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If you are in any way related, either as a manufacturer, importer, or seller, to chemicals or products prone to environmental excise tax, you might unknowingly incur environmental excise tax liabilities. Collected by the IRS, the taxes serve as funding sources for programs to observe and remedy environmental damage; these taxes carry significant penalties for non-compliance for non-compliance. This guide outlines the tax, which bears the tax burden, and how not to fall out of compliance.

Environmental excise taxes are taxes imposed at the federal level for products and certain activities causing harm to the environment. The intention of these taxes is to deter pollution while funding environmental restoration efforts. Major tax categories include:

Ozone-Depleting Chemicals (ODCs) such as chlorofluorocarbons (CFCs) and halons

Taxes applied for imported petroleum and crude oil

Imported chemical substances

Hazardous waste management

These taxes are stated on IRS Form 720, Quarterly Federal Excise Tax Return.

Not all businesses fall under these regulations, yet many do without recognizing it. If you are a(n):

Manufacturer or importer of taxable chemicals or chemical substances

Company using petroleum or crude oil for production or fuel

Hazardous waste disposal service provider

Importer of ODC products such as refrigeration units or aerosol sprays

You may be liable for environmental excise taxes. If your operations involve chemicals on the IRS's taxable list, you must determine and pay the correct tax amount each quarter.

There are several pollution-related excise taxes enforced by the IRS. They include:

Ozone-Depleting Chemicals Tax – This applies to the manufacturers and importers of ODCs or any products containing them.

Petroleum and Crude Oil Tax – This is accompanied by the refining, importing, or using of crude oil and petroleum products.

Imported Chemical Substance Tax – This specifically tax targets imported goods containing taxable chemicals.

Hazardous Waste Management Tax – This applies to entities that receive hazardous waste for disposal or treatment.

Understanding these categories is necessary for accurate IRS environmental tax compliance.

Quarterly reporting by the RS through Form 720 is mandatory. Here’s how to maintain compliance:

Identify Taxable Activities – Check through your supply chain for any chemicals or petroleum products on the IRS listing.

Calculate the tax – Use IRS-stipulated rates for all taxable substances or activities.

File Form 720 – Submit each quarter on time (April, July, October, January).

Make Payments Electronically – Secure payments via the Electronic Federal Tax Payment System (EFTPS).

Accurate record-keeping is essential and strictly enforced. Keep invoices, import documents, and chemical specifications for a minimum of three years.

Noncompliance with environmental excise taxes can lead to audits, penalties, and interests by the IRS. Ensuring compliance would promote and support schemes that protect the environment, such as the restoration of damaged ecosystems and pollution clean-up. 

Businesses addressing environmental tax obligations proactively avoid any legal impediments and exhibit commitment towards sustainability.