Are you properly paying the ozone-depleting chemicals excise tax?

• Author: Karet, Deborah

Importers may be unaware of their federal excise tax responsibilities for taxable articles they import into the United States. In recent years, IRS excise tax examinations have focused on taxpayers that import articles potentially subject to the excise tax imposed on certain ozone-depleting chemicals (ODCs) under Sec. 4681 (the ODC tax). For example, importers of certain electronics may be subject to the ODC tax if taxable ODCs were used in manufacturing the electronics.

This item provides an overview of the rules related to the ODC tax and describes the documentation required to support an electronics importer's determination that the tax does not apply for a particular imported product. Most importers of electronics may not be focused on the tax because the use of taxable ODCs in the manufacturing of these products has generally been eliminated; however, it has been the authors' experience that the IRS has been looking closely at the issue of whether an importer's documentation supports its conclusion that no ODC tax is due. Although this item focuses on electronic products, note that the ODC tax also may be imposed for other imported products if taxable ODCs were used in their manufacture for purposes of refrigeration or air conditioning or creating an aerosol or foam.

Background

The Montreal Protocol is an international agreement relating to substances that deplete the stratospheric ozone layer, first entered into by the United States and other countries in 1987 and effective beginning January 1, 1989 (Montreal Protocol on Substances That Deplete the Ozone Layer, September 16, 1987, Treaty Doc. 100-10, 1987 U.S.T. Lexis 207 (as either adjusted and/or amended in London (1990), Copenhagen (1992), Vienna (1995), Montreal (1997), Beijing (1999), and Montreal (2007))). The Montreal Protocol identifies many ODCs. Its intent was to eliminate the production and use of these chemicals worldwide. Generally, with respect to taxable ODCs, under the terms of the Montreal Protocol developed countries would not produce or use these chemicals after 1995, and developing countries would not produce or use them after 2009. Congress chose to implement the Montreal Protocol by imposing an excise tax on certain ODCs and on imported products manufactured using those ODCs.

ODC Tax

Effective January 1, 1990, Sec. 4681 imposed tax on any imported taxable product sold or used by its importer. The amount of tax imposed on any imported taxable product is the amount...