1(c)(3) provides
that when a taxable chemical is part of an imported chemical mixture
that is not a taxable substance (as defined in section 4672(a)(1) and
proposed Sec. 52.4672-1(b)(8)), tax attaches to the first sale or use
of the chemical mixture by the importer. Further, proposed Sec.
52.4661-1(f)(2) includes a rule regarding the calculation of the amount
of tax with regard to chemical mixtures. More specifically, under
proposed Sec. 52.4661-1(f)(2)(ii), when a taxable chemical is part of
an imported chemical mixture that is not a taxable substance, as
defined in section 4672(a)(1) and proposed Sec. 52.4672-1(b)(8), tax
is imposed on the actual weight of any taxable chemicals in the
chemical mixture at the time the importer first sells or uses the
chemical mixture. These rules ensure that foreign and domestic
manufacturers of chemical mixtures are treated the same for purposes of
the section 4661 tax. The approach is supported by the fact that a
taxable chemical in a chemical mixture is assumed to retain its
chemical identity while part of the chemical mixture. There is also
support for this position in case law. See Murphy Oil USA, Inc. v.
United States, 81 F. Supp. 2d 942 (W.D. Ark. 1999) (section 4661 tax is
imposed on the taxable chemicals in a chemical mixture).
As with chemical mixtures, the domestic manufacture or production
of a chemical compound with one or more taxable chemicals is a taxable
use of the taxable chemicals. Therefore, the domestic manufacturer or
producer of the chemical compound is liable for the section 4661 tax.
However, because a taxable chemical used to produce a chemical compound
does not retain its chemical identity, the Treasury Department and the
IRS lack the authority under sections 4661 and 4662 to tax the taxable
chemicals used in the production of imported chemical compounds. This
creates an advantage for foreign manufacturers of chemical compounds
that are produced with taxable chemicals but that are not taxable
substances, as defined in section 4672(a) and proposed Sec. 52.4672-
1(b)(8). The Treasury Department and the IRS request comments on
possible ways to mitigate the disadvantage to domestic manufacturers
within the constraints of the statutory scheme.
4. Ores and Metals
Several taxable chemicals, including nickel, cobalt, chromium, and
phosphorus, are produced from ores. In addition, one taxable chemical,
chromite, is an ore. The production of a taxable chemical from ore
requires mining the ore to extract the ore from the earth, and an
extraction, smelting, or
[[Page 18450]]
other process to remove or refine the taxable chemical from the ore.
Proposed Sec. 52.4661-1(c)(4)(i) provides, generally, that in the
case of ores, the section 4661 tax attaches to the first sale or use of
the taxable chemical by the manufacturer, producer, or importer after
extraction of the taxable chemical from the ore, and the person that
extracts the taxable chemical from the ore is the manufacturer of the
taxable chemical. Proposed Sec. 52.4661-1(c)(4)(i) further provides
that the term ``extraction of a taxable chemical from the ore'' means
the first process in the United States that a person uses to separate
the taxable chemical from the ore.
As noted earlier, chromite is both a taxable chemical and an ore;
therefore, it is treated differently from taxable chemicals that are
produced from ores. Proposed Sec. 52.4661-1(c)(4)(ii) provides that in
the case of chromite, the section 4661 tax attaches to the first sale
or use of chromite by the manufacturer, producer, or importer after the
chromite is mined. Under the proposed regulations, the tax treatment of
taxable chemicals that are metals under section 4661 is generally
addressed by the rule regarding ores. The Treasury Department and the
IRS request comments on whether an additional or alternative rule for
metals would be appropriate or warranted.
B. Procedural Rules; Definition of Person
Proposed Sec. 52.4661-1(d) notes that the procedural rules in 26
CFR part 40 apply to the section 4661 tax. Proposed Sec. 52.4661-1(d)
further notes that each business unit that has, or is required to have,
a separate EIN is treated as a separate person for purposes of filing
excise tax returns, making semimonthly deposits of excise tax, making
payments of excise tax, and applying for the registration required
under section 4662(b)(10)(C) and (c)(2)(B). See Sec. 40.0-1(d).
Proposed Sec. 52.4671-1(d) is a similar provision related to the
section 4671 tax.
C. Calculation of the Amount of Tax
1. Measurement and Documentation Regarding Tonnage
Proposed Sec. 52.4661-1(f) provides rules regarding how to
calculate the amount of section 4661 tax. As noted earlier, the section
4661 tax applies at a specified rate per ton.
One commenter requested flexibility in how to measure and document
tonnage, but did not elaborate on what type of information is generally
available in the industry that could potentially be used as a metric
for measuring tonnage, on whether different sectors of the industry
might require different options for measuring tonnage, or on the degree
of specificity that could be attained by using a metric other than the
actual weight. The Treasury Department and the IRS lack sufficient
information about possible ways to measure tonnage, other than by using
the actual weight of the taxable chemical. The Treasury Department and
the IRS are also concerned that a broad rule, such as one that would
allow any reasonable method of measurement, could artificially reduce
the tax base. For these reasons, proposed Sec. 52.4661-1(f)(2)(i)
provides that for purposes of calculating the amount of section 4661
tax, the weight of a taxable chemical, measured in tons, is the actual
weight of the taxable chemical at the time of sale or use by the
manufacturer, producer, or importer.
The Treasury Department and the IRS request comments on any other
appropriate methods that could be used to measure tonnage, with
specificity and without artificially reducing the tax base. The
Treasury Department and the IRS also request comments on the types of
documentation available in the industry that could be used as records
to support a weight measurement.
2. Conversion Required for Volumetric Measurements
A taxable chemical may be measured in volumetric units. Because the
section 4661 tax is imposed at a rate per ton, any volumetric units
must be converted to weight units in order to calculate the amount of
section 4661 tax. Proposed Sec. 52.4661-1(f)(2)(iii) requires that any
volumetric measurement of a taxable chemical be converted to a weight
measurement and provides a formula for volume-to-weight conversions.
II. Definitions Relating to Sections 4661 and 4662
As noted earlier, sections 4661 and 4662(c)(1) impose a tax on the
sale or use of a taxable chemical by the manufacturer, producer, or
importer. Several commenters requested that the Treasury Department and
the IRS provide definitions of the terms ``manufacturer,''
``importer,'' ``sale,'' and ``use.'' The definitions in proposed Sec.
52.4662-1 include those definitions requested by commenters, as well as
others that are necessary to provide clarity with regard to the
application of sections 4661 and 4662.
A. Taxable Chemical
As discussed in section II of the Background section, section
4662(a)(1) generally defines the term ``taxable chemical'' as any
substance (A) that is listed in the table under section 4661(b), and
(B) that is manufactured or produced in the United States or entered
into the United States for consumption, use, or warehousing. The table
under section 4661(b) includes only the name of each taxable chemical.
The taxable chemicals listed in the table under section 4661(b) include
metals, metalloids, minerals, and an ore (chromite).
The proposed regulations clarify that a substance is a taxable
chemical only if it satisfies both prongs of the definition of
``taxable chemical'' in section 4662(a)(1). In addition, the proposed
regulations provide that, except as provided in section 4662(b), a
substance is listed in the table under section 4661(b) if it has the
same name and molecular formula as a substance listed in the table
under section 4661(b). The proposed regulations further provide that
all isomeric forms of a substance listed in the table under section
4661(b) are treated as having the same name and molecular formula of
the substance. Therefore, except as provided in section 4662(b)(7) with
respect to xylene, an isomer of a substance listed in the table under
section 4661(b) is a substance listed in the table under section
4661(b).
B. Importer
Section 4662(a)(3) defines the term ``importer'' as the person
entering the taxable chemical for consumption, use, or warehousing. The
proposed regulations clarify that if the person entering the taxable
chemical for consumption, use, or warehousing is merely acting as an
agent or a customs broker for another person, then the agent or customs
broker is not the importer, and the importer is the first person in the
United States to sell or use the taxable chemical after entry of the
taxable chemical for consumption, use, or warehousing. The proposed
regulations also address how to identify the importer with regard to
sales that involve drop shipping a taxable chemical when the party
shipping the taxable chemical is outside the United States.
C. Manufacturer
Neither section 4661 nor section 4662 defines the term
``manufacturer.'' Proposed Sec. 52.4662-1(c)(6)(i) defines the term
``manufacturer'' as any person that produces a taxable chemical from
new or raw material, feedstocks, or other substances, or from scrap,
salvage, waste, or recycled substances. Further, under the proposed
regulations, a
[[Page 18451]]
manufacturer includes any person that produces a taxable chemical from
the mining process, or extracts, isolates, separates, or otherwise
removes a taxable chemical from an ore or from another substance. A
manufacturer also includes any person that produces a taxable chemical
by processing or manipulating a substance, such as through the
oxidation process. The term manufacturer does not include a person that
dilutes a chemical mixture comprised of one or more tax-paid chemicals
with a solvent that is not a taxable chemical.
One commenter requested that recyclers be excluded from the
definition of the term ``manufacturer.'' Section 4662(b)(8)(A) provides
that no section 4661 tax is imposed on any chromium, cobalt, or nickel
which is diverted or recovered in the United States from any solid
waste as part of a recycling process (and not as part of the original
manufacturing or production process). The explicit reference to
recycling activities in section 4662(b)(8)(A), combined with the
absence of a general exception for recycling activities in sections
4661 and 4662, suggest that Congress did not intend to exclude persons
engaged in recycling activities from the definition of the term
``manufacturer.'' Accordingly, the proposed regulations do not adopt
this suggestion.
Proposed Sec. 52.4662-1(c)(6)(ii) addresses contract
manufacturing. More specifically, proposed Sec. 52.4662-1(c)(6)(ii)
provides that if a person manufactures or produces a taxable chemical
for a second person, pursuant to a contract, order, or agreement and in
accordance with the second person's specifications, or if a person
manufactures or produces a taxable chemical for a second person from
materials owned by the second person, the second person (and not the
first person) is treated as the manufacturer of the taxable chemical
manufactured or produced by the first person.
D. Sale
Neither section 4661 nor section 4662 defines the term ``sale.''
Proposed Sec. 52.4662-1(c)(8) defines the term ``sale'' as the
transfer of title or substantial incidents of ownership (whether or not
delivery to, or payment by, the purchaser has been made) in a taxable
chemical for a consideration, which may include, but is not limited to,
money, services, or property.
One commenter requested an exclusion from the definition of the
term ``sale'' for sales of intermediate hydrocarbon streams and
inventory exchanges if both parties to the sale or exchange are taxable
chemical registrants. Section 4662(b)(10) and (c)(2) provide exceptions
to the section 4661 tax in the scenarios described by the commenter
when both parties are registered; therefore, there is no need for a
carve out from the definition of the term ``sale.''
E. Ton
Section 4662(a)(4) defines the term ``ton'' to mean 2,000 pounds,
which is a short ton. Proposed Sec. 52.4662-1(c)(13) follows the
statutory definition.
F. Use
Neither section 4661 nor section 4662 defines the term ``use.''
Proposed Sec. 52.4662-1(c)(15) defines the term ``use'' broadly. More
specifically, proposed Sec. 52.4662-1(c)(15) provides that a taxable
chemical is used when it is consumed, when it functions as a catalyst,
when its chemical composition changes, when it is used in the
manufacture or production of a chemical mixture or other substance
(including by mixing or combining the taxable chemical with other
substances), or when it is put into service in a trade or business for
the production of income. The loss or destruction of a taxable chemical
through spillage, fire, natural degradation, or other casualty is not a
use. The mere manufacture or production of a taxable chemical is not a
use of that chemical.
The legislative history of CERCLA notes that in determining how
industrial fees should be levied, Congress ``moved away from imposing
fees on wastes and hazardous end-products, and instead approved a
system which imposes fees on the relatively few basic building blocks
used to make all hazardous products and wastes.'' S. Rep. No. 96-848,
96th Cong., 2d Sess. 19 (1980) (quoted language from the Committee
Report by the Senate Environment and Public Works Committee on an early
draft of S.1480). The legislative history further notes that tax is to
be imposed ``at an early step in the industrial chain of production,
distribution, consumption, and disposal.'' Id. at 20. The definition of
``use'' in the proposed regulations is consistent with the legislative
history.
III. Special Rules and Exceptions Relating to the Section 4661 Tax
Section 4662(b) provides a number of exceptions and special rules
that apply to the section 4661 tax. Some of the provisions in section
4662(b) provide exceptions to the definition of ``taxable chemical'';
other provisions provide general exceptions to the section 4661 tax.
A. Methane or Butane Used as Fuel
Methane and butane are included in the list of taxable chemicals in
section 4661(b). Section 4662(b)(1) provides that methane or butane is
treated as a taxable chemical only if it is used otherwise than as a
fuel or otherwise than in the manufacture or production of any motor
fuel, diesel fuel, aviation fuel, or jet fuel. In such cases, the
person so using the methane or butane is treated as the manufacturer.
The section 4662(b)(1) rule impacts the timing of the imposition of
the section 4661 tax. Unlike other chemicals included in the list of
taxable chemicals in section 4661(b) that are taxable chemicals at the
time of manufacture, production, or importation, the status of methane
or butane as a taxable chemical cannot be determined until the time of
use. As a result, it is possible that methane or butane will never
become a taxable chemical and no section 4661 tax will attach. It is
also possible that there will be intervening sales of methane or butane
before the section 4661 tax is imposed.
Proposed Sec. 52.4662-2(a)(2) provides that methane or butane is
used otherwise than as a fuel when it is used other than in the
production of energy. Proposed Sec. 52.4662-2(a)(2) further provides
that methane or butane is used as a fuel when it is used in the
production of energy. It also provides examples of when methane or
butane is used as a fuel. The rule in the proposed regulations
regarding use as a fuel is consistent with existing guidance in other
areas of excise tax. See section 2(f) of Notice 2006-92 (2006-43 I.R.B.
774) (providing guidance on use as a fuel relating to excise tax on
alternative fuel mixtures).
B. Qualified Fertilizer, Fuel, and Animal Feed Substances
Section 4662(b)(2), (5), and (9) provide exceptions to the section
4661 tax for certain taxable chemicals that are qualified fertilizer,
fuel, or animal feed substances. Proposed Sec. 52.4662-2(b) provides
rules regarding the exception for qualified fertilizer substances.
Proposed Sec. 52.4662-2(e) provides rules regarding the exception for
qualified fuel substances. Proposed Sec. 52.4662-2(f) provides rules
regarding the exception for qualified animal feed substances.
One commenter highlighted the need for guidance on tax-free sales
under the fertilizer exception and requested clarification on whether
tax-free sales are limited to one intervening sale. That commenter also
requested guidance on how to make claims for credit and refund. Another
commenter requested
[[Page 18452]]
that the Treasury Department and the IRS provide model certificates for
tax-free sales. The proposed regulations address those issues. Proposed
Sec. 52.4662-2(h) provides rules regarding tax-free sales under
section 4662(b)(2), (5), and (9) and clarifies that the exception is
available for multiple intervening sales. The provisions in proposed
Sec. 52.4662-2(h) are similar to tax-free sale rules in other areas of
excise tax and include a model exemption certificate. To lessen the
burden on taxpayers, proposed Sec. 52.4662-2(h) allows for a
``blanket'' exemption certificate that may be used for a period of up
to one (1) year.
C. Sulfuric Acid Produced as a Byproduct of Air Pollution Control
Equipment
Section 4662(b)(3) provides that no section 4661 tax is imposed on
sulfuric acid produced solely as a byproduct of and on the same site as
air pollution control equipment. The statute does not define the term
``air pollution control equipment'' for purposes of this exception.
Further, the statute is silent with regard to whether the exception
applies to sulfuric acid produced solely as a byproduct of and on the
same site as air pollution control equipment located outside the United
States.
Proposed Sec. 52.4662-2(c) defines the term ``air pollution
control equipment'' as any equipment used to comply with the Clean Air
Act, including any amendments thereto, as codified in 42 U.S.C. chapter
85, or any similar provision under state law. This definition
effectively limits the exception to domestically-produced sulfuric
acid. The Treasury Department and the IRS request comments on the
definition of ``air pollution control equipment'' in proposed Sec.
52.4662-2(c). To the extent commenters believe the definition should be
modified, the Treasury Department and the IRS request comments on the
type of documentation that is available to demonstrate to the IRS that
sulfuric acid produced outside the United States was, in fact, produced
solely as a byproduct of and on the same site as air pollution control
equipment.
D. Taxable Chemicals Produced From Coal
Section 4662(b)(4) provides that the term ``taxable chemical'' does
not include any substance derived from coal. Proposed Sec. 52.4662-
2(d) defines the term ``coal'' as bituminous coal, subbituminous coal,
anthracite, and lignite.
