Notice 89-61 (1989-1 C.B.)

Substancrs; Rutss for Filing a

per~t!an

l ~ s t c din stcrlon 4 6 6 1 ( b ) [ h a t is not
excmpted from the chern~call a x by scc[ion 466?(b1 For purposcs of dettrrn~ntng uhtther a manufac~urcror lmponcr
has " u ~ c d a raxable chcmlcal or a tax.
able substance and thus is 5LIbjtcl lo the
tax imposcd on "sale or usc..' taxablc
chcmtcals and raxablc substances a r t
u ~ c dwhen rhey a r t consurncd. whcn
they function a s a catalysi. or when rhey
change t h c ~ rcharacterisr~csor chcmical
c o m p o s ~ t ~ o nH o w e v e r . loss or dcsrruchen lhrough spllla_ec. firc. or other casualty is nor considered a use. For purposes of compuring r h e rale o l ux for a
tarable subscancc, the term "convetston
fac~or" mcansthc number of lons of each
taxable chcmical consurncd in rht manufacture of one ton of rht taxablt subs t a n c e . and ~ h ctcrm " p e r c e n ~ o g c "
means tht pcrcenLagc In thc uxabtc substance o i mcml h a 1 1s listed as a taxable
'

This ~ o r l c clniorms taxpayers of [he
proccdureS for fifln_ga pclltion rcqucstlng
bat a substance bc added ro or removed
from r h t 1151of Laxable substances lo sec,ion46721aH:) f"tistl') of the Internal
~ ~ v c n uCode
c
("Code"). These procedures will bc adopttd b y tht lnternal
Rtvenuc Service In rtpulations irnpie,-,-,cnting an amendmenr made by section
2 0 0 ] ( b ) o f the Technical and Misccllancotls Revenue