US readies collection of Superfund petroleum tax

The US is preparing next month to begin collecting a 16.4¢/bl tax on crude received at refineries and imported petroleum products to fund environmental cleanup projects, part of the recently enacted Inflation Reduction Act.

The US Internal Revenue Service (IRS) released draft instructions on 14 December that describe how refiners and importers should pay the new Superfund tax, which is expected to raise nearly $12bn over the next decade to pay for the cleanup of contaminated industrial sites. The collection of the tax begins on 1 January 2023 and will be adjusted for inflation each year.

US refiners will be responsible for paying the 16.4¢/bl tax at the point when domestic crude, condensate and natural gasoline is received at a US refinery, according to the draft IRS instructions. The same tax rate will apply to those that export US-produced crude, but the instructions say it will not apply to crude used to extract oil and natural gas at the site of production.

The 16.4¢/bl tax will also apply to those importing crude and petroleum products into the US for use, consumption or storage, according to the draft instructions. US refiners will not directly pay the tax on imported crude if they can show the Superfund tax has already been paid by the importer, the instructions say.

The IRS is collecting the new Superfund tax using the same forms and processes it already uses for a separate longstanding tax — now set at 9¢/bl — that generates revenue for the Oil Spill Liability Trust Fund.

US refiners believe complying with the Superfund tax will not be "much of an issue, at all," an industry official said.

The IRS has yet to release separate guidance on how it will comply with a ruling earlier this year by the 5th US Circuit Court of Appeals that said the 9¢/bl oil spill liability tax could not apply to US crude exports, based on a prohibition in the US Constitution on export taxes. The reasoning by the court would also likely exempt crude exports from the new 16.4¢/bl Superfund tax, legal experts say.

President Joe Biden's administration on 13 October said it had declined to appeal the 5th Circuit ruling to the US Supreme Court. But the administration said it was still "committed to defending" the oil spill tax in states outside of the 5th Circuit, which consists of Texas, Louisiana and Mississippi.

The IRS said it was aware of the court ruling but "not in a position to comment at this time."

The uneven enforcement of the oil spill tax inside and outside the 5th Circuit "could create a competitive disadvantage" with similar business operations, law firm Morgan Lewis partner Jennifer Breen and associate James Steele wrote in a client note on 21 November. Those stakes "will soon be far greater" once the Superfund tax begins to apply next year, the note said.

By Chris Knight