E. Intermediate Hydrocarbon Streams
Section 4662(b)(10)(A) provides that no section 4661 tax is imposed
on any organic taxable chemical while such chemical is part of an
intermediate hydrocarbon stream containing one or more organic taxable
chemicals. Section 4662(b)(10)(B) provides that if any organic taxable
chemical on which no section 4661 tax was previously imposed by reason
of section 4662(b)(10)(A) is isolated, extracted, or otherwise removed
from, or ceases to be part of (collectively, isolation), an
intermediate hydrocarbon stream, such isolation is treated as a use by
the person causing the isolation, and such person is treated as the
manufacturer of the organic taxable chemical so isolated.
1. Definition of ``Organic Taxable Chemical''
Section 4662(b)(10)(D) defines ``organic taxable chemical'' as any
taxable chemical that is an organic substance. At the most basic level,
an organic substance is a substance that contains carbon and hydrogen
atoms.
The organic substances that are listed in the table under section
4661(b) are acetylene, benzene, butane, butylene, butadiene, ethylene,
methane, naphthalene, propylene, toluene, and xylene. See H.R. Rep. No.
99-962, 99th Cong., 2d Sess., at 328 n. 6 (1986). However, neither the
statute nor the legislative history addresses the interplay between
section 4662(b)(1) and (10) with regard to methane and butane. Although
methane and butane are organic substances that are listed in the table
in section 4661(b), they are treated as taxable chemicals only when
used otherwise than as a fuel or otherwise than in the production of
any motor fuel, diesel fuel, aviation fuel, or jet fuel. See section
4662(b)(1) and proposed Sec. 52.4662-2(a). Therefore, methane and
butane are not organic taxable chemicals at the time of isolation from
an intermediate hydrocarbon stream. See section 4662(b)(1) and proposed
Sec. 52.4662-2(a) and (g). Proposed Sec. 52.4662-2(g)(2)(i) clarifies
that no section 4661 tax is imposed on methane or butane at the time
the methane or butane is isolated from an intermediate hydrocarbon
stream and includes an example to illustrate this rule.
2. Multi-Step Isolation Process
The rule in section 4661(b)(10) is clear with regard to organic
taxable chemicals isolated from an intermediate hydrocarbon stream as
part of a single-step isolation process. However, neither the statute
nor the legislative history addresses what happens when isolation is a
multi-step process.
In Murphy Oil USA, Inc. v. United States, 81 F. Supp. 2d 942 (W.D.
Ark. 1999), the court considered the applicability of section
4662(b)(10) to a multi-step process of isolating propylene from a C3/C4
hydrocarbon stream. The court held that the splitting process designed
to isolate and extract the propylene content from the C3/C4 stream as
refinery-grade propylene was the point of isolation, even though the
resulting refinery-grade propylene was a mixture of propylene and
propane that could have been further processed into a purer grade of
propylene. The court further held that because the weight of the
propylene in the refinery-grade propylene could be determined with
specificity, the section 4661 tax was imposed only on the weight of the
propylene in the refinery-grade propylene.
Proposed Sec. 52.4662-2(g)(3)(ii) follows the holding in the
Murphy Oil case and clarifies that when the isolation of an organic
taxable chemical from an intermediate hydrocarbon stream is a multi-
step process, the first process that a person uses to isolate, extract,
or otherwise remove the organic taxable chemical from the intermediate
hydrocarbon stream (even if the organic taxable chemical is, at that
time, still mixed with other substances and further processing is
possible, but not required) is treated as a use by the person causing
the isolation, and such person is treated as the manufacturer of the
organic taxable chemical so isolated. Proposed Sec. 52.4662-
2(g)(3)(ii) further clarifies that if the organic taxable chemical is
part of a chemical mixture at the time of isolation, the section 4661
tax is imposed on the weight of the entire chemical mixture, unless the
person causing the isolation can establish, with specificity, the
weight of the organic taxable chemical or chemicals contained in the
chemical mixture.
IV. Credits and Refunds of the Section 4661 Tax
Section 4662(d) provides a mechanism for a credit or refund of the
section 4661 tax with regard to certain specified uses of taxable
chemicals. Multiple commenters requested that the Treasury Department
and the IRS provide guidance on claims for credit and refund. One
commenter requested specific guidance on the use of invoices to support
credit and refund claims.
Proposed Sec. 52.4662-4 provides rules regarding claims for credit
and refund under section 4662(d). The provisions in proposed Sec.
52.4662-4 explain the general rules, conditions to allowance,
[[Page 18453]]
and supporting information required for claims for credit and refund.
Proposed Sec. 52.4662-4 also includes a model certificate to support a
claim for credit or refund. The approach taken in the proposed
regulations is consistent with other areas of excise tax law.
V. Exports
Section 4662(e)(1)(A) provides that no section 4661 tax is imposed
on the sale by the manufacturer or producer of any taxable chemical for
export or for resale by the purchaser to a second purchaser for export.
Section 4662(e)(1)(B) provides that rules similar to section 4221(b)
(relating to exports exempt from manufacturers excise taxes codified in
chapter 32) apply. Proposed Sec. 52.4662-5(b) provides rules regarding
how to effectuate tax-free sales for export under section 4662(e)(1).
The rules in proposed Sec. 52.4662-5(b) are based on the rules in
Sec. 48.4221-3 of the Manufacturers and Retailers Excise Tax
Regulations, and include a model exemption certificate and a model
statement of export.
Section 4662(e)(2) provides the general rule for claims for credit
or refund of the section 4661 tax in the case of taxable chemicals that
are exported, and taxable chemicals used as materials in the
manufacture or production of a substance that is a taxable substance
(that is, it is listed on the Taxable Substances List) at the time of
export. Proposed Sec. 52.4662-5(c) provides rules regarding claims for
credit or refund under section 4662(e)(2).
Several commenters expressed concern about not being able to make
credit or refund claims for taxable chemicals used in the manufacture
of substances that meet the more than 20-percent weight or value test
but have not yet been added to the Taxable Substances List. The
requirement that a substance be on the Taxable Substance List at the
time of export in order to make a claim for credit or refund is
statutory. See section 4662(e)(2). The Treasury Department and the IRS
request comments on possible ways to mitigate the impact of the express
statutory language in section 4662(e)(2).
Section 4662(e)(3) provides a mechanism for an exporter to make
claims for credit or refund. Proposed Sec. 52.4662-5(d) provides rules
regarding claims for credit or refund under section 4662(e)(3).
VI. General Rules Regarding the Section 4671 Tax
General rules regarding the section 4671 tax are set forth in
proposed Sec. 52.4671-1, including rules regarding the imposition of
tax, the persons liable for tax, the attachment of tax, the amount of
tax, and the calculation of the amount of tax. Proposed Sec. 52.4671-2
provides rules regarding tax-free sales under section 4671(d)(1) and
claims for credit and refund under section 4671(d)(2).
VII. Definitions Relating to Sections 4671
Proposed Sec. 52.4672-1 provides definitions applicable to
sections 4671 and 4672. To the extent there is overlap, the definitions
in proposed Sec. 52.4672-1 with respect to the section 4671 tax track
the definitions in section Sec. 52.4662-1 with respect to the section
4661 tax.
VIII. Predominant Method of Production
Sections 4671(b)(3) and 4672(a)(2) use the term ``predominant
method of production.'' However, the term is undefined by statute. The
legislative history is limited and provides only that with regard to
the determination of substances on the Taxable Substances List, the
determination is to be made ``on the basis of the predominant method of
production (with respect to imported derivatives) using stoichiometric
material consumption assuming a 100-percent yield.'' Conf. Rep. 962,
99th Cong., 2d Sess. (1987), 1987-1 C.B. 383, 386-7.
Proposed Sec. 52.4672-1(b)(4) defines the term ``predominant
method of production'' to mean the method used to produce the greatest
number of tons of a particular substance worldwide, relative to the
total number of tons of the substance produced worldwide. The
definition uses worldwide production as the metric because the term
``predominant method of production'' applies only in the context of the
section 4671 tax, which is imposed on imported substances.
The Treasury Department and the IRS request comments on the
predominant method of production, or any other relevant information
(such as the weight or value of the taxable chemicals used in the
manufacture or production of the taxable substance), for the following
taxable substances that are included in the statutory list in section
4672(a)(3): ferronickel; formaldehyde; hydrogen peroxide; methanol;
nickel powders; nickel waste and scrap; polystyrene resins and
copolymers; styrene-butadiene, snpf; synthetic rubber, not containing
fillers; unwrought nickel; vinyl resins; vinyl resins, nspf; and
wrought nickel rods and wires.
IX. Tax-Free Sales Under Section 4671(d)(1)
Section 4671(d)(1) provides that rules similar to those in section
4662(b)(2), (5), and (9) apply with respect to taxable substances used
or sold for use as described in such rules. Proposed Sec. 52.4671-2(b)
provides rules regarding how to effectuate tax-free sales under section
4671(d)(1); the rules are similar to those in proposed Sec. 52.4662-
2(h).
X. Credits and Refunds Under Section 4671(d)(2)
Section 4671(d)(2) provides that rules similar to section
4662(d)(2), (3), and (4) apply with respect to taxable substances used
or sold for use as described in such rules. Proposed Sec. 52.4671-2(c)
provides rules regarding claims for credit or refund under section
4671(d)(2); the rules are similar to those in proposed Sec. 52.4662-4.
XI. Types of Substances Eligible for Addition to the Taxable Substances
List
When the Superfund chemical taxes were previously in effect, Notice
89-61 provided a determination process by which importers and exporters
of substances could request modifications to the Taxable Substances
List pursuant to the flush language of section 4672(a)(2). Notice 89-61
provided that textile fibers, yarns, and staple, and fabricated
products that are molded, formed, woven, or otherwise finished into
end-use products were ineligible for addition to the Taxable Substances
List. Notice 95-39 modified Notice 89-61 to allow polymers extruded in
fiber form to be added to the Taxable Substances List.
Proposed Sec. 52.4672-1(b) incorporates the rules from Notice 89-
61 and Notice 95-39 regarding the types of substances that may be added
to the Taxable Substances List if they otherwise meet the more than 20-
percent weight or value test. These rules were also incorporated into
the definition of the term ``substance'' in section 3.10 of Rev. Proc.
2022-26.
XII. Other Issues
A. Sales Between Certain Registrants
Two commenters requested that the Treasury Department and the IRS
adopt a practice with respect to sales of taxable chemicals that is
similar to what is in place for ``S'' registrants for fuel
transactions. One commenter suggested an expansion of ``G''
registration and an allowance of tax-free sales among all ``G''
registrants.
In the fuel excise tax area, section 4081 of the Code establishes
the bulk transfer system and the ability for ``S''
[[Page 18454]]
registrants to make tax-free sales of taxable fuel. More specifically,
section 4081(a)(1)(B)(i) expressly exempts certain removals and entries
of taxable fuel within the bulk transfer system and imposes
registration requirements. There is no such statutory directive with
regard to the Superfund chemical taxes, and such an approach would be
inconsistent with the statutory text and legislative history of the
section 4661 tax. Therefore, the proposed regulations do not adopt this
suggestion.
B. Modifications to the Taxable Substances List
Several commenters requested the addition of substances to or the
removal of substances from the Taxable Substances List. Such comments
are not considered requests to add to or remove from the Taxable
Substances List and will not be processed. All requests to add
substances to or remove substances from the Taxable Substances List
must be submitted in accordance with the procedures set forth in Rev.
Proc. 2022-26, which provides the exclusive process by which importers,
exporters, and other interested persons may petition to add a substance
to or remove a substance from the Taxable Substances List.
C. Delayed Implementation of Superfund Chemical Taxes
Multiple commenters requested that the Treasury Department and the
IRS delay implementation of the Superfund chemical taxes until January
1, 2023. The IIJA reinstates the Superfund chemical taxes as of July 1,
2022. The Treasury Department and the IRS do not have the authority to
modify the effective date of the Superfund chemical taxes, which is
statutory. Accordingly, the Superfund chemical taxes are effective July
1, 2022, as required by law.
D. Harmonized Tariff Schedule (HTS) and Chemical Abstract Service (CAS)
Numbers
Several commenters requested that the Treasury Department and the
IRS provide HTS and CAS numbers for all taxable chemicals and taxable
substances to ensure uniform identification by stakeholders and the
IRS.
The U.S. International Trade Commission maintains and publishes HTS
numbers. The Chemical Abstract Service maintains CAS numbers. CAS is a
division of the American Chemical Society, a non-profit organization
that holds a congressional charter under title 36, United States Code.
The Treasury Department and the IRS are considering the request to
provide HTS and CAS numbers and how those numbers can be verified with
the appropriate experts. The Treasury Department and the IRS request
comments on the degree of specificity that would be required for HTS
and CAS numbers. Specifically, the Treasury Department and the IRS
request comments on the appropriate number of decimal places for the
HTS and CAS numbers that would be used to identify taxable chemicals
and taxable substances.
Effect on Other Documents
The following notices of determination that were issued pursuant to
Notice 89-61 are revoked: 55 FR 24023-01 (June 13, 1990); 55 FR 24023-
02 (June 13, 1990); 55 FR 25768-02 (June 22, 1990); 55 FR 25770-01
(June 22, 1990); 56 FR 47985-01 (Sept. 23, 1991); 56 FR 47986-01 (Sept.
23, 1991); 56 FR 47986-02 (Sept. 23, 1991); 56 FR 47987-01 (Sept. 23,
1991); 57 FR 10947-03 (Mar. 31, 1992); 58 FR 66068-01, (Dec. 17, 1993);
58 FR 66069-01 (Dec. 17, 1993); 58 FR 66069-02 (Dec. 17, 1993); 58 FR
66071-01 (Dec. 17, 1993); 58 FR 67439-01 (Dec. 21, 1993); 59 FR 11827-
01 (Mar. 14, 1994; 59 FR 11828-01 (Mar. 14, 1994); 59 FR 11831-01 (Mar.
14, 1994); 59 FR 13036-02 (Mar. 18, 1994); 59 FR 13037-01 (Mar. 18,
1994); 59 FR 13038-01 (Mar. 18, 1994); 59 FR 13039-01 (Mar. 18, 1994);
59 FR 14446-01 (Mar. 28, 1994); 59 FR 14447-01, (Mar. 28, 1994); 59 FR
27652-02 (May 27, 1994); 59 FR 27653-01 (May 27, 1994);, 59 FR 27653-02
(May 27, 1994); 59 FR 31297-03 (June 17, 1994); 59 FR 31298-01 (June
17, 1994); 59 FR 31299-01 (June 17, 1994); 59 FR 35170-02 (July 8,
1994); 59 FR 35171-01 (July 8, 1994); 59 FR 35171-02 (July 8, 1994); 59
FR 37131-01 (July 20, 1994); 59 FR 45322-01 (Sept. 1, 1994); 59 FR
51663-03, (Oct. 12, 1994); 59 FR 52028-01 (Oct. 13, 1994); 60 FR 10142-
03 (Feb. 23, 1995); 60 FR 19112-02 (Apr. 14, 1995); 60 FR 19113-01
(Apr. 14, 1995); 60 FR 26478-02 (May 17, 1995); 60 FR 27594-01 (May 24,
1995); 60 FR 36458-01 (July 17, 1995); 60 FR 36459-01 (July 17, 1995);
60 FR 54100-01 (Oct. 19, 1995); 60 FR 54101-01 (Oct. 19, 1995); 61 FR
13919-03 (Mar. 28, 1996); 62 FR 10310-01 (Mar. 6, 1997); 65 FR 46046-01
(July 26, 2000); 72 FR 62730-01 (Nov. 6, 2007).
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits,
including potential economic, environmental, public health and safety
effects, distributive impacts, and equity. Executive Order 13563
emphasizes the importance of quantifying both costs and benefits,
reducing costs, harmonizing rules, and promoting flexibility.
The proposed regulations have been designated by the Office of
Information and Regulatory Affairs (OIRA) as subject to review under
Executive Order 12866 pursuant to the Memorandum of Agreement (MOA,
April 11, 2018) between the Treasury Department and the Office of
Management and Budget (OMB) regarding review of tax regulations. OIRA
has determined that the proposed rulemaking is significant and subject
to review under Executive Order 12866 and section 1(b) of the
Memorandum of Agreement. Accordingly, the proposed regulations have
been reviewed by OMB.
A. Background
As noted earlier, CERCLA, known colloquially as ``Superfund,'' was
enacted, in part, to create a hazardous substance cleanup program.
Section 221 of CERCLA established the ``Hazardous Substance Response
Trust Fund,'' which was funded, in part, by the Superfund chemical
taxes. The Superfund chemical taxes expired on December 31, 1995.
