Environmental taxes are designed to encourage eco-friendly practices and support the transition to a greener, more sustainable environment. The primary goal is to discourage activities that harm the environment and promote the use of sustainable alternatives.
Form 6627 is specifically used to calculate and report environmental excise taxes. It includes multiple sections, each covering different categories of these taxes, such as those related to ozone-depleting chemicals (ODCs), petroleum, and imported taxable products.
This form helps businesses and individuals comply with IRS requirements for reporting and paying applicable environmental taxes.
Various harmful substances contribute to environmental hazards, and these are categorized under different sections of Form 6627. Typically, Form 6627 is filed along with Form 720 – Quarterly Federal Excise Tax Return, and each tax category is associated with specific IRS numbers:
Tax on petroleum and crude oil – IRS Numbers: 53, 18, 16, 21
Tax on ozone-depleting chemicals (ODCs) – IRS Number: 98
Tax on chemicals other than ODCs – IRS Number: 54
Tax on imported chemical substances – IRS Number: 17
ODC tax on imported products – IRS Number: 19
Tax on floor stocks of ODCs – IRS Number: 20
Each section ensures proper tracking and taxation of environmentally impactful substances, reinforcing efforts toward sustainability and regulatory compliance.
Crude oil and petroleum products brought into the United States—whether for refining, warehousing, or other uses—are subject to an environmental excise tax. This tax helps fund federal programs aimed at mitigating environmental damage caused by oil spills and hazardous substances.
Tax Rate
The tax rate on both domestic crude oil and imported petroleum products is the combined total of:
Oil Spill Liability Trust Fund Rate (Petroleum Oil Spill Tax): $0.09 per barrel
Hazardous Substance Superfund Rate (Petroleum Superfund Tax): $0.17 per barrel (for 2024 and 2025)
Total Tax Rate: $0.26 per barrel
Who Pays the Tax?
The responsibility to pay this tax falls on:
The operator of the refinery that receives the crude oil
The user of crude oil, if it is used before the tax is imposed
A federal excise tax is imposed on ozone-depleting chemicals (ODCs) when they are first used, including when they are used to create a mixture. The creation of a mixture containing an ODC is considered a taxable use, provided the chemical identity of the ODC remains unchanged. In most cases, the tax applies at the time of mixture creation, not at the point of sale or use of the mixture.
Tax Rate
The tax rates for ODCs are specified under Section 4681 and vary depending on the chemical involved. The applicable rates for 2024 and 2025 are provided in a dedicated table in the IRS Instructions for Form 6627. View IRS Part IV – ODC Section Tax Rates
Who Pays the Tax?
The tax is typically paid by:
Manufacturers or importers of ODCs who sell or use those chemicals
Importers of taxable products that contain ODCs and who sell or use those products
Holders of ODCs (other than manufacturers or importers) on January 1 of the taxable year, if held for sale or for use in manufacturing:
For 2024: Any such person holding ODCs as of January 1, 2024
In addition to ozone-depleting chemicals (ODCs), certain other chemical substances used in manufacturing or industrial mixtures are also subject to federal excise tax. These chemicals are listed separately under Part II of Form 6627.
Tax Rate
The tax rates vary depending on the specific chemical. A complete list of taxable chemicals and their corresponding rates is provided in Part II of Form 6627.
To calculate the tax, refer to the table and apply the appropriate rate based on the chemical substance you used.
Who Pays the Tax?
The following parties are responsible for paying this tax:
Manufacturers
Producers
Importers
This tax applies to imported chemical substances that, if produced in the United States, would have involved the use of taxable chemicals. The tax is calculated based on the proportion of taxable chemicals used in the manufacturing of the imported substance.
To determine applicability and tax rates, refer to the Table of Taxable Imported Chemical Substances provided by the IRS. This table lists the specific substances and their associated rates.
Who Pays the Tax?
The tax must be paid by the importer who:
Sells the imported chemical substances, or
An imported taxable product is any item brought into the United States for consumption, use, or warehousing that was manufactured using an ozone-depleting chemical (ODC) as a material. Even if the ODC is no longer present in the final product, its use during production makes the product taxable.
Tax Rate
The tax is based on the weight of the ODCs used in manufacturing the product. There are three methods to determine this:
Exact Method:
If you can determine and substantiate the actual weight of each ODC used in manufacturing the product, use that weight to calculate the tax.
Table Method:
If the exact weight is not determined, but the product is listed in the Imported Products Table, use the ODC weight specified in the table.
Value Method:
If neither the exact method nor the table method applies, the tax is 1% of the entry value of the product.
Who Pays the Tax?
The importer is liable for the tax when the imported product is either:
Sold, or
The floor stocks tax applies to certain quantities of ozone-depleting chemicals (ODCs) held in inventory as of January 1 of the tax year. This tax is intended to capture ODCs that were previously untaxed or are still in stock at the beginning of the year.
Who Is Liable?
You are liable for the floor stocks tax if you hold the following amounts of ODCs as of January 1 of the applicable year:
For 2024 and 2025:
400 pounds or more of ODCs (excluding halons and methyl chloroform)
50 pounds or more of halons
1,000 pounds or more of methyl chloroform
These thresholds apply whether the ODCs are held for sale, use, or manufacturing purposes.
Tax Rate
Tax rates vary based on the specific ODC and are listed in the IRS Floor Stocks Table.Form 6627 is filed along with Form 720 – Quarterly Federal Excise Tax Return, and shares the same due dates. The filing deadlines are based on the calendar quarters:
There are two methods for paying environmental taxes through Form 6627:
1. Manual Method
Download the latest versions of Form 720 and Form 6627 from the official IRS website.
Complete Form 720 according to your specific tax category.
Fill out the relevant sections of Form 6627 based on the taxes you owe.
Mail both forms along with your payment (check or money order) to the appropriate IRS address.
2. Online Method (Recommended)
Use any IRS-authorized 720 online portals to complete your Form 6627 filing.
In this method, Form 720 and Form 6627 are combined into one filing system. You simply fill in the required fields for both forms in an easy, structured interface.
The online method is the recommended option by the IRS because it is faster, more efficient, and typically results in fewer errors.
Form 6627 is used to report environmental taxes, including those on ozone-depleting chemicals (ODCs). However, certain situations are exempt from this filing requirement. You do not need to file Form 6627 if:
Your business is not liable for any environmental taxes—for example, if you do not produce or use any taxable products or emissions.
Your total environmental tax liability for the year is below the IRS reporting threshold.
Additionally, some uses of ODCs are exempt from tax, such as:
Metered-dose inhalers used for medical purposes.
Recycled ODCs.
Exported ODCs.
ODCs used as feedstock in manufacturing.
In cases where tax was paid on exempt ODCs, a credit or refund (without interest) may be claimed. Claims can be made by:
The user, if the ODC was used as a propellant in a metered-dose inhaler.
The manufacturer, if the ODC was exported.
The user, if the ODC was used as a feedstock.
Always consult the most recent IRS guidelines to determine your specific filing and exemption eligibility.
WRAP:
In conclusion, Form 6627 plays a crucial role in ensuring compliance with environmental tax requirements, promoting sustainable practices. Understanding the different tax categories and filing methods can streamline the process for businesses.
By leveraging the online filing option and staying informed about exemptions, you can simplify the tax reporting process.
File your Environmental Excise Tax online with ease using Simple720 Portal today!