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Environmental Excise Tax – Simplified

Environmental Excise Tax – Simplified


If the government isn't concerned about nature, then who will be? The reason for an environmental excise tax that you pay is for using any elements that harm nature, and in return, the government can come up with some measures that can lessen the impact of this effect. Essentially Form 720 is an indirect measure for funding pro-environmental operations by companies that directly harm the environment.

In this article let's learn what comes under the environmental tax part of this section to ensure you are filing it correctly.

If you are filing the taxes for environmental tax on Form 720, you'll find the rates for calculating the tax specific to the chemicals under this section in Form 6627.

Domestic petroleum superfund tax(IRS No: 53)

This is the tax that you are liable for using crude oil products. The collection of tax would be to fund the hazardous substance superfund. For inflation purposes, the rate of this tax is indexed annually, and currently, the tax rate is $0.164 per barrel.

Domestic petroleum oil spill tax(IRS No: 18)

This is another such tax imposed on crude oil products which funds the oil spill liability trust fund. They are the ones responsible for cleaning up the spillage of oil. The rate of oil spill tax is $0.09 per barrel.

Imported petroleum products are subject to a superfund tax(IRS No: 16)

The tax is similar to the domestic petroleum superfund tax but for the petroleum products imported to the US for use, warehousing, and consumption. The rate remains the same, which is indexed annually for inflation, i.e., $0.164.

Imported petroleum products oil spill tax(IRS No: 21)

The tax is the same as the domestic petroleum oil spill tax but for the import of petroleum products to the US. The tax rate is $0.09 per barrel.

Note: Although taxes are reported separately on respective lines, the tax rates for domestic and imported petroleum products remain the same. The petroleum tax rate will usually be a sum of the petroleum superfund tax rate and the oil spill tax rate. Which will be $0.254 per barrel.

Hard to remember these rates? Then, file your form 720 online through Simple 720. Our portal does everything for you!

Chemicals (Other than ODCs) (IRS No: 54)

If you are a manufacturer or a producer who is using or selling chemicals that are taxable in the US, you are liable to pay tax, which is called a superfund excise tax on chemicals. These chemicals are other than ozone-depleting chemicals that come under Section 4661.

There are about 42 chemicals on the list, and the rates for these substances can be seen in Part II of Form 6627. Depending on the type of chemical being used, the rate can be anywhere from $0.44 to $9.87 per ton of each chemical.

Note that any chemicals not listed are non-taxable.

Imported chemical substance (IRS No: 17)

It is a chemical substance if its weight is 20% or more of the value of any chemicals present in it and is mentioned on the list.

These are substances on sale or used by a manufacturer or producer when imported. These are the chemicals mentioned under Section 4671, and there are about 151 taxable chemical substances. For 121 out of 151 chemical substances, the tax rate is anywhere from $1.49 to $23.65 per ton.

To calculate the tax, one must know the weight ratio of each chemical in the substance to the total weight of the substance to find the conversion factor. In cases where the taxpayer does not have enough information on the conversion factor or the IRS mentions the tax rate for the substance, one can consider the 10% rate on the appraised value of the substance.

Note that the list of chemicals and substances may get removed or added, and the taxpayer must have a look at this list carefully.

Read our blog on some ethical ways to avoid your excise tax.

ODC (IRS No: 98)

Ozone-depleting chemicals (ODCs) are a set of substances identified for harming the Earth's ozone layer. This group encompasses compounds like chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), halons, carbon tetrachloride, and methyl chloroform.

If a manufacturer or producer sells or uses the ODCs that are listed in Part IV of Form 6627, you are liable to pay the tax.

As per the IRS, the rates are determined based on the ozone-depleting factor. Even the ODC mixture created by two or more ODCs is considered the use of ODC. You have the option to pick either of two things. If you select the post-1989 ODC, the list is the tax earlier mentioned, which will apply to the ODC used, and to select this one, you must check this one under Elections of Part IV. For the post-1999 ODC election, check the second box under the elections.

ODC tax on imported products(IRS No: 19)

Any material imported if it has ODC while being manufactured is liable to pay tax. The tax can be calculated based on the ODC weight that was used in manufacturing. You can either use the exact method to calculate, the table method, or the value method to arrive at the tax.

The Wrap

If you've been using or importing not-so-environmentally-friendly chemicals or substances, these are the taxable substances for which you need to pay tax. Get it right and pay the taxes right!

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