Effective July 1, 2022, section 80201 of the IIJA reinstates the
Superfund chemical taxes with certain modifications. Pursuant to
section 80201(c)(3) of the IIJA, Notice 2021-66 provided initial
guidance related to the Superfund chemical taxes.
B. Need for Proposed Regulations
The proposed regulations generally provide structure and clarity
for the implementation of the Superfund chemical taxes as reinstated by
IIJA. However, the Treasury Department and the IRS determined that
there remained outstanding issues requiring clarification that should
be subject to notice and comment. In addition to clarifying statutory
rules in sections 4661 and 4671 regarding the Superfund chemical tax
procedural rules and computation of tax, these proposed regulations
provide definitions that track the statutory language and otherwise
borrow from existing excise tax rules, including regulations relating
to ozone-depleting chemicals and manufacturers excise taxes. The
proposed regulations provide procedural guidance regarding tax-free
sales of certain taxable chemicals and
[[Page 18455]]
taxable substances. Finally, the proposed regulations provide
procedures for taxpayers to claim credits and refunds of Superfund
chemical taxes paid with respect to taxable chemicals or taxable
substances sold for use or used for certain purposes.
C. Baseline
The Treasury Department and the IRS have assessed the benefits and
costs of the proposed regulation relative to a no-action baseline
reflecting anticipated Federal income tax-related behavior in the
absence of this regulation.
D. Affected Entities
The Superfund chemical taxes are excise taxes imposed on any
manufacturer, producer, or importer that sells or uses taxable
chemicals or taxable substances. The taxes are reported on excise tax
forms, separate from corporate or individual income tax forms. The
Superfund chemical taxes are expected to be paid by industrial chemical
companies, which include various manufacturing, refining, and
wholesaler firms. The extent to which the cost of the Superfund
chemical taxes will be passed down to the eventual consumers of
products containing the taxable chemicals or taxable substances is
variable across a wide array of products.
After the expiration of the Superfund chemical taxes on December
31, 1995, the number of quarterly excise tax filers fell by
approximately 5,500 taxpayers. This number is a reasonable estimate of
the number of Superfund chemical tax filers in 1995, as the Superfund
chemical taxes were the only excise taxes to have expired at that time
and the Superfund petroleum tax filers would still be paying the Oil
Spill Liability excise taxes, and therefore had not stopped filing
quarterly excise forms. However, the make-up of the chemical and
manufacturing industries is expected to have changed since the previous
imposition of the Superfund chemical taxes. In addition, section
80201(c)(1) of the IIJA modifies the method under section 4672(a)(2)(B)
of the Code for determining whether a substance is a taxable substance
by lowering the required percentage of taxable chemicals used to
produce the substance from 50 percent to 20 percent of the weight (or
the value) of the materials used to produce such substance. Given the
changes in the application of the Superfund chemical taxes, the
Treasury Department and the IRS do not have readily available data to
quantify the impact of the excise taxes. The Treasury Department and
the IRS invite comments, especially data sets or analyses, on the
number of affected taxpayers.
E. Economic Analysis of the Proposed Regulations
The proposed regulations provide certainty and consistency in the
application of Superfund chemical taxes by providing definitions and
clarifications regarding the statutes' terms and rules. In addition,
the proposed regulations provide model certificates and examples for
the taxpayer to follow. An economically efficient tax system generally
aims to treat income and expense derived from similar economic
decisions consistently across taxpayers and activities in order to
reduce incentives for individuals and businesses to make choices based
on tax rather than market incentives. In the absence of the guidance
provided in these proposed regulations, taxpayers would bear the burden
of interpreting the statute and the chances that different taxpayers
might interpret the statute differently would be exacerbated. For
example, two similarly-situated taxpayers might interpret the statutory
provisions pertaining to the calculation of tax differently or reach
different conclusions regarding eligibility for exemptions from the
Superfund chemical taxes. Thus, lack of certainty may lead to very
different tax liabilities for taxpayers undertaking similar activities.
The Treasury Department and the IRS invite comments, especially data
sets or analyses, of the impact of the proposed regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520)
(``Paperwork Reduction Act'') requires that a federal agency obtain the
approval of the OMB before collecting information from the public,
whether such collection of information is mandatory, voluntary, or
required to obtain or retain a benefit.
Overview
The collections of information in these proposed regulations are
in: Proposed Sec. Sec. 52.4662-2(g)(5) (notification certificate for
intermediate hydrocarbon streams under section 4662(b)(10)); 52.4662-
2(h)(2) (exemption certificate for tax-free sales for fertilizer, motor
fuel, and animal feed substances under section 4662(b)); 52.4662-3(c)
(notification certificate for inventory exchanges under section
4662(c)); 52.4662-4(a)(4) (supporting information required for claims
for credit and refund under section 4662(d)(1)); 52.4662-4(b)(3)
(supporting information required for claims for credit and refund under
section 4662(d)(2)); 52.4662-4(c)(3) (supporting information required
for claims for credit and refund under section 4662(d)(3)); 52.4662-
4(d)(3) (supporting information required for claims for credit and
refund under section 4662(d)(4)); 52.4662-4(e)(2) (certificate to
support claims for credit and refund under section 4662(d)); 52.4662-
5(b)(5) (exemption certificate for tax-free sales for export under
section 4662(e)(1)); 52.4662-5(c)(3) (supporting information required
for claims for credit and refund under section 4662(e)(2)); 52.4662-
5(d)(3) (supporting information required for claims for credit and
refund by the exporter under section 4662(e)(3)); 52.4671-2(b)(3)
(exemption certificate for tax-free sales for fertilizer, motor fuel,
and animal feed substances under section 4672(d)(1)); 52.4671-2(c)(3)
(supporting information required for claims for credit or refund under
section 4671(d)(2)); and 52.4672-2(c)(4) (certificate to support claims
for credit or refund under section 4671(d)(2)).
Estimated Burden
The IRS Taxpayer Burden Model cannot be used to calculate reporting
burden not associated with economic activity, as is the case with the
required reporting in these proposed regulations. Therefore, the IRS is
providing off-model estimates of the burden associated with these
proposed regulations. The estimated time to complete a notification
certificate is 15 to 30 minutes. It is estimated that 100 to 1,000
taxpayers will complete a notification certificate. The estimated
minimum burden imposed by the notification certificate is 25 hours (100
taxpayers x .25 hours), and the estimated maximum burden imposed is 250
hours (1,000 taxpayers x .25 hours). Using a monetization rate of
$98.50 (2020 dollars), the total monetized burden for the notification
certificate requirement is estimated to be between $2,462.50 (25 hours
x $98.50) and $24,625 (250 hours x $98.50).
The time to complete a single exemption certificate to support a
tax-free sale, a certificate to support a claim for credit or refund of
tax, or a statement of export is estimated to be 30 to 60 minutes, and
the IRS expects that between 6,000 and 30,000 taxpayers will submit one
of these documents. The estimated minimum burden imposed by these
reporting requirements is 3,000 hours (6,000 taxpayers x .5 hour) and
the estimated maximum burden imposed is 30,000 hours (30,000 taxpayers
x 1 hour). Using a monetization rate of $98.50 (2020
[[Page 18456]]
dollars), total monetized burden is estimated to be between $295,500
(3,000 hours x $98.50) and $2,955,000 (30,000 hours x $98.50).
The total estimated burden for these proposed regulations is
between 3,025 hours (25 hours + 3,000 hours) and 30,250 hours (250
hours + 30,000 hours). The total monetized burden under these proposed
regulations is estimated to be between $297,962.50 ($2,462.50 +
$295,500) and $2,979,625 ($24,625 + $2,955,000).
The collections of information contained in this notice of proposed
rulemaking have been submitted to OMB for review in accordance with the
Paperwork Reduction Act of 1995 (PRA, 44 U.S.C. 3507(d)) under control
number 1545-2304. Written comments and recommendations for the proposed
information collection can be submitted by visiting https://www.reginfo.gov/public/do/PRAMain. Information collection requests may
be found by selecting ``Currently Under Review--Open for Public
Comments'' or by using the search function. Comments on the information
collections may also be sent to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.
Comments on the collections of information should be received by May
30, 2023. Comments are specifically requested concerning:
Whether the proposed collections of information are necessary for
the proper performance of the functions of the IRS, including whether
the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collections of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by OMB.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by section 6103 of
the Code.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these proposed regulations will not have a
significant economic impact on a substantial number of small entities
within the meaning of section 601(6) of the Regulatory Flexibility Act.
The proposed regulations provide clarity for manufacturers,
producers, and importers that sell or use taxable chemicals and for
importers that sell or use taxable substances. The proposed regulations
provide general rules related to the Superfund chemical taxes,
including the attachment of tax, how to calculate the tax, the taxation
of chemical mixtures, and supporting information required for credit or
refund claims. The proposed regulations provide rules and model
certificates for the statutory exceptions and special rules related to
the section 4661 tax, such as for methane or butane used otherwise than
as a fuel, qualified fertilizer, fuel, and animal feed substances, and
tax-free sales for organic taxable chemicals are part of an
intermediate hydrocarbon stream. The proposed regulations also provide
rules and model certificates for the statutory exceptions to the
section 4671 tax for qualified fertilizer, fuel, and animal feed
substances. Accordingly, the Treasury Department and the IRS intend
that the proposed rules provide clarity for manufactures, producers,
and importers and consistent application of the Superfund chemical
taxes.
The Treasury Department and the IRS do not have readily available
data to assess how many entities may be affected by the proposed
regulations. Even if a substantial number of small entities are
affected, the economic impact of these regulations on small entities is
not likely to be significant. The proposed regulations provide
taxpayers with definitional and computational guidance regarding the
Superfund chemical taxes as well as rules and model certificates for
statutory exceptions to the Superfund chemical taxes. As explained in
the PRA section, the record keeping obligations imposed by these
proposed regulations are certificates for the statutory exceptions to
Superfund chemical taxes and credit and refund claims. It is estimated
that between 6,000 and 30,000 taxpayers will prepare one of such
certificates annually and it will take no more than one hour to
complete.
Accordingly, the Secretary certifies that these proposed
regulations will not have a significant economic impact on a
substantial number of small entities. The Treasury Department and the
IRS specifically invite comments from any party, particularly affected
small entities, on the accuracy of this certification.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
Proposed Applicability Dates
These proposed regulations are proposed to apply to sales or uses
in calendar quarters beginning on or after the date the Treasury
decision adopting these rules as final regulations is published in the
Federal Register. Taxpayers and their related parties, within the
meaning of sections 267(b) and 707(b)(1) of the Code, may rely on the
provisions of these proposed regulations prior to that date provided
that they follow the proposed regulations in their entirety (as
applicable) and in a consistent manner until the date the Treasury
decision adopting these rules as final regulations is published in the
Federal Register.
Comments and Requests for a Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. All commenters are strongly
encouraged to submit comments electronically. The Treasury Department
and the IRS will publish for public availability any comment submitted
electronically or on paper to its public docket on https://www.regulations.gov.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are encouraged to be made electronically. If a public
hearing is scheduled, a notice of the date and time for the public
hearing will be published in the Federal Register. Announcement 2020-4
(2020-17 I.R.B. 1) provides that until further notice, public hearings
conducted by the IRS will be held telephonically. Any telephonic
hearing will be made accessible to people with disabilities.
Drafting Information
The principal author of these proposed regulations is Stephanie
Bland
[[Page 18457]]
of the Office of the Associate Chief Counsel (Passthroughs and Special
Industries). However, other personnel from the Treasury Department and
the IRS participated in their development.
List of Subjects in 26 CFR Part 52
Chemicals, Environmental protection, Excise taxes, Hazardous waste,
Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 52 is proposed to be amended as follows:
PART 52--ENVIRONMENTAL TAXES
0
Paragraph 1. The authority citation for part 52 is amended by adding
entries for Sec. Sec. 52.4661-1, 52.4662-1 through 52.4662-5, 52.4671-
1, 52.4671-2, 52.4672-1, and 52.4672-2 in numerical order and revising
the entry for Sec. 52.4682-3 to read in part as follows:
Authority: 26 U.S.C. 7805.
Section 52.4661-1 also issued under 26 U.S.C. 4661.
Section 52.4662-1 also issued under 26 U.S.C. 4662.
Section 52.4662-2 also issued under 26 U.S.C. 4662.
Section 52.4662-3 also issued under 26 U.S.C. 4662.
Section 52.4662-4 also issued under 26 U.S.C. 4662.
Section 52.4662-5 also issued under 26 U.S.C. 4662.
Section 52.4671-1 also issued under 26 U.S.C. 4671.
Section 52.4671-2 also issued under 26 U.S.C. 4671.
Section 52.4672-1 also issued under 26 U.S.C. 4672.
Section 52.4672-2 also issued under 26 U.S.C. 4672.
Section 52.4682-3 also issued under 26 U.S.C. 4682(c)(2).
* * * * *
0
Par. 2. Section 52.4661-1 is added to read as follows:
Sec. 52.4661-1 Imposition of tax.
(a) In general. Section 4661(a) of the Internal Revenue Code (Code)
imposes an excise tax on any taxable chemical sold or used by the
manufacturer, producer, or importer of the taxable chemical. See
sections 4661(a)(1) and 4662(c)(1) of the Code.
(b) Person liable for tax. The manufacturer, producer, or importer
of a taxable chemical is liable for the section 4661 tax.
(c) Attachment of tax--(1) In general. The section 4661 tax
attaches when the manufacturer, producer, or importer of a taxable
chemical first sells or uses the taxable chemical. No section 4661 tax
attaches when the manufacturer, producer, or importer of a chemical
mixture (as defined in Sec. 52.4662-1(c)(1)) containing one or more
tax-paid chemicals (as defined in Sec. 52.4662-1(c)(12)), or a
subsequent purchaser of such chemical mixture, dilutes the chemical
mixture with a solvent to change the concentration of the tax-paid
chemical or chemicals in the chemical mixture, provided the solvent is
not a taxable chemical.
(2) Foreign manufacturers. No section 4661 tax attaches to a
foreign manufacturer's sale of a substance listed in the table under
section 4661(b) to an importer because the substance is not a taxable
chemical at the time of sale. See section 4662(a)(1). Instead, the
section 4661 tax attaches to the importer's first sale or use of the
taxable chemical.
(3) Taxable chemical that is part of an imported chemical mixture.
In the case of a taxable chemical that is part of an imported chemical
mixture that is not a taxable substance (as defined in section 4672(a)
and Sec. 52.4672-1(b)(8)), the section 4661 tax attaches to the
importer's first sale or use of the chemical mixture.
(4) Ores--(i) In general. In the case of a taxable chemical that is
derived from an ore, neither the mining of the ore nor the extraction
of the taxable chemical from the ore is a taxable event. Instead, the
section 4661 tax attaches to the first sale or use of the taxable
chemical by the manufacturer, producer, or importer after extraction of
the taxable chemical from the ore, and the person that extracts the
taxable chemical from the ore is the manufacturer of the taxable
chemical. For purposes of this paragraph (c)(4)(i), the term extraction
of a taxable chemical from the ore means the first process that a
person uses in the United States to separate the taxable chemical from
the ore. See paragraph (c)(4)(ii) of this section for the special rule
regarding chromite.
(ii) Chromite. The mining of chromite, which is an ore, is not a
taxable event. Instead, tax attaches to the first sale or use of
chromite by the manufacturer, producer, or importer after the chromite
is mined. For domestically-mined chromite, the person that mines the
chromite is the manufacturer.
(d) Procedural rules. Part 40 of this chapter provides rules
related to filing excise tax returns, making semimonthly deposits of
excise tax, making payments of excise tax, and other procedural rules.
See Sec. Sec. 52.0-1 and 40.0-1(a) of this chapter. Each business unit
that has, or is required to have, a separate employer identification
number is treated as a separate person for purposes of filing excise
tax returns, making semimonthly deposits of excise tax, making payments
of excise tax, and the registration requirements under section
4662(b)(10)(C) and (c)(2)(B). See Sec. 40.0-1(d) of this chapter.
(e) Amount of tax. The section 4661 tax is imposed as a rate per
ton of taxable chemical sold or used by the manufacturer, producer, or
importer. See section 4661(b) for the rate of tax per ton of each
taxable chemical.
(f) Calculation of tax--(1) Overview. The section 4661 tax is
calculated by multiplying the number of tons of the taxable chemical
sold or used by the manufacturer, producer, or importer by the tax rate
applicable to the taxable chemical under section 4661(b). In the case
of a fraction of a ton, the tax is calculated by adding the number of
whole tons (if any) and the number of fractional tons of the taxable
chemical, and then multiplying the sum of those numbers by the tax rate
applicable to the taxable chemical. See section 4662(a)(5).
(2) Determination of weight--(i) In general. The weight of a
taxable chemical is the actual weight of the taxable chemical at the
time of sale or use by the manufacturer, producer, or importer,
measured in tons.
