How Thomson Reuters and OCI can help automate Superfund Excise Tax compliance

What is the Superfund Excise Tax?

The revised Superfund Excise Tax, part of the Infrastructure and Investment Jobs Act, is a tax on the sale or use of “hazardous chemicals” and certain imported “hazardous substances.” Internal Revenue Service (IRS) sections 4661 and 4671 currently list 42 chemicals and 151 “hazardous substances” as taxable.

The distinction between “chemicals” and “substances” is that chemicals are raw materials taxable on their own, and substances are comprised of one or more taxable chemicals. For substances, however, the tax only applies to the company importing the hazardous substance. For chemicals, the tax can apply to a manufacturer, producer, or importer.

Oil companies should also be aware that Congress expanded the Superfund Excise Tax to include imported petroleum products and has increased the IRS’s budget by $80 billion to generate approximately $200 billion in revenue, helping boost the agency’s enforcement and technology capabilities.

For companies facing this tax for the first time, automation can assist with compliance and reduce hours of manual processes. Thomson Reuters ONESOURCE Determination, running on Oracle Cloud Infrastructure (OCI), enables companies to automate calculations and stay on top of changing regulations for this excise tax and other sales, use, or value-added tax needs. Read on to learn more about the benefits of tax automation and how Thomson Reuters and OCI can help.

Find out how organizations are responding to the reinstated and expanded Superfund Excise Tax in our free on-demand webinar.

Tax technology and the Superfund Excise Tax

While saying that the Superfund Excise tax has existed before and is merely being reinstated is technically correct, the tax was suspended in 1995, so most companies have little or no institutional memory of it. Companies that didn’t exist in 1995 certainly don’t, and the systems, processes, and technologies for managing the data required to calculate these taxes likely aren’t streamlined to effectively manage it today, either for sale, use, or import. The Superfund Excise Tax is also impacting a much larger group of companies because more substances are subject to the tax, and the threshold was lowered from 50% down to 20% on taxable hazardous substances. In many cases, the rates have doubled, which increases a company's exposure and makes compliance even more important.

Fortunately, a generation’s worth of technological advances has provided companies with the means to manage Superfund taxes more easily than you might think. Though some of the Superfund tax provisions are complicated enough to require personal attention—at least initially—most of the tax requirements and calculations are excellent candidates for automation, enabling companies that owe more than $2,500 annually to meet their bi-monthly payment schedule on a timely basis.

For companies that import and manufacture dozens or hundreds of products containing taxable chemicals or substances, the sheer volume of calculations cries out for an automated solution. Otherwise, IT, finance, and tax personnel must create a series of manual procedures to gather data for compliance, calculate the tax owed, respond to audit inquiries, and constantly monitor the IRS’s lists for any changes that might apply. And to accomplish all these tasks, more personnel might be required.

An automated solution addresses these potential headaches, particularly one designed to meet the volumetric-based calculation requirements and include all necessary rules and rates. Companies that use, manufacture, or sell products that contain taxable chemicals or substances must conduct a thorough supply-chain analysis to determine when and where the tax applies to them, but that’s true regardless of how a company chooses to manage its Superfund obligations. However, after this analysis has been conducted and a master data set of the company’s products, transactions, and manufacturing processes has been established, the repeatable and largely predictable nature of corporate import and production activities means that they can easily automate Superfund tax calculations and payments with the right solution.

Many options, one good solution

ONESOURCE Determination, running on OCI, enables companies to quickly comply with Superfund Excise and Hazardous Substance taxes by automatically and accurately calculating the amount of excise tax owed. You can also use this full-blown indirect tax solution for your other sales, use, and value-added tax needs.

Thomson Reuters extended ONESOURCE to utilizing Oracle Autonomous Transaction Processing for millisecond data processing speeds, automatic scaling, provisioning, and repairs for zero downtime.

The high availability of Oracle Autonomous Database enables ONESOURCE teams to update content and functionality for calculating indirect taxes while maintaining critical transaction processing. Compared to other solutions using legacy on-premises technology, Thomson Reuters eliminated roughly 6–12 hours per month of downtime needed for patching and updating systems. This reduction gives Thomson Reuters’ customers the highest uptime and biggest decrease in downtime disruption.

Meanwhile, customers can have peace of mind knowing that their data is safe and secure. Thomson Reuters uses Oracle Data Safe and Oracle Cloud Guard to enhance data security and insights for Oracle Databases and Oracle Autonomous Database on OCI. Oracle GoldenGate replicates the production databases in real time for critical backup and disaster recovery services.

How does a company report the Superfund Chemical Excise Tax?

Superfund Chemical Excise Taxes are reported on Form 6627 (Environmental Taxes), which attaches to Form 720 (Quarterly Federal Excise Tax Return). Semi-monthly payments should be made by the 15th and 30th of each month, but the IRS is providing relief from penalties for non-payment up through the first quarter of 2023.

Another benefit of automating the Superfund tax process is that companies get the most up-to-date tax rates available under the IRS’s rules, and it helps avoid costly penalties. For example, the IRS gives companies the following options to calculate their Superfund tax obligation for imported hazardous substances:

• Use default rates determined by IRS.
• Self-assess the rate based on 10% of the appraisal value of the imported substances.
• Calculate the rate based on the percentage amount of each listed chemical included in the substance. By definition, all listed “substances” contain at least 20% of one or more listed “chemicals.”

The first two options exist for companies that elect not to use option three, which involves determining the percentages of listed chemicals contained in the imported substance and multiplying those percentages by the listed cost per ton to determine the tax owed.

Some companies might prefer to avoid the sort of detailed product and process analysis necessary to gather the data needed for option three, but the reward for companies that make the effort and employ automation to make the most efficient possible use of that data is that they almost always pay lower, more accurate taxes. Furthermore, the savings from those lower tax rates accumulates over time, especially for larger companies with a substantial Superfund tax burden.

Additional Resources                                                     

For more information or a demo of how ONESOURCE Determination running on Oracle Cloud Infrastructure can help companies manage the Superfund Excise Tax, see Superfund Excise Tax Calculation | Thomson Reuters ONESOURCE.

For more information on the Superfund Excise Tax and Hazardous Substance Tax, see the following resources:

• IRS Notice 2021-66: Superfund; Initial List of Taxable Substances; Registration; Procedural Rules; Request for Comments; Suspension of Notice 89-61
• ONESOURCE Determination running on OCI for Superfund Excise Taxes Video Demonstration
• Superfund Excise Tax Substance List
• Superfund Excise Taxes – They’re Back!
• Superfund – Are you ready? (Podcast)