(ii) Imported chemical mixtures. In the case of a taxable chemical
that is part of an imported chemical mixture that is not a taxable
substance, the section 4661 tax is imposed on the actual weight of each
taxable chemical in the chemical mixture at the time of sale or use of
the chemical mixture by the importer. If there are multiple taxable
chemicals in the chemical mixture, the amount of tax is calculated
separately for each taxable chemical in the chemical mixture.
(iii) Conversion required for volumetric measurements. Any
volumetric measurement of a taxable chemical must be converted to a
weight measurement. To calculate the weight (in pounds) of a taxable
chemical from a volumetric measurement (in cubic feet), the volume of
the taxable chemical (in cubic feet) is multiplied by the density of
the taxable chemical (in pounds per cubic foot). To convert a
volumetric measurement to a weight measurement for purposes of the
section 4661 tax, the pressure and temperature used to determine
density must be the same as the pressure and temperature used to
determine volume.
(g) Examples. The following examples illustrate the rules of this
section.
(1) Example 1. X, a foreign manufacturer of potassium hydroxide,
sells 10 tons of potassium hydroxide to Y, a domestic corporation. Y
enters the 10 tons of potassium hydroxide into the United States for
consumption, use, or
[[Page 18458]]
warehousing, and then sells it to Z, a domestic corporation. Under
these facts, Y is the importer of the potassium hydroxide. The section
4661 tax attaches when Y sells the potassium hydroxide to Z. Y is
liable for the section 4661 tax. The section 4661 tax is calculated by
multiplying 10 tons (the weight of the potassium hydroxide) by $0.44
(the rate of tax per ton of potassium hydroxide). The amount of section
4661 tax is $4.40.
(2) Example 2. X, a foreign corporation, sells nickel ore to Y, a
domestic corporation. Y enters the nickel ore into the United States
for consumption, use, or warehousing, and then extracts nickel from the
ore. Y sells 10 tons of the nickel to Z, a domestic corporation. Z
further processes the nickel to remove impurities and then uses the
nickel to create an alloy. Under these facts, Y is the manufacturer of
the nickel. The section 4661 tax attaches when Y sells the nickel to Z.
Y is liable for the section 4661 tax. The section 4661 tax is
calculated by multiplying 10 tons (the weight of the nickel) by $8.90
(the rate of tax per ton of nickel). The amount of section 4661 tax is
$89.00.
(3) Example 3. X, a domestic producer of chromite, sells 3,500
pounds of chromite to Y, a domestic corporation. The section 4661 tax
attaches when X sells the chromite to Y. X is liable for the section
4661 tax. The section 4661 tax is calculated by adding the number of
whole and fractional tons of chromite (1 ton + .75 ton = 1.75 tons),
and then multiplying 1.75 tons by $3.04 (the rate of tax per ton of
chromite). The amount of section 4661 tax is $5.32.
(4) Example 4. X, an importer, enters 1.2 tons of a chemical
mixture comprised of 98.3 percent sulfuric acid and 1.7 percent water
for consumption, use, or warehousing. X sells the chemical mixture to
Y, a domestic corporation. The section 4661 tax attaches when X sells
the chemical mixture to Y. X is liable for the section 4661 tax. The
section 4661 tax is calculated based on the weight of the sulfuric acid
in the chemical mixture (98.3% x 1.2 tons = 1.18 tons), and then
multiplying 1.18 tons by $0.52 (the rate of tax per ton of sulfuric
acid). The amount of section 4661 tax is $0.61.
(5) Example 5. X, an importer, enters 1.2 tons of a chemical
mixture comprised of 98.3 percent sulfuric acid and 1.7 percent water
for consumption, use, or warehousing. X sells the chemical mixture to
Y, a domestic corporation. Y adds water to the chemical mixture,
resulting in a chemical mixture of 93 percent sulfuric acid and 7
percent water, and sells the chemical mixture to Z, a domestic
corporation. The section 4661 tax attaches when X sells the chemical
mixture to Y. X is liable for the section 4661 tax. The section 4661
tax is calculated based on the weight of the sulfuric acid in the
chemical mixture (98.3% x 1.2 tons = 1.18 tons), and then multiplying
1.18 tons by $0.52 (the rate of tax per ton of sulfuric acid). The
amount of section 4661 tax is $0.61. No additional section 4661 tax is
imposed when Y dilutes the chemical mixture by adding water or when Y
sells the diluted chemical mixture to Z.
(h) Cross references--(1) Definitions. For definitions that relate
to sections 4661 and 4662, see section 4662(a) and Sec. 52.4662-1.
(2) Exceptions and special rules. For exceptions and special rules
applicable to the section 4661 tax, see section 4662(b) and Sec.
52.4662-2.
(3) Inventory exchanges. For special rules related to inventory
exchanges, see section 4662(c)(2) and Sec. 52.4662-3.
(4) Credit or refund of tax. For rules related to credits and
refunds of the section 4661 tax, see section 4662(d) and Sec. 52.4662-
4.
(5) Exports. For rules related to exports, see section 4662(e) and
Sec. 52.4662-5.
(i) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after [date of publication of final
regulations in the Federal Register].
0
Par. 3. Section 52.4662-1 is added to read as follows:
Sec. 52.4662-1 Taxable chemical; other definitions.
(a) Overview. This section provides definitions for purposes of
sections 4661 and 4662 of the Internal Revenue Code (Code), Sec.
52.4661-1, this section, and Sec. Sec. 52.4662-2 through 52.4662-5.
(b) Taxable chemical--(1) In general. (i) Except as provided in
section 4662(b), the term taxable chemical means any substance that is:
(A) Listed in the table under section 4661(b); and
(B) Manufactured or produced in the United States, or entered into
the United States for consumption, use, or warehousing. See section
4662(a)(1).
(ii) A substance is a taxable chemical only if it satisfies both
paragraphs (b)(1)(i) and (ii) of this section. For rules regarding
paragraph (b)(1)(i) of this section, see paragraph (b)(2) of this
section. For the definition of entered into the United States for
consumption, use, or warehousing as it relates to the second prong of
the definition, see paragraph (c)(2) of this section.
(2) Substances listed in the table under section 4661(b). A
substance is listed in the table under section 4661(b), and therefore
satisfies paragraph (b)(1)(i) of this section, if it has the same name
and molecular formula as a substance listed in the table under section
4661(b). All isomeric forms of a substance listed in the table under
section 4661(b) are treated as having the same name and molecular
formula of the substance. Therefore, except as provided in section
4662(b)(7) with respect to xylene, an isomer of a substance listed in
the table under section 4661(b) is a substance listed in the table
under section 4661(b). The physical state of a substance (that is,
solid, liquid, or gas) is immaterial. See paragraph (b)(3) of this
section for the name and the molecular formula, or chemical symbol, of
each substance listed in the table under section 4661(b).
(3) Molecular formulas and chemical symbols. The following table
provides the name and molecular formula or chemical symbol for each
substance listed in the table under section 4661(b):
Table 1 to Paragraph (b)(3)
------------------------------------------------------------------------
Molecular formula or
Name chemical symbol
------------------------------------------------------------------------
Acetylene................................. C2H2
Benzene................................... C6H6
Butane.................................... C4H10
Butylene.................................. C4H8
Butadiene................................. C4H6
Ethylene.................................. C2H4
Methane................................... CH4
Naphthalene............................... C10H8
Propylene................................. C3H6
Toluene................................... C7H8
Xylene.................................... C8H10
Ammonia................................... NH3
Antimony.................................. Sb
Antimony trioxide......................... SbO3
Arsenic................................... As
Arsenic trioxide.......................... AsO3
Barium sulfide............................ BaS
Bromine................................... Br
Cadmium................................... Cd
Chlorine.................................. Cl
Chromium.................................. Cr
Chromite.................................. FeCr2O4 and MgCr2O4
Potassium dichromate...................... K2Cr2O7
Sodium dichromate......................... NaCr2O7
Cobalt.................................... Co
Cupric sulfate............................ CuSO4
Cupric oxide.............................. CuO
Cuprous oxide............................. Cu2O
Hydrochloric acid......................... HCl
Hydrogen fluoride......................... HF
Lead oxide................................ PbO
Mercury................................... Hg
Nickel.................................... Ni
Phosphorus................................ P
Stannous chloride......................... SnCl2
Stannic chloride.......................... SnCl4
Zinc chloride............................. ZnCl2
Zinc sulfate.............................. ZnSO4
Potassium hydroxide....................... KOH
Sodium hydroxide.......................... NaOH
Sulfuric acid............................. H2SO4
[[Page 18459]]
Nitric acid............................... HNO3
------------------------------------------------------------------------
(4) Special rule for ores. Except for chromite, an ore is not a
taxable chemical.
(5) Special rule for methane and butane. For rules regarding the
treatment of methane and butane as taxable chemicals, see section
4662(b)(1) and Sec. 52.4662-2(a).
(6) Special rule for substances derived from coal. For rules
regarding the exclusion from the definition of taxable chemical for
substances derived from coal, see section 4662(b)(4) and Sec. 52.4662-
2(d).
(7) Special rule for xylene. For a special rule regarding separated
isomers of xylene, see section 4662(b)(7).
(8) Example. X, a domestic corporation, produces isobutylene in the
United States. Isobutylene is an isomer of butylene and has the
molecular formula C4H8. The isobutylene is a
taxable chemical because it is a substance listed in the table under
section 4661(b) as required by section 4662(a)(1)(A), and it is
produced in the United States as required by section 4662(a)(1)(B).
(c) Other definitions--(1) Chemical mixture. The term chemical
mixture means a substance composed of two or more physically-combined
components that are not chemically bonded. Chemical mixtures include
alloys, solutions, suspensions, and colloids.
(2) Entry for consumption, use, or warehousing--(i) In general.
Except as otherwise provided in this paragraph (c)(2), the term entry
for consumption, use, or warehousing, when used with respect to any
goods, means:
(A) Brought into the customs territory of the United States
(customs territory) if applicable customs law requires that the goods
be entered into the customs territory for consumption, use, or
warehousing;
(B) Admitted into a foreign trade zone for any purpose if like
goods brought into the customs territory would be entered into the
customs territory for consumption, use, or warehousing; or
(C) Imported into any other part of the United States for any
purpose if like goods brought into the customs territory would be
entered into the customs territory for consumption, use, or
warehousing.
(ii) Entry for transportation and exportation. Goods entered into a
customs territory for transportation and exportation are not goods
entered into the customs territory for consumption, use, or
warehousing.
(iii) Multiple entries. In the case of multiple entries described
in paragraph (c)(2)(i) of this section, only the first entry is taken
into account.
(3) Exportation. The term exportation means the severance of a
taxable chemical from the mass of things belonging within the United
States with the intention of uniting it with the mass of things
belonging within a foreign country.
(4) Exporter. The term exporter means the person named as shipper
or consignor in the export bill of lading.
(5) Importer--(i) In general. The term importer means the person
entering the taxable chemical for consumption, use, or warehousing. See
section 4662(a)(3). If the person entering the taxable chemical for
consumption, use, or warehousing is merely acting as an agent or a
customs broker for another person, then the agent or customs broker is
not the importer and the importer is the first person in the United
States to sell or use the taxable chemical after entry of the taxable
chemical for consumption, use, or warehousing.
(ii) Drop ship businesses. If a drop ship business in the United
States purchases or otherwise arranges for a person outside the United
States to ship a chemical listed in the table under section 4661(b)
directly to a purchaser in the United States, the drop ship business is
the importer of the chemical. If a drop ship business outside the
United States purchases or otherwise arranges for a person outside the
United States to ship a chemical listed in the table under section
4661(b) directly to a purchaser in the United States, the purchaser in
the United States is the importer of the chemical. For purposes of this
paragraph (c)(5)(ii), the term drop ship business means a person that
sells the chemical or arranges for purchasers to purchase the chemical,
and uses a third party to fill the order by shipping the chemical
directly to the purchaser. The determination of whether a person is a
drop ship business is made on a sale-by-sale basis.
(6) Manufacturer--(i) In general. The term manufacturer includes a
producer. A manufacturer is any person that produces a taxable chemical
from new or raw material, feedstocks, or other substances, or from
scrap, salvage, waste, or recycled substances. A manufacturer includes
any person that produces a taxable chemical from the mining process, or
extracts, isolates, separates, or otherwise removes a taxable chemical
from an ore or from another substance. A manufacturer also includes any
person that produces a taxable chemical by processing or manipulating a
substance, such as through the oxidation process. The term manufacturer
does not include a person that dilutes a chemical mixture comprised of
one or more tax-paid chemicals with a solvent that is not a taxable
chemical.
(ii) Contract manufacturing. If a person manufactures or produces a
taxable chemical for a second person, pursuant to a contract, order, or
agreement and in accordance with the second person's specifications, or
if a person manufactures or produces a taxable chemical for a second
person from materials owned by the second person, the second person is
treated as the manufacturer of the taxable chemical manufactured by the
first person.
(7) Molecular formula. The term molecular formula means a chemical
formula that shows the number and kinds of atoms in the substance.
(8) Sale. The term sale means the transfer of title or substantial
incidents of ownership (whether or not delivery to, or payment by, the
purchaser has been made) in a taxable chemical for a consideration,
which may include, but is not limited to, money, services, or property.
(9) Section 4661 tax. The term section 4661 tax means the excise
tax imposed by section 4661(a) of the Code on any taxable chemical sold
or used by the manufacturer, producer, or importer of the taxable
chemical.
(10) Taxable substance. The term taxable substance has the meaning
given to such term by section 4671(a) of the Code and Sec. 52.4672-
1(b)(8).
(11) Taxable chemical registrant. The term taxable chemical
registrant means a person that is registered by the Internal Revenue
Service (IRS) under Activity Letter ``G.'' A person may apply for ``G''
registration by completing Form 637, Application for Registration for
Certain Excise Tax Activities, and submitting the completed form to the
IRS.
(12) Tax-paid chemical. The term tax-paid chemical means a taxable
chemical on which the section 4661 tax has been paid.
(13) Ton. The term ton means 2,000 pounds. In the case of any
taxable chemical measured by volume, the term ton means the amount of
such taxable chemical, in cubic feet, that is the equivalent of 2,000
pounds on a molecular weight basis. See section 4662(a)(4) and Sec.
52.4661-1(f)(2)(iii).
(14) United States. The term United States has the meaning given to
such
[[Page 18460]]
term by section 4612(a)(4) of the Code. See section 4662(a)(2).
(15) Use. Except as otherwise provided in section 4662 and Sec.
52.4662-2, a taxable chemical is used when it is consumed, when it
functions as a catalyst, when its chemical composition changes, when it
is used in the manufacture or production of a chemical mixture or other
substance (including by mixing or combining the taxable chemical with
other substances), or when it is put into service in a trade or
business for the production of income. The loss or destruction of a
taxable chemical through spillage, fire, natural degradation, or other
casualty is not a use of the chemical. The mere manufacture or
production of a taxable chemical is not a use of that chemical.
(d) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after [date of publication of final
regulations in the Federal Register].
0
Par. 4. Section 52.4662-2 is added to read as follows:
Sec. 52.4662-2 Exceptions and special rules.
(a) Methane or butane used as a fuel--(1) In general. Methane or
butane is treated as a taxable chemical only if it is used otherwise
than as a fuel, or otherwise than in the manufacture or production of
any motor fuel, diesel fuel, aviation fuel, or jet fuel. Any person
using methane or butane otherwise than as a fuel, or otherwise than in
the manufacture or production of any motor fuel, diesel fuel, aviation
fuel, or jet fuel, is treated as the manufacturer of the methane or
butane and the tax imposed by section 4661(a) of the Code attaches at
the time such person so uses the methane or butane. See section
4662(b)(1) of the Code. See section 4662(b)(10) and paragraph (g) of
this section regarding the exception for hydrocarbon streams containing
mixtures of organic taxable chemicals.
(2) Use otherwise than as a fuel. Methane or butane is used
otherwise than as a fuel when it is used other than in the production
of energy. For example, methane or butane is used otherwise than as a
fuel when it is used as a coolant. Conversely, methane or butane is
used as a fuel when it is consumed in the production of energy. For
example, methane or butane is used as a fuel when it is consumed in an
internal combustion engine to power a vehicle, when it is consumed in
an engine to power an aircraft, or when it is consumed in a furnace,
cooking appliance, or lighter to produce heat.
(3) Examples. The following examples illustrate the rules in
paragraph (a)(2) of this section.
(i) Example 1. X, a domestic corporation, produces methane in the
United States and uses it to fire the furnaces at X's refinery. The
methane is not treated as a taxable chemical because it is used as a
fuel by X.
(ii) Example 2. X, a domestic corporation, produces methane in the
United States and sells it to Y, a domestic corporation. Y uses the
methane in the production of antifreeze. The methane is not treated as
a taxable chemical until Y uses the methane in the production of
antifreeze. Y is treated as the manufacturer of the methane and the
section 4661 tax attaches at the time Y uses the methane in the
production of antifreeze. Y is liable for the section 4661 tax.
(b) Substances used in the production of fertilizer--(1) In
general. No section 4661 tax is imposed in the case of nitric acid,
sulfuric acid, ammonia, or methane used to produce ammonia
(collectively, fertilizer chemicals, or individually, fertilizer
chemical) that is a qualified fertilizer substance. See section
4662(b)(2)(A). Although taxable chemicals other than fertilizer
chemicals may be qualified fertilizer substances, the section
4662(b)(2) exception does not apply to such other taxable chemicals.
For example, zinc sulfate used by the manufacturer to produce a
qualified fertilizer substance does not qualify for the exception in
section 4662(b)(2).
(2) Definitions--(i) Qualified fertilizer substance. Under section
4662(b)(2)(B), the term qualified fertilizer substance means:
(A) Any substance used by the manufacturer, producer, or importer
in a qualified fertilizer use;
(B) Any substance sold for use by any purchaser in a qualified
fertilizer use; or
(C) Any substance sold for resale by any purchaser for use, or
resale for ultimate use, in a qualified fertilizer use.
(ii) Qualified fertilizer use. The term qualified fertilizer use
means any use in the manufacture or production of fertilizer or for
direct application as a fertilizer. See section 4662(b)(2)(C). The term
qualified fertilizer use includes the act of putting fertilizer on
crops or croplands.
(iii) Fertilizer. The term fertilizer means a substance used to
improve the growth of plants. The term fertilizer does not include
pesticides, insecticides, herbicides or fungicides.
(3) Taxation of nonqualified sale or use. If no section 4661 tax
was imposed on the sale or use of fertilizer chemicals by reason of the
exception in section 4662(b)(2), the first person that sells or uses
any such chemical other than as a qualified fertilizer substance is
treated as the manufacturer of such chemical. See section
4662(b)(2)(D). When a fertilizer chemical is sold or used to produce
both a qualified fertilizer substance and a substance that is not a
qualified fertilizer substance (derivative substance), the section 4661
tax is imposed on the fertilizer chemical used to produce the
derivative substance at the time the manufacturer, producer, or
importer sells or uses the fertilizer chemical. The amount of the
section 4661 tax is calculated based on the weight of the fertilizer
chemical sold or used to produce the derivative substance.
(4) Tax-free sales. See paragraph (h) of this section for rules
related to tax-free sales.
(5) Credit or refund of tax. See section 4662(d)(2) and Sec.
52.4662-4(b) for rules related to credits and refunds of the section
4661 tax.
(c) Sulfuric acid produced as a byproduct of air pollution control.
No section 4661 tax is imposed on sulfuric acid produced solely as a
byproduct of and on the same site as air pollution control equipment.
See section 4662(b)(3). As used in section 4662(b)(3), the term air
pollution control equipment means any equipment used to comply with the
Clean Air Act, including any amendments thereto, as codified in 42
U.S.C. chapter 85, or any similar provision under state law.
(d) Substances derived from coal--(1) In general. Under section
4662(b)(4), the term taxable chemical does not include any substance to
the extent derived from coal. As used in section 4662(b)(4), the term
coal means bituminous coal, subbituminous coal, anthracite, and
lignite. A substance is not derived from coal merely because coal
served as a source of energy in the production of the substance.
(2) Example. X, a domestic corporation, uses a high-temperature
carbonization process to convert coal to coke and coal tar. X then
cracks the coal tar to produce naphthalene. The naphthalene is derived
from coal and the exception in section 4662(b)(4) applies. Therefore,
the naphthalene is not a taxable chemical.
(e) Substances used in the production of motor fuel--(1) In
general. No section 4661 tax is imposed in the case of acetylene,
benzene, butylene, butadiene, ethylene, naphthalene, propylene,
toluene, or xylene (collectively, fuel chemicals, or individually, a
fuel chemical) that is a qualified fuel substance. See section
4662(b)(5)(A). Although taxable chemicals other than fuel chemicals may
be qualified fuel substances, the section 4662(b)(5)
[[Page 18461]]
exception does not apply to such other taxable chemicals.
(2) Definitions--(i) Qualified fuel substance. Under section
4662(b)(5)(B), the term qualified fuel substance means:
(A) Any substance used by the manufacturer, producer, or importer
thereof in a qualified fuel use;
(B) Any substance sold for use by any purchaser in a qualified fuel
use; or
(C) Any substance sold for resale by any purchaser for use, or
resale for ultimate use, in a qualified fuel use.
(ii) Qualified fuel use. A qualified fuel use means any use in the
manufacture or production of any motor fuel, diesel fuel, aviation
fuel, or jet fuel, or any use of a fuel chemical as such a fuel. See
section 4662(b)(5)(C).
(3) Taxation of nonqualified sale or use. If no section 4661 tax
was imposed on the sale or use of a fuel chemical by reason of the
exception in section 4662(b)(5), the first person that sells or uses
such fuel chemical other than as a qualified fuel substance is treated
as the manufacturer of such fuel chemical. See section 4662(b)(5)(E).
When a fuel chemical is sold or used to produce both a qualified fuel
substance and a substance that is not a qualified fuel substance
(derivative substance), the section 4661 tax is imposed on the fuel
chemical sold or used as the derivative substance at the time the
manufacturer, producer, or importer sells or uses the fuel chemical.
The amount of the section 4661 tax is calculated based on the weight of
the fuel chemical sold or used to produce the derivative substance.
(4) Tax-free sales. See paragraph (h) of this section for rules
related to tax-free sales.
(5) Credit or refund of tax. See section 4662(d)(3) and Sec.
52.4662-4(c) for rules related to credits and refunds of the section
4661 tax.
(f) Substances used in the production of animal feed--(1) In
general. No section 4661 tax is imposed in the case of nitric acid,
sulfuric acid, ammonia, or methane used to produce ammonia (each, an
animal feed chemical, and collectively, animal feed chemicals) that is
a qualified animal feed substance. See section 4662(b)(9). Although
taxable chemicals other than animal feed chemicals may be qualified
animal feed substances, the section 4662(b)(9) exception does not apply
to such other taxable chemicals.
(2) Definitions--(i) Qualified animal feed substance. Under section
4662(b)(9)(B), the term qualified animal feed substance means:
(A) Any substance used by the manufacturer, producer, or importer
in a qualified animal feed use;
(B) Any substance sold for use by any purchaser in a qualified
animal feed use; or
(C) Any substance sold for resale by any purchaser for use, or
resale for ultimate use, in a qualified animal feed use.
(ii) Qualified animal feed use. The term qualified animal feed use
means any use in the manufacture or production of animal feed, animal
feed supplements, or ingredients used in animal feed or animal feed
supplements. See section 4662(b)(9)(C).
(3) Taxation of nonqualified sale or use. If no section 4661 tax
was imposed on the sale or use of animal feed chemicals by reason of
the exception in section 4662(b)(9), the first person that sells or
uses any such chemical other than as a qualified animal feed substance
is treated as the manufacturer of the chemical. See section
4662(b)(9)(D). When an animal feed chemical is sold or used to produce
both a qualified animal feed substance and a substance that is not a
qualified animal feed substance (derivative substance), the section
4661 tax is imposed on the animal feed chemical sold or used to produce
the derivative substance at the time the manufacturer, producer, or
importer sells or uses the animal feed chemical. The amount of the
section 4661 tax is calculated based on the weight of the animal feed
chemical sold or used to produce the derivative substance.
(4) Tax-free sales. See paragraph (h) of this section for rules
related to tax-free sales.
(5) Credit or refund of tax. See section 4662(d)(4) and Sec.
52.4662-4(d) for rules related to credits and refunds of the section
4661 tax.
(g) Hydrocarbon streams containing mixtures of organic taxable
chemicals--(1) In general. No section 4661 tax is imposed on any
organic taxable chemical while such chemical is part of an intermediate
hydrocarbon stream containing one or more organic taxable chemicals, if
the requirements in paragraph (g)(4) of this section are satisfied. See
section 4662(b)(10)(A). For purposes of section 4662(b)(10), the term
intermediate hydrocarbon stream means a mixture of organic chemicals
that requires further distillation or processing to manufacture or
produce a taxable chemical.
(2) Organic taxable chemical--(i) In general. For purposes of
section 4662(b)(10), the term organic taxable chemical means any
taxable chemical that is an organic substance. See section
4662(b)(10)(D). The organic substances that are listed in the table in
section 4661(b) are acetylene, benzene, butane, butylene, butadiene,
ethylene, methane, naphthalene, propylene, toluene, and xylene.
However, only acetylene, benzene, butylene, butadiene, ethylene,
naphthalene, propylene, toluene, and xylene are organic taxable
chemicals (provided they also satisfy the requirements of section
4662(a)(1)(B)). Although methane and butane are organic substances that
are listed in the table in section 4661(b), they are treated as organic
taxable chemicals only when used otherwise than as a fuel or otherwise
than in the manufacture or production of any motor fuel, diesel fuel,
aviation fuel, or jet fuel (provided they also satisfy the requirements
of section 4662(a)(1)(B)). See section 4662(b)(1) and paragraph (a) of
this section. Therefore, methane and butane are not organic taxable
chemicals at the time of isolation from an intermediate hydrocarbon
stream. See section 4662(b)(1) and paragraph (a) of this section. As a
result, no section 4661 tax is imposed on methane or butane at the time
of isolation from an intermediate hydrocarbon stream.
(ii) Example. X, a domestic corporation, is a refiner of petroleum
products. X uses a fluid catalytic cracking process to crack gas oil
and the fluid catalyst into other chemicals, including liquefied
petroleum gas (LPG). X next uses a fractioning process to separate a
stream of C3/C4 (which contains propane, propylene, butane, and other
chemicals) from the other chemical components of LPG. After
fractionation, X uses a splitting process to separate the butane from
the other chemicals contained in the C3/C4 stream. X sells the butane
to Y, a domestic corporation, which blends the butane into gasoline. In
this scenario, no section 4661 tax is imposed when X isolates the
butane through the splitting process, because the butane is not an
organic taxable chemical at the time the splitting process occurs.
Further, no section 4661 tax is imposed on X's sale of the butane to Y
because the butane is not a taxable chemical at the time of the sale.
Additionally, no section 4661 tax is imposed on Y's use of the butane
because Y does not use the butane otherwise than as a fuel or otherwise
than in the manufacture or production of any motor fuel, diesel fuel,
aviation fuel or jet fuel.
(3) Isolation of organic taxable chemical from intermediate
hydrocarbon stream--(i) One-step isolation process. If any organic
taxable chemical on which no section 4661 tax was previously imposed by
reason of section 4662(b)(10)(A) is isolated, extracted, or otherwise
removed from, or ceases to be part of (collectively,
[[Page 18462]]
isolation), an intermediate hydrocarbon stream, such isolation is
treated as a use by the person causing the isolation, and such person
is treated as the manufacturer of the organic taxable chemical so
isolated. See 4662(b)(10)(B).
(ii) Multi-step isolation process. When the isolation of an organic
taxable chemical from an intermediate hydrocarbon stream is a multi-
step process, the first process that a person uses to isolate, extract,
or otherwise remove the organic taxable chemical from the intermediate
hydrocarbon stream (even if the organic taxable chemical is, at that
time, still mixed with other substances and further processing is
possible, but not required) is treated as a use by the person causing
the isolation, and such person is treated as the manufacturer of the
organic taxable chemical so isolated. If the taxable chemical is part
of a chemical mixture at the time of isolation, the section 4661 tax is
imposed on the weight of the entire chemical mixture, unless the person
causing the isolation can establish, with specificity, the weight of
the taxable chemical contained in the chemical mixture.
(iii) Example. X, a domestic corporation, is a refiner of petroleum
products. X uses a fluid catalytic cracking process to crack gas oil
and the fluid catalyst into lighter chemicals, including liquefied
petroleum gas (LPG). X next uses a fractioning process to separate a
stream of C3/C4 (which contains propane, propylene, butane, and other
chemicals) from the other chemical components of LPG. After
fractionation, X uses a splitting process to separate the propylene
from the other chemicals contained in the C3/C4 stream, resulting in a
propane and propylene mixture commonly referred to as refinery grade
propylene. X sells the refinery grade propylene to Y, a domestic
corporation, which further refines the refinery grade propylene to
remove most of the propane and other contaminants. In this scenario,
X's splitting process is a use of the propylene by X, and X is treated
as the manufacturer of the propylene. Therefore, X is liable for the
section 4661 tax. If X can establish, with specificity, the weight of
the propylene in the mixture, the amount of the section 4661 tax is
calculated based only on the weight of the propylene in the mixture. If
X cannot establish, with specificity, the weight of the propylene in
the mixture, the amount of the section 4661 tax is calculated based on
the weight of the mixture.
(4) Requirements. The exception in section 4662(b)(10) applies only
if, at the time of the sale of any intermediate hydrocarbon stream
containing one or more or organic taxable chemicals, all of the
following requirements are satisfied:
(i) Both parties are taxable chemical registrants;
(ii) The seller has an unexpired notification certificate from the
purchaser; and
(iii) The seller has no reason to believe that any information in
the notification certificate is false.
(5) Notification certificate--(i) Overview. The certificate to be
provided by the purchaser of an intermediate hydrocarbon stream to the
seller consists of a statement that is signed under penalties of
perjury by a person with authority to bind the purchaser, is in
substantially the same form as the model certificate in paragraph
(g)(5)(ii) of this section, and contains all of the information
necessary to complete such model certificate. A new certificate must be
given if any information in the certificate changes or the purchaser
informs the seller that the certificate is no longer accurate. The
certificate expires on the earlier of the date the purchaser provides a
new certificate or the date the purchaser is notified by the Internal
Revenue Service (IRS) that the purchaser's registration has been
revoked or suspended.
(ii) Model certificate.
Notification Certificate of Taxable Chemical Registrant
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of person receiving
certificate
The undersigned taxable chemical registrant (Registrant) hereby
certifies under penalties of perjury that Registrant is registered by
the Internal Revenue Service (IRS) under activity letter ``G'' with
registration number __, and that Registrant's registration has not been
revoked or suspended by the IRS.
Registrant understands that the fraudulent use of this certificate
may subject Registrant and all parties making such fraudulent use of
this certificate to a fine or imprisonment, or both, together with the
costs of prosecution.
-----------------------------------------------------------------------
Signature and date signed
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
-----------------------------------------------------------------------
Name of Registrant
-----------------------------------------------------------------------
Employer identification number
-----------------------------------------------------------------------
Address of Registrant
(iii) Use of letter of registration as notification certificate
prohibited. A copy of the letter of registration issued to a taxable
chemical registrant by the IRS is not a notification certificate
described in paragraph (g)(5) of this section and cannot be used as a
substitute for a notification certificate.
(h) Tax-free sales of taxable chemicals--(1) In general. To make a
tax-free sale pursuant to section 4662(b)(2), (5), or (9), the
manufacturer, producer, or importer (or, in the case of resales, the
reseller) of the taxable chemical must obtain an unexpired exemption
certificate from the purchaser, in the form prescribed in paragraph
(h)(2) of this section, prior to or at the time of sale, and the
manufacturer, producer, importer, or reseller must have no reason to
believe that any information in the certificate regarding the use of
the taxable chemical is false. If the manufacturer, producer, importer,
or reseller does not obtain an unexpired exemption certificate by the
time of the sale, or if the manufacturer, producer, importer, or
reseller has reason to believe that any information in the certificate
regarding the use of the taxable chemical is false, the manufacturer,
producer, importer, or reseller is liable for the section 4661 tax.
However, if the purchaser subsequently uses the taxable chemical in the
manner described in section 4662(b)(2), (5), or (9), the purchaser may
file a claim for credit or refund pursuant to section 4662(d) and Sec.
52.4662-4.
(2) Exemption certificate--(i) Overview. The exemption certificate
consists of a statement that is signed under penalties of perjury by a
person with authority to bind the purchaser, is in substantially the
same form as the model certificate in paragraph (h)(2)(ii) of this
section, and contains all of the information necessary to complete such
model certificate. A new certificate must be given if any information
in the certificate changes. The certificate expires no later than one
year from the effective date specified in the certificate. The
certificate may be included as part of any business records normally
used to document a sale. The IRS may withdraw the right of a purchaser
of taxable chemicals to provide a certificate under this section if the
purchaser uses the taxable chemicals to which a certificate relates
other than as stated in the certificate.
(ii) Model certificate.
[[Page 18463]]
Exemption Certificate
(To support tax-free sales of taxable chemicals under section 4662(b)
of the Internal Revenue Code (Code).)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of seller
_________
Name of purchaser (Purchaser) certifies the following under penalties
of perjury:
The sale(s) to which this certificate applies are for (mark below):
___ Sold for use by Purchaser as described in section 4662(b)(2)
(qualified fertilizer use), section 4662(b)(5) (qualified fuel use), or
section 4662(b)(9) (qualified animal feed use) of the Code
___ Sold for resale by Purchaser for use, or resale for ultimate use,
in a qualified use
The taxable chemical to which this certificate applies will be used
(mark below):
___ Qualified fertilizer use
___ Qualified fuel use
___ Qualified animal feed use
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name of taxable chemical(s) to be purchased by Purchaser
This certificate applies to:
1. Percentage of purchaser's purchases ___ between ___ (effective
date) and ___ (expiration date) (period not to exceed one year after
the effective date) under account or order number(s) ______; or
2. A single purchase invoice or delivery ticket number ______.
If Purchaser sells or uses the taxable chemical to which this
certificate relates for a nonqualified sale or use, Purchaser will be
treated as the manufacturer of the taxable chemical and will be liable
for the tax imposed by section 4661(a) of the Code.
Purchaser will provide a new certificate to the seller if any
information in this certificate changes.
Purchaser understands that Purchaser may be liable for the penalty
under section 6701 of the Code (relating to aiding and abetting an
understatement of tax liability) if this is an erroneous certification.
Purchaser understands that the fraudulent use of this certificate
may subject Purchaser and all parties making any fraudulent use of this
certificate to a fine or imprisonment, or both, together with the costs
of prosecution.
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
-----------------------------------------------------------------------
Employer identification number
-----------------------------------------------------------------------
Address of Purchaser
-----------------------------------------------------------------------
Signature and date signed
(i) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after [date of publication of final
regulations in the Federal Register].
0
Par. 5. Section 52.4662-3 is added to read as follows:
Sec. 52.4662-3 Inventory exchanges.
(a) In general. Except as otherwise provided in section 4662(c)(2)
of the Internal Revenue Code (Code), in any case in which a
manufacturer, producer, or importer of a taxable chemical exchanges
such chemical as part of an inventory exchange with another person, the
exchange is not treated as a sale, and the other person is treated as
the manufacturer, producer, or importer of the chemical, if the
requirements in paragraph (b) of this section are satisfied. See
section 4662(c)(2). For purposes of section 4662(c), the term inventory
exchange means any exchange in which two persons exchange property that
is, in the hands of each person, property described in section
1221(a)(1) of the Code. See section 4662(c)(2)(C).
(b) Requirements. The section 4662(c) exception applies only if, at
the time of the exchange, all of the following requirements are
satisfied:
(1) Both parties are taxable chemical registrants;
(2) The manufacturer, producer, or importer has an unexpired
notification certificate from the person receiving the taxable
chemical; and
(3) The manufacturer, producer, or importer has no reason to
believe that any information in the notification certificate is false.
(c) Notification certificate--(1) Overview. The certificate to be
provided by the person receiving the taxable chemical consists of a
statement that is signed under penalties of perjury by someone with
authority to bind the person receiving the taxable chemical, is in
substantially the same form as the model certificate provided in
paragraph (c)(2) of this section, and contains all of the information
necessary to complete such model certificate. A new certificate must be
given if any information in the certificate changes or if the person
receiving the taxable chemical informs the manufacturer, producer, or
importer that the certificate is no longer accurate. The certificate
expires on the earlier of the date the person provides a new
certificate or the date the person is notified by the Internal Revenue
Service (IRS) that the person's registration has been revoked or
suspended.
(2) Model certificate.
Notification Certificate of Taxable Chemical Registrant
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of person receiving
certificate
The undersigned taxable chemical registrant (Registrant) hereby
certifies under penalties of perjury that Registrant is registered by
the Internal Revenue Service (IRS) under activity letter ``G'' with
registration number ______, and that Registrant's registration has not
been revoked or suspended by the IRS.
Registrant understands that the fraudulent use of this certificate
may subject Registrant and all parties making such fraudulent use of
this certificate to a fine or imprisonment, or both, together with the
costs of prosecution.
-----------------------------------------------------------------------
Signature and date signed
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
-----------------------------------------------------------------------
Name of Registrant
-----------------------------------------------------------------------
Employer identification number
-----------------------------------------------------------------------
Address of Registrant
(3) Use of letter of registration as notification certificate
prohibited. A copy of the letter of registration issued to a taxable
chemical registrant by the IRS is not a notification certificate
described in paragraph (c) of this section and cannot be used as a
substitute for a notification certificate.
(d) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after [date of publication of final
regulations in the Federal Register].
0
Par. 6. Section 52.4662-4 is added to read as follows:
Sec. 52.4662-4 Credit or refund of tax under section 4662(d).
(a) Tax-paid chemicals used to make taxable chemicals--(1) In
general. Any section 4661 tax paid by the manufacturer, producer, or
importer (initial manufacturer) with respect to a tax-paid chemical
that is subsequently used by any person (subsequent manufacturer) in
the manufacture or production of any other substance that
[[Page 18464]]
is a taxable chemical (subsequent taxable chemical) will be allowed as
a credit or refund to the subsequent manufacturer in the same manner as
if it were an overpayment of the section 4661 tax. See section
4662(d)(1) of the Code. The subsequent manufacturer may file a claim
for credit or refund (without interest) for the amount of the
overpayment, provided the conditions to allowance set forth in
paragraph (a)(3) of this section are satisfied. See paragraph (a)(4) of
this section for the supporting information that a subsequent
manufacturer must include with a claim for credit or refund. The
subsequent manufacturer's claim for credit or refund of the overpayment
cannot exceed the amount of section 4661 tax imposed on the subsequent
taxable chemical, or that would have been imposed but for the
application of section 4662(b) or (e) of the Code. See section
4662(d)(1).
(2) Allocation required in certain situations. If a subsequent
manufacturer uses a tax-paid chemical to manufacture or produce
multiple subsequent taxable chemicals, a subsequent taxable chemical
and another substance, or one or more subsequent taxable chemicals and
one or more other substances, the subsequent manufacturer must allocate
the overpayment of the section 4661 tax paid on the tax-paid chemical
(first tax) among all subsequent taxable chemicals and other substances
manufactured or produced with the tax-paid chemical and apply the
allocation to the claim for credit or refund. The subsequent
manufacturer must calculate the amount of the first tax to be allocated
to each subsequent taxable chemical and other substance by multiplying
the amount of the first tax by a fraction, the numerator of which is
the weight (in tons) of the portion of the tax-paid chemical the
subsequent manufacturer used to manufacture or produce the subsequent
taxable chemical or other substance, and the denominator of which is
the total weight (in tons) of the tax-paid chemical for which the
subsequent manufacturer has a certificate described in paragraph (e) of
this section. The subsequent manufacturer's claim for credit or refund
of an overpayment cannot exceed the amount of section 4661 tax imposed
on the subsequent taxable chemical to which the claim relates, or that
would have been imposed but for the application of section 4662(b) or
(e) of the Code. See paragraph (a)(4) of this section for the
supporting information regarding the allocation that a subsequent
manufacturer must include with a claim for credit or refund. See
paragraph (a)(5) of this section for examples that illustrate the
allocation rule.
(3) Conditions to allowance of a claim for credit or refund. A
claim for credit or refund of section 4661 tax is allowed under section
4662(d)(1) and this paragraph (a) only if:
(i) The first tax was paid to the Internal Revenue Service (IRS)
and not credited or refunded;
(ii) After payment of the first tax, the subsequent manufacturer
used the tax-paid chemical to manufacture or produce a subsequent
taxable chemical, multiple subsequent taxable chemicals, a subsequent
taxable chemical and another substance, or one or more subsequent
taxable chemicals and one or more other substances;
(iii) The subsequent manufacturer sold or used the subsequent
taxable chemical for which a credit or refund is sought and section
4661 tax was imposed (or would have been imposed but for section
4662(b) or (e)) on such sale or use;
(iv) The subsequent manufacturer has filed a timely claim for
credit or refund that contains the supporting information required
under paragraph (a)(4) of this section; and
(v) The subsequent manufacturer has a certificate, in the form
prescribed in paragraph (e) of this section, from the initial
manufacturer.
(4) Supporting information required. A subsequent manufacturer's
claim for credit or refund with respect to the subsequent
manufacturer's use of a tax-paid chemical to manufacture or produce a
subsequent taxable chemical, multiple subsequent taxable chemicals, a
subsequent taxable chemical and another substance, or one or more
subsequent taxable chemicals and one or more other substances, must
include the following information:
(i) The name of the tax-paid chemical, the total number of tons of
the tax-paid chemical purchased from the initial manufacturer,
producer, or importer, and the total number of tons of the tax-paid
chemical used to manufacture or produce each subsequent taxable
chemical or other substance during the period covered by the claim;
(ii) The name of each subsequent taxable chemical or other
substance and the total number of tons of each subsequent taxable
chemical or other substance so manufactured or produced during the
period covered by the claim;
(iii) The amount of section 4661 tax paid with respect to the tax-
paid chemical and the amount of section 4661 tax imposed (or that would
have been imposed but for section 4662(b) or (e)) on the sale or use of
each subsequent taxable chemical manufactured or produced with the tax-
paid chemical;
(iv) If allocation is required, the amount of the first tax
allocated to each subsequent taxable chemical to which the claim
relates, and the allocation calculation; and
(v) The certificate described in paragraph (e) of this section, or
a copy of such certificate.
(5) Examples. The following examples illustrate the allocation rule
in paragraph (a)(2) of this section.
(i) Example 1--(A) Facts. X, a domestic manufacturer, sells 5 tons
of Taxable Chemical 1 to Y, a domestic corporation. Section 4661 tax is
imposed on X's sale of Taxable Chemical 1 at a rate of $8.90 per ton. X
pays the section 4661 tax in the amount of $44.50. Y uses 3 tons of
Taxable Chemical 1 to produce 4 tons of Taxable Chemical 2. Y uses 2
tons of Taxable Chemical 1 to produce 3 tons of Taxable Chemical 3. Y
then sells the 4 tons of Taxable Chemical 2 and 3 tons of Taxable
Chemical 3, to Z, a domestic corporation. Section 4661 tax is imposed
on Y's sale of Taxable Chemical 2 at a rate of $9.74 per ton, for a tax
of $38.96. Section 4661 tax is imposed on Y's sale of Taxable Chemical
3 at a rate of $5.40 per ton, for a tax of $16.20. The total amount of
section 4661 tax imposed on Y's sales of Taxable Chemical 2 and Taxable
Chemical 3 is $55.16. Y files a claim for refund of the section 4661
tax X paid with respect to Taxable Chemical 1 (first tax).
(B) Analysis. Y must allocate the first tax between Taxable
Chemical 2 and Taxable Chemical 3 as follows: \3/5\ ($26.70) to Taxable
Chemical 2, and \2/5\ ($17.80) to Taxable Chemical 3. The section 4661
tax imposed on Y's sale of Taxable Chemical 2 to Z ($38.96), exceeds
the amount of the first tax allocated to Taxable Chemical 2 ($26.70).
Therefore, Y's claim for refund with respect to Taxable Chemical 2 is
limited to $26.70, the amount of the first tax allocated to Taxable
Chemical 2. The section 4661 tax imposed on Y's sale of Taxable
Chemical 3 to Z ($16.20), is less than the amount of the first tax
allocated to Taxable Chemical 3 ($17.80). Therefore, Y's claim for
refund with respect to Taxable Chemical 3 is limited to $16.20, the
amount of section 4661 tax imposed on Taxable Chemical 3. Y's total
claim for refund is limited to $42.90 ($26.70 + $16.20) due to the
required allocation.
(ii) Example 2--(A) Facts. X, a domestic manufacturer, sells 3 tons
of Taxable Chemical 1 to Y, a domestic corporation. Section 4661 tax is
imposed on X's sale of Taxable
[[Page 18465]]
Chemical 1 at a rate of $9.74 per ton. X pays the tax in the amount of
$29.22. Y uses 2 tons of Taxable Chemical 1 to produce 3 tons of
Taxable Chemical 2. Y uses 1 ton of Taxable Chemical 1 to produce 2
tons of another substance. Y then sells 3 tons of Taxable Chemical 2 to
Z, a domestic corporation. Tax is imposed on Y's sale of Taxable
Chemical 2 at a rate of $5.40 per ton, for a tax of $16.20. Y files a
claim for refund of the first tax paid with respect to Taxable Chemical
1 (first tax).
(B) Analysis. Y must allocate the first tax between Taxable
Chemical 2 and the other substance as follows: \2/3\ ($19.48) to
Taxable Chemical 2, and \1/3\ ($9.74) to the other substance. Y may
claim a refund of the first tax in the amount of $16.20 (the full
amount of tax imposed on Y's sale of Taxable Chemical 2 to Z), because
the tax imposed on Taxable Chemical 2 does not exceed the amount of the
first tax that was allocated to Taxable Chemical 2.
(b) Use as a fertilizer--(1) In general. Any section 4661 tax paid
that exceeds the amount of section 4661 tax determined with regard to
section 4662(b)(2) with respect to nitric acid, sulfuric acid, ammonia,
or methane used to produce ammonia (each, a fertilizer chemical) that
any person uses as a qualified fertilizer substance will be allowed as
a credit or refund (without interest) to the person using the
fertilizer chemical as a qualified fertilizer substance in the same
manner as if it were an overpayment of section 4661 tax. See section
4662(d)(2). Such person may file a claim for credit or refund of the
amount of the overpayment, provided the conditions to allowance set
forth in paragraph (b)(2) of this section are satisfied. See paragraph
(b)(3) of this section for the supporting information that must be
included with a claim for credit or refund pursuant to section
4662(d)(2).
(2) Conditions to allowance of a claim for credit or refund. A
claim for credit or refund of section 4661 tax with respect to a tax-
paid fertilizer chemical that is used as a qualified fertilizer
substance is allowed under section 4662(d)(2) and this section only if:
(i) A section 4661 tax with respect to the fertilizer chemical was
paid to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the
fertilizer chemical as a qualified fertilizer substance;
(iii) The person using the fertilizer chemical as a qualified
fertilizer substance has filed a timely claim for credit or refund that
includes the information required under paragraph (b)(3) of this
section; and
(iv) The person using the fertilizer chemical as a qualified
fertilizer substance has a certificate, in the form prescribed in
paragraph (e) of this section, from the person that paid the section
4661 tax.
(3) Supporting information required. Each claim for credit or
refund with respect to a tax-paid fertilizer chemical used as a
qualified fertilizer substance must include the following information:
(i) The name of the tax-paid fertilizer chemical to which the claim
relates and the total number of tons of the tax-paid fertilizer
chemical used as a qualified fertilizer substance during the period
covered by the claim;
(ii) The manner in which the claimant used the qualified fertilizer
substance;
(iii) The amount of section 4661 tax paid with respect to the tax-
paid fertilizer chemical; and
(iv) The certificate described in paragraph (e) of this section, or
a copy of such certificate, that relates to the tax-paid fertilizer
chemical for which the claim is being made.
(c) Use as qualified fuel--(1) In general. Any section 4661 tax
paid that exceeds the amount of section 4661 tax determined with regard
to section 4662(b)(5) with respect to acetylene, benzene, butylene,
butadiene, ethylene, naphthalene, propylene, toluene, or xylene
(collectively, fuel chemicals, or individually, a fuel chemical) that
any person uses as a qualified fuel substance will be allowed as a
credit or refund (without interest) to the person using the fuel
chemical as a qualified fuel substance in the same manner as if it were
an overpayment of section 4661 tax. See section 4662(d)(3). Such person
may file a claim for credit or refund of the amount of the overpayment,
provided the conditions to allowance set forth in paragraph (c)(2) of
this section are satisfied. See paragraph (c)(3) of this section for
the supporting information that must be included in a claim for credit
or refund pursuant to section 4662(d)(3).
(2) Conditions to allowance of a claim for credit or refund. A
claim for credit or refund of section 4661 tax with respect to a tax-
paid fuel chemical that is used as a qualified fuel substance is
allowed under section 4662(d)(3) and this section only if:
(i) A section 4661 tax with respect to the fuel chemical was paid
to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the fuel
chemical as a qualified fuel substance;
(iii) The person using the fuel chemical as a qualified fuel
substance has filed a timely claim for credit or refund that includes
the supporting information required under paragraph (c)(3) of this
section; and
(iv) The person using the fuel chemical as a qualified fuel
substance has a certificate, in the form prescribed in paragraph (e) of
this section, from the person that paid the section 4661 tax.
(3) Supporting information required. Each claim for credit or
refund with respect to a tax-paid fuel chemical used as a qualified
fuel substance must include the following information:
(i) The name of the fuel chemical to which the claim relates and
the total number of tons of the tax-paid fuel chemical used as a
qualified fuel substance during the period covered by the claim;
(ii) The manner in which the claimant used the qualified fuel
substance;
(iii) The amount of section 4661 tax paid with respect to the fuel
chemical; and
(iv) The certificate described in paragraph (e) of this section, or
a copy of such certificate, that relates to the tax-paid fuel chemical
for which the claim is being made.
(d) Use in the production of animal feed--(1) In general. Any
section 4661 tax paid that exceeds the amount of tax determined with
regard to section 4662(b)(9) with respect to nitric acid, sulfuric
acid, ammonia, or methane used to produce ammonia (each, an animal feed
chemical) that any person uses as a qualified animal feed substance
will be allowed as a credit or refund (without interest) to the person
using the animal feed chemical as a qualified animal feed substance in
the same manner as if it were an overpayment of section 4661 tax. See
section 4662(d)(4). Such person may file a claim for credit or refund
of the amount of the overpayment, provided the conditions to allowance
set forth in paragraph (d)(2) of this section are satisfied. See
paragraph (d)(3) of this section for the supporting information that
must be included in a claim for credit or refund pursuant to section
4662(d)(4).
(2) Conditions to allowance of a claim for credit or refund. A
claim for credit or refund of section 4661 tax with respect to a tax-
paid animal feed chemical that is used as a qualified animal feed
substance is allowed under section 4662(d)(4) and this section only if:
(i) A section 4661 tax with respect to the animal feed chemical was
paid to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the
animal feed chemical as a qualified animal feed substance;
[[Page 18466]]
(iii) The person using the animal feed chemical as a qualified
animal feed substance has filed a timely claim for credit or refund
that includes the supporting information required under paragraph
(d)(3) of this section; and
(iv) The person using the animal feed chemical as a qualified
animal feed substance has a certificate, in the form prescribed in
paragraph (e) of this section, from the person that paid the section
4661 tax.
(3) Supporting information required. Each claim for credit or
refund with respect to a tax-paid animal feed chemical used as a
qualified animal feed substance must include the following information:
(i) The name of the animal feed chemical to which the claim relates
and the total number of tons of the tax-paid animal feed chemical used
as a qualified animal feed substance during the period covered by the
claim;
(ii) The manner in which the claimant used the qualified animal
feed substance;
(iii) The amount of section 4661 tax paid with respect to the
animal feed chemical; and
(iv) A certificate described in paragraph (e) of this section, or a
copy of such certificate, that relates to the tax-paid animal feed
chemical for which the claim is being made.
(e) Certificate--(1) Overview. The certificate to be provided with
any claim for credit or refund under paragraphs (a) through (d) of this
section consists of a statement that is signed under penalties of
perjury by a person with authority to bind the person that paid the
section 4661 tax, is in substantially the same form as the model
certificate provided in paragraph (e)(2) of this section, and contains
all of the information necessary to complete the model certificate.
(2) Model certificate.
Certificate To Support a Claim for Credit or Refund
(To support claims for credit or refund under section 4662(d) of the
Internal Revenue Code (Code).)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of person that paid
the tax imposed by section 4661 of the Code (section 4661 tax)
The undersigned taxpayer hereby certifies the following under
penalties of perjury:
The undersigned taxpayer reported and paid the section 4661 tax on
the following taxable chemicals (include lot numbers (if applicable),
quantities (in tons), and dates of sale or use):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Amount of section 4661 tax the undersigned taxpayer paid with respect
to the taxable chemicals listed above: ______
Tax quarter(s) during which tax payment(s) was made: ______
The undersigned taxpayer has not received a credit or a refund, and
will not claim a credit or a refund, with regard to the tax paid on the
taxable chemical(s) to which this certificate relates.
The undersigned taxpayer understands that it may be liable for the
penalty under section 6701 of the Code (relating to aiding and abetting
an understatement of tax liability) if this is an erroneous
certification.
The undersigned taxpayer understands that the fraudulent use of
this certificate may subject the undersigned taxpayer and all parties
making any fraudulent use of this certificate to a fine or
imprisonment, or both, together with the costs of prosecution.
-----------------------------------------------------------------------
Signature and date signed
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
(f) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after the [date of publication of
final regulations in the Federal Register].
0
Par. 7. Section 52.4662-5 is added to read as follows:
Sec. 52.4662-5 Exports.
(a) Overview. Section 4662(e) of the Internal Revenue Code (Code)
provides rules regarding taxable chemicals that are exported. Paragraph
(b) of this section provides the circumstances under which a
manufacturer or producer may make a tax-free sale for export. Paragraph
(c) of this section provides the circumstances under which a credit or
refund (without interest) of the section 4661 tax is allowed to the
person that paid the section 4661 tax. Paragraph (d) of this section
provides the circumstances under which a credit or refund (without
interest) of the section 4661 tax is allowed to the exporter.
(b) Tax-free sales for export--(1) In general. A manufacturer or
producer of a taxable chemical may sell a taxable chemical tax free
under section 4662(e)(1) only if the person that purchases the taxable
chemical from the manufacturer or producer (first purchaser) intends to
export the taxable chemical or resell it to a second purchaser that
intends to export the taxable chemical. A manufacturer or producer may
not sell a taxable chemical tax free to a first purchaser for resale to
a second purchaser if the second purchaser does not intend to export
the taxable chemical itself but instead plans to sell it to a third
purchaser that will resell the taxable chemical or export it. See
paragraph (b)(5)(i) of this section for the proof required when the
manufacturer or producer is the exporter. See paragraph (b)(5)(ii) of
this section for the proof required when the manufacturer or producer
is not the exporter.
(2) Exported taxable chemical returned to the United States. If a
taxable chemical is sold tax free by the manufacturer or producer
pursuant to section 4662(e)(1) and paragraph (b) of this section and
the taxable chemical is subsequently returned to the United States, the
importer of the taxable chemical is liable for the section 4661 tax
when the importer sells or uses the taxable chemical.
(3) Sale or resale to a purchaser located outside the United
States. To make a tax-free sale of a taxable chemical for export to a
first purchaser that is located outside the United States, the
manufacturer or producer must obtain from the first purchaser, at the
earlier of the time title to the taxable chemical passes to the first
purchaser or the time of shipment, either:
(i) A written order or contract of sale that states the
manufacturer or producer will ship the taxable chemical to a location
outside the United States; or
(ii) Where shipment is to be made to a location within the United
States, a statement from the first purchaser showing:
(A) That the first purchaser is purchasing the taxable chemical to
fill existing or future orders for shipment to a location outside the
United States, or for resale to a second purchaser that is engaged in
the business of exporting and that will export the taxable chemical;
and
(B) That such taxable chemical will be shipped to a location
outside the United States prior to any resale except for export.
(4) Cessation of exemption. The exemption provided in section
4662(e)(1) and paragraph (b) of this section will cease to apply on the
first day following the close of the 6-month period that begins on the
date the manufacturer or producer sold the taxable chemical to the
first purchaser, or the date the manufacturer or producer shipped the
taxable chemical
[[Page 18467]]
to the first purchaser, whichever is earlier, unless the manufacturer
or producer receives proof of export, in the form prescribed by
paragraph (b)(5) of this section, within such 6-month period. If, on
the first day following the close of such 6-month period, the
manufacturer or producer has not received proof of export, in the form
prescribed by paragraph (b)(5) of this section, the manufacturer or
producer is liable for the tax and tax attaches at that time.
(5) Proof of export--(i) Proof required when the manufacturer or
producer is the exporter. The following constitutes proof of export
when the manufacturer or producer is the exporter:
(A) A copy of the export bill of lading issued by the delivering
carrier;
(B) A certificate by the agent or representative of the export
carrier showing actual exportation of the taxable chemical;
(C) A certificate of landing signed by a customs officer of the
foreign country to which the taxable chemical is exported;
(D) Where the foreign country has no customs administration, a
statement of the foreign consignee showing receipt of the taxable
chemical; or
(E) Where a department or agency of the United States government is
unable to furnish any one of the foregoing types of proof of
exportation, a statement or certification on department or agency
letterhead, executed by an authorized person, that the taxable
chemicals have been exported.
(ii) Statement of export required when manufacturer or producer is
not the exporter--(A) In general. If the manufacturer or producer of a
taxable chemical is not the exporter of the taxable chemical, the
manufacturer or producer must have in its possession a statement from
the first purchaser stating that the taxable chemical was, in fact,
exported by the first purchaser, or was resold to a second purchaser
that exported the taxable chemical. The manufacturer or producer must
receive such statement of export no later than the close of the 6-month
period that begins on the earlier of the date the manufacturer or
producer sold the taxable chemical to the first purchaser, or the date
the manufacturer or producer shipped the taxable chemical to the first
purchaser. The statement of export consists of a statement that is
signed under penalties of perjury by a person with authority to bind
the first purchaser, is in substantially the same form as the model
statement of export in paragraph (b)(5)(ii)(B) of this section, and
contains all the information necessary to complete the model statement.
The statement of export must be included as part of the manufacturer or
producer's business records.
(B) Model statement of export.
Statement of Export
(To support tax-free sales of taxable chemicals under section
4662(e)(1)(B) of the Internal Revenue Code (Code).)
_________
Name of Purchaser (Purchaser) certifies the following under penalties
of perjury:
Name of taxable chemical(s) purchased by Purchaser:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Purchaser purchased the taxable chemical(s) specified above tax
free on ______ (purchase date). The taxable chemicals were thereafter
exported.
Purchaser has in its possession proof of export with respect to the
taxable chemicals identified in this statement. The proof of export is:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Purchaser will retain the business records needed to document the
export of the taxable chemical(s) to which this statement applies and
will make such records available to the Internal Revenue Service.
Purchaser has not previously executed a statement with respect to
the taxable chemical(s) identified in this certificate.
Purchaser understands that Purchaser may be liable for the penalty
under section 6701 of the Code (relating to aiding and abetting an
understatement of tax liability) if this is an erroneous certification.
Purchaser understands that the fraudulent use of this statement may
subject Purchaser and all parties making any fraudulent use of this
certificate to a fine or imprisonment, or both, together with the costs
of prosecution.
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
-----------------------------------------------------------------------
Employer identification number
-----------------------------------------------------------------------
Address of Purchaser
-----------------------------------------------------------------------
Signature and date signed
(c) Credit or refund--(1) In general. The person that paid the
section 4661 tax with respect to a taxable chemical is allowed a credit
or refund (without interest) if:
(i) Such chemical was exported by any person; or
(ii) Such chemical was used as material in the manufacture or
production of a substance that was exported by any person and, at the
time of export, was a taxable substance (as defined in section 4672(a)
of the Code and Sec. 52.4672-1(b)(8)). See section 4662(e)(2)(A).
(2) Conditions to allowance of claim for credit or refund. A claim
for credit or refund of section 4661 tax with respect to a tax-paid
chemical that is exported (or with respect to a tax-paid chemical that
is used as material in the manufacture or production of a substance
that is a taxable substance at the time of export) is allowed under
section 4662(e)(2) and paragraph (c) of this section only if the person
that paid the section 4661 tax establishes that:
(i) The person has repaid or agreed to repay the amount of the
section 4661 tax to the person that exported the tax-paid chemical (or
the taxable substance manufactured or produced with the tax-paid
chemical); or
(ii) The person has obtained the written consent of the exporter to
the allowance of the credit or the making of the refund; and
(iii) The person provides the supporting information described in
paragraph (c)(3) of this section.
(3) Supporting information required. Each claim for credit or
refund with respect to a tax-paid chemical that is exported (or with
respect to a tax-paid chemical that is used as material in the
manufacture or production of a substance that is a taxable substance at
the time of export) must include the following information:
(i) The name of the tax-paid chemical to which the claim relates
and the total number of tons of the tax-paid chemical exported during
the period covered by the claim (in the case of a tax-paid chemical
used to manufacture or produce a taxable substance, the claim must also
include the name of each taxable substance and the number of tons of
each taxable substance exported during the period covered by the
claim);
(ii) The amount of section 4661 tax paid with respect to the tax-
paid chemical (in the case of a taxable substance, the amount of
section 4661 tax paid with respect to each tax-paid chemical used in
the manufacture or production of the substance); and
(iii) Proof of export of the taxable chemical (or the taxable
substance) in the form prescribed by paragraph (b)(5) of this section.
(d) Credit or refund directly to exporter--(1) In general. The
exporter is allowed a credit or refund (without interest), provided the
conditions to allowance in paragraph (d)(2) of this
[[Page 18468]]
section are satisfied. See section 4662(e)(3).
(2) Conditions to allowance. Any section 4661 tax paid on a taxable
chemical (or on any taxable chemical used as material in the
manufacture or production of a taxable substance) may be credited or
refunded (without interest) to the exporter pursuant to section
4662(e)(3) and paragraph (d) of this section only if:
(i) The person that paid the section 4661 tax waives the right to
claim a credit or refund of the section 4661 tax; and
(ii) The exporter provides the supporting information described in
paragraph (d)(3) of this section.
(3) Supporting information required. Each claim for credit or
refund by the exporter must include the following information:
(i) The name of the tax-paid chemical to which the claim relates
and the total number of tons of the tax-paid chemical exported during
the period covered by the claim (or in the case of a taxable substance,
the name of the taxable substance to which the claim relates, the name
of each tax-paid chemical used as material in the manufacture or
production of the taxable substance, and the total number of tons of
each tax-paid chemical used as material in the manufacture or
production of the taxable substance that was exported during the period
covered by the claim);
(ii) Proof of export of the tax-paid chemical (or the taxable
substance) in the form prescribed by paragraph (b)(5) of this section;
and
(iii) A statement, signed under penalties of perjury by the person
that paid the section 4661 tax, providing:
(A) That the person that paid the tax waives the right to claim a
credit or refund of the section 4661 tax;
(B) The amount of section 4661 tax the person paid on the sale of
the taxable chemical (or on the sale or use of each taxable chemical
used to manufacture or produce the taxable substance); and
(C) The date the person paid the section 4661 tax.
(e) Applicability date. This section applies to sales or uses in
calendar quarters beginning on or after [date of publication of final
regulations in the Federal Register].
0
Par. 8. Section 52.4671-1 is added to read as follows:
Sec. 52.4671-1 Imposition of tax.
(a) In general. Section 4671(a) of the Internal Revenue Code (Code)
imposes an excise tax on any taxable substance sold or used by the
importer of the taxable substance.
(b) Person liable for tax. The importer of a taxable substance is
the person liable for the section 4671 tax.
(c) Attachment of tax. The section 4671 tax attaches at the time
the importer first sells or uses the taxable substance.
(d) Procedural rules. Part 40 of this chapter provides rules
related to filing excise tax returns, making semimonthly deposits of
excise tax, making payments of excise tax, and other procedural rules.
See Sec. Sec. 52.0-1 and 40.0-1(a) of this chapter. Each business unit
that has, or is required to have, a separate employer identification
number is treated as a separate person for purposes of filing excise
tax returns, making semimonthly deposits of excise tax, and making
payments of excise tax. See Sec. 40.0-1(d) of this chapter.
(e) Amount of tax--(1) In general. Except as provided in paragraph
(e)(2) of this section, the amount of section 4671 tax with respect to
any taxable substance is the amount of section 4661 tax that would have
been imposed on the taxable chemicals used as materials in the
manufacture or production of the taxable substance if the taxable
chemicals had been sold in the United States for use in the manufacture
or production of the taxable substance. See section 4671(b)(1).
(2) Special rules. If the importer does not furnish sufficient
information to the Secretary of the Treasury or her delegate
(Secretary) to determine the amount of section 4671 tax imposed on any
taxable substance, the amount of section 4671 tax is 10 percent of the
appraised value of the taxable substance at the time the substance was
entered into the United States for consumption, use, or warehousing.
See section 4671(b)(2). Alternatively, the Secretary may prescribe a
tax rate for any taxable substance in lieu of the amount prescribed in
section 4671(b)(2). The tax rate prescribed by the Secretary equals the
amount of section 4671 tax that would have been imposed if the taxable
substance were produced using the predominant method of production of
such substance using a stoichiometric material consumption equation
that assumes a 100-percent yield. See section 4671(b)(3). Importers of
taxable substances are not required to use the rate or rates prescribed
by the Secretary and may instead calculate the amount of section 4671
tax pursuant to section 4671(b)(1) and Sec. 52.4671-1(e)(1).
(3) Example. An importer sells a substance that is a taxable
substance listed in section 4672(a)(3). The taxable chemical,
acetylene, constitutes, by weight, 19 percent of the materials used to
produce the taxable substance. Section 4671 tax attaches at the time of
the importer's sale of the taxable substance. The Secretary has
prescribed a tax rate for the taxable substance pursuant to section
4671(b)(3). The importer may calculate the amount of section 4671 tax
pursuant to section 4671(b)(1), or use the rate prescribed by the
Secretary to calculate the amount of section 4671 tax imposed on the
importer's sale of the taxable substance.
(f) Exemption for substances taxed under sections 4611 and 4661. No
section 4671 tax is imposed on the importer's sale or use of any
taxable substance if tax is imposed on such sale or use under section
4611 or 4661 of the Code. See section 4671(c).
(g) Applicability date. This section applies to calendar quarters
beginning on or after [date of publication of final regulations in the
Federal Register].
0
Par. 9. Section 52.4671-2 is added to read as follows:
Sec. 52.4671-2 Certain fertilizer, fuel, and animal feed uses.
(a) In general. Section 4671(d) of the Internal Revenue Code (Code)
provides that rules similar to section 4662(b)(2) of the Code
(pertaining to fertilizer), section 4662(b)(5) (pertaining to motor
fuel), and section 4662(b)(9) (pertaining to animal feed) apply with
respect to taxable substances used or sold for use as described in
section 4662(b)(2), (5), and (9).
(b) Tax-free sales--(1) In general. No section 4671 tax is imposed
on a taxable substance used or sold for use as described in section
4662(b)(2), (5), or (9), if all taxable chemicals used as materials in
the manufacture or production of such substance would have been exempt
under section 4662(b)(2), (5), or (9) if such taxable chemicals had
been sold in the United States for use in the manufacture or production
of the taxable substance. To make a tax-free sale of a taxable
substance pursuant to section 4671(d)(1), the importer (or, in the case
of resales, the reseller) of the taxable substance must obtain an
unexpired exemption certificate from the purchaser, in the form
prescribed in paragraph (b)(3) of this section, prior to or at the time
of sale, and the importer or reseller must have no reason to believe
that any information in the certificate regarding the use of the
taxable substance is false. If the importer or reseller does not obtain
an unexpired exemption certificate by the time of the sale, or if the
importer or reseller has reason to believe that any information in the
certificate regarding the use of the substance is false, the importer
or reseller is liable for the full
[[Page 18469]]
amount of the section 4671 tax. However, if the purchaser subsequently
uses the taxable substance as described in section 4662(b)(2), (5), or
(9), the purchaser may file a claim for credit or refund pursuant to
section 4671(d)(2) and paragraph (c) of this section.
(2) Tax-free sales not available in certain situations. The
provisions of paragraph (b)(1) of this section apply only if all
taxable chemicals used as materials in the manufacture or production of
a taxable substance would have been exempt under section 4662(b)(2),
(5), or (9) if such taxable chemicals had been sold in the United
States for use in the manufacture or production of the taxable
substance. Section 4671 tax is imposed on a taxable substance used or
sold for use if the taxable chemicals used as materials in the
manufacture or production of such taxable substance consist of one or
more taxable chemicals that would have been exempt under section
4662(b)(2), (5), or (9), and one or more taxable chemicals that would
not have been exempt under section 4662(b)(2), (5), or (9). If the
purchaser subsequently uses the taxable substance as described in
section 4662(b)(2), (5), or (9), the purchaser may file a claim for
credit or refund of the section 4671 tax paid on the taxable chemicals
that would have been exempt under section 4662(b)(2), (5), or (9)
pursuant to section 4671(d)(2) and paragraph (c) of this section and
were used as materials in the manufacture or production of the taxable
substance.
(3) Exemption certificate--(i) Overview. The exemption certificate
consists of a statement that is signed under penalties of perjury by a
person with authority to bind the purchaser, is in substantially the
same form as the model certificate in paragraph (b)(3)(ii) of this
section, and contains all of the information necessary to complete such
model certificate. A new certificate must be given if any information
in the certificate changes. The certificate expires no later than one
year from the effective date specified in the certificate. The
certificate may be included as part of any business records normally
used to document a sale. The Internal Revenue Service (IRS) may
withdraw the right of a purchaser of a taxable substance to provide a
certificate under this section if the purchaser uses the taxable
substance to which a certificate relates other than as stated in the
certificate.
(ii) Model certificate.
Exemption Certificate
(To support tax-free sales of taxable substances under section
4671(d)(1) of the Internal Revenue Code (Code).)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of seller
_________
Name of Purchaser (Purchaser) certifies the following under penalties
of perjury:
The sale(s) to which this certificate applies are for (mark below):
___ Sold for use by Purchaser as described in section 4662(b)(2)
(qualified fertilizer use), section 4662(b)(5) (qualified fuel use), or
section 4662(b)(9) (qualified animal feed use) of the Code
___ Sold for resale by Purchaser for use, or resale for ultimate use,
in a qualified use
The taxable substance(s) to which this certificate applies will be
used (mark below):
___ Qualified fertilizer use
___ Qualified fuel use
___ Qualified animal feed use
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name of taxable substance(s) to be purchased by Purchaser
This certificate applies to:
1. Percentage of Purchaser's purchases ___ between ___ (effective
date) and ___ (expiration date) (period not to exceed one year after
the effective date) under account or order number(s) ______; or
2. A single purchase invoice or delivery ticket number ______.
If Purchaser sells or uses the taxable substance to which this
certificate relates for a nonqualified sale or use, Purchaser will be
treated as the importer of the taxable substance and will be liable for
the tax imposed by section 4671.
Purchaser will provide a new certificate to the seller if any
information in this certificate changes.
Purchaser understands that Purchaser may be liable for the penalty
under section 6701 of the Code (relating to aiding and abetting an
understatement of tax liability) if this is an erroneous certification.
Purchaser understands that the fraudulent use of this certificate
may subject Purchaser and all parties making any fraudulent use of this
certificate to a fine or imprisonment, or both, together with the costs
of prosecution.
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
-----------------------------------------------------------------------
Employer identification number
-----------------------------------------------------------------------
Address of Purchaser
-----------------------------------------------------------------------
Signature and date signed
(c) Credits and refunds--(1) In general. If any section 4671 tax
was paid with respect to a taxable substance used or sold for use as
described in section 4662(b)(2), (5), or (9), the portion of the tax
attributable to any taxable chemical used as material in the
manufacture or production of such substance that would have been exempt
under section 4662(b)(2), (5), or (9) if the taxable chemical had been
sold in the United States will be allowed as a credit or refund
(without interest) to the person using the substance in the same manner
as if it were an overpayment of section 4671 tax. See sections
4671(d)(2) and 4662(d). Such person may file a claim for credit or
refund of the amount of the overpayment, provided the conditions to
allowance set forth in paragraph (c)(2) of this section are satisfied.
See paragraph (c)(3) of this section for the supporting information
that must be included in a claim for credit or refund pursuant to
section 4671(d)(2).
(2) Conditions to allowance of a claim for credit or refund. A
claim for credit or refund of section 4671 tax is allowed under section
4671(d)(2) and this section only if:
(i) A section 4671 tax was paid to the Internal Revenue Service and
not credited or refunded;
(ii) After the imposition of section 4671 tax, a person used the
taxable substance as described in section 4662(b)(2), (5), or (9);
(iii) The person using the taxable substance has filed a timely
claim for credit or refund that includes the information required under
paragraph (c)(3) of this section; and
(iv) The person using the taxable substance has a certificate, in
the form prescribed in paragraph (c)(4) of this section, from the
person that paid the section 4671 tax. The claimant must have a
separate certificate for each taxable substance to which the claim
relates.
(3) Supporting information required. Each claim for credit or
refund must include the following information:
(i) The name of the taxable substance to which the claim relates
and the total number of tons of the taxable substance used as described
in section 4662(b)(2), (5), or (9) during the period covered by the
claim;
(ii) The name of any taxable chemicals used as material in the
manufacture or production of the taxable substance that would have been
exempt under section 4662(b)(2), (5), or (9) if the taxable chemicals
had been sold in the United States;
[[Page 18470]]
(iii) The type of qualified use (fertilizer, fuel, or animal feed);
(iv) The total amount of section 4671 tax paid on the taxable
substance under section 4671(a);
(v) If the amount of section 4671 tax was calculated pursuant to
section 4671(b)(1) and Sec. 52.4671-1(e)(1), the rate of tax and
conversion factors for any taxable chemicals used as material in the
manufacture or production of the taxable substance that would have been
exempt under section 4662(b)(2), (5), or (9) if the taxable chemicals
had been sold in the United States; and
(vi) A certificate described in paragraph (c)(4) of this section,
or a copy of such certificate, that relates to the taxable substance
for which the claim is being made.
(4) Certificate--(i) Overview. The certificate to be provided with
regard to claims for credit or refund under this section consists of a
statement that is signed under penalties of perjury by a person with
authority to bind the person that paid the section 4671 tax, is in
substantially the same form as the model certificate provided in
paragraph (c)(4)(ii) of this section, and contains all of the
information necessary to complete the model certificate.
(ii) Model certificate.
Certificate To Support a Claim for Credit or Refund
(To support claims for credit or refund under section 4671(d)(2) of the
Internal Revenue Code (Code).)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Name, address, and employer identification number of person that paid
the tax imposed by section 4671 of the Code (section 4671 tax)
The undersigned taxpayer hereby certifies the following under
penalties of perjury:
The undersigned taxpayer reported and paid the section 4671 tax on
the following taxable substance (include lot numbers (if applicable)
and the date(s) of sale or use):
-----------------------------------------------------------------------
Number of tons of the taxable substance on which tax was paid:
______
Name of any taxable chemicals used as material in the manufacture
or production of the taxable substance:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Total amount of section 4671 tax the undersigned taxpayer paid with
respect to the taxable substance listed above:
-----------------------------------------------------------------------
Rate of tax for the taxable substance listed above (complete only
if the amount of tax was calculated pursuant to section 4671(b)(1)):
-----------------------------------------------------------------------
Conversion factor for each taxable chemical listed above (complete
only if the amount of tax was calculated pursuant to section
4671(b)(1)):
-----------------------------------------------------------------------
Tax quarter(s) during which tax payment was made:
-----------------------------------------------------------------------
The undersigned taxpayer has not received a credit or a refund, and
will not claim a credit or a refund, with regard to the tax paid on the
taxable substance to which this certificate relates.
The undersigned taxpayer understands that it may be liable for the
penalty under section 6701 of the Code (relating to aiding and abetting
an understatement of tax liability) if this is an erroneous
certification.
The undersigned taxpayer understands that the fraudulent use of
this certificate may subject the undersigned taxpayer and all parties
making any fraudulent use of this certificate to a fine or
imprisonment, or both, together with the costs of prosecution.
-----------------------------------------------------------------------
Signature and date signed
-----------------------------------------------------------------------
Printed or typed name of person signing
-----------------------------------------------------------------------
Title of person signing
(d) Applicability date. This section applies to calendar quarters
beginning on or after [date of publication of final regulations in the
Federal Register].
0
Par. 10. Section 52.4672-1 is added to read as follows:
Sec. 52.4672-1 Definitions.
(a) Overview. This section provides definitions for purposes of
sections 4671 and 4672 of the Internal Revenue Code (Code), Sec. Sec.
52.4671-1 and 52.4671-2, this section, and Sec. 52.4672-2.
(b) Definitions--(1) Conversion factor. The term conversion factor
means the ratio of the weight of an individual taxable chemical used in
the production of a substance to the total weight of the substance.
(2) Entry for consumption, use, or warehousing. The term entry for
consumption, use, or warehousing has the meaning given such term by
Sec. 52.4662-1(c)(2).
(3) Importer--(i) In general. The term importer means the person
entering the taxable substance for consumption, use, or warehousing.
See section 4662(a)(3). If the person entering the taxable substance
for consumption, use, or warehousing is merely acting as an agent or a
customs broker for another person, then the agent or customs broker is
not the importer and the importer is the first person in the United
States to sell or use the taxable substance after entry of the taxable
substance for consumption, use, or warehousing.
(ii) Drop ship businesses. If a drop ship business in the United
States purchases or otherwise arranges for a person outside the United
States to ship a taxable substance directly to a purchaser in the
United States, the drop ship business is the importer of the taxable
substance. If a drop ship business outside the United States purchases
or otherwise arranges for a person outside the United States to ship a
taxable substance directly to a purchaser in the United States, the
purchaser in the United States is the importer of the taxable
substance. With regard to any sale of a taxable substance, the term
drop ship business means a person that sells the taxable substance or
arranges for purchasers to purchase the taxable substance, and uses a
third party to fill orders by shipping the taxable substance directly
to the purchaser. The determination of whether a person is a drop ship
business is made on a sale-by-sale basis.
(4) Predominant method of production. The term predominant method
of production means the method used to produce the greatest number of
tons of a particular substance worldwide, relative to the total number
of tons of the substance produced worldwide.
(5) Sale. The term sale means the transfer of title or substantial
incidents of ownership (whether or not delivery to, or payment by, the
purchaser has been made) in a taxable substance for a consideration,
which may include, but is not limited to, money, services, or property.
(6) Section 4671 tax. The term section 4671 tax means the excise
tax imposed by section 4671(a) of the Code on any taxable substance
sold or used by the importer of the taxable substance.
(7) Taxable chemical. The term taxable chemical has the meaning
given such term by section 4662(a)(1) of the Code and section Sec.
52.4662-1(b).
(8) Taxable substance. The term taxable substance means any
substance, which at the time of sale or use by the importer, is listed
in section 4672(a)(3) or has been added to the list of taxable
substances pursuant to section 4672(a)(2) or (4). The term does not
include any substance that the Secretary of the Treasury or her
delegate has removed from the list of taxable
[[Page 18471]]
substances through the process described in section 4672(a)(2) or (4).
A substance that satisfies the weight or value test, but that is not
listed in section 4672(a)(3) and has not been added to the list of
taxable substances pursuant to section 4672(a)(2) or (4), is not a
taxable substance.
(9) Use. A taxable substance is used when it is consumed, when it
functions as a catalyst, when its chemical composition changes, when it
is used in the manufacture or production of another substance
(including by mixing or combining the taxable substance with other
substances), or when it is put into service in a trade or business for
the production of income. The loss or destruction of a taxable
substance through spillage, fire, natural degradation, or other
casualty is not a use. The mere manufacture or production of a taxable
substance is not a use of that taxable substance.
(10) United States. The term United States has the meaning given
such term by section 4612(a)(4) of the Code. See sections 4672(b)(2)
and 4662(a)(2).
(11) Weight or value test. The term weight or value test means the
test under section 4672(a)(2)(B) for determining whether taxable
chemicals constitute more than 20 percent of the weight or more than 20
percent of the value of the materials used to produce a substance,
based on the predominant method of production.
(c) Applicability date. This section applies to calendar quarters
beginning on or after [date of publication of final regulations in the
Federal Register].
0
Par. 11. Section 52.4672-2 is added to read as follows:
Sec. 52.4672-2 List of taxable substances.
(a) Overview. Section 4672(a)(3) of the Internal Revenue Code
(Code) provides the initial list of taxable substances. Section
4672(a)(2) and (4) provides mechanisms by which substances may be added
to or removed from the list. Therefore, the list of taxable substances
is subject to change. The Internal Revenue Service (IRS) will maintain
the current list of taxable substances at https://www.irs.gov/businesses/small-businesses-self-employed/superfund-chemical-excise-taxes.
(b) Requests to modify the list of taxable substances--(1) In
general. An importer or exporter of any substance, or a person other
than an importer or exporter (interested person), may petition to add a
substance to or remove a substance from the list of taxable substances.
See section 4672(a)(2). The procedures governing the exclusive process
by which importers, exporters, and interested persons may request
modifications to the list of taxable substances are provided in
guidance published in the Internal Revenue Bulletin. See Sec.
601.601(d) of this chapter.
(2) Synthetic organic substances. A synthetic organic substance is
eligible for addition to the list of taxable substances through the
process described in paragraph (b)(1) of this section unless such
substance is a textile fiber (other than a polymer in extruded fiber
form), yarn, or staple, or a fabricated product that is molded, formed,
woven, or otherwise finished into an end-use product. However, such
substance may be added to the list of taxable substances only if it
meets the weight or value test.
(3) Inorganic substances. An inorganic substance is eligible for
addition to the list of taxable substances through the process
described in paragraph (b)(1) of this section unless it is a fabricated
product that is molded, formed, or otherwise finished into an end-use
product. However, such substance may be added to the list of taxable
substances only if it meets the weight or value test.
(c) Applicability date. This section applies to calendar quarters
beginning on or after [date of publication of final regulations in the
Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-06278 Filed 3-27-23; 11:15 am]
BILLING CODE 4830-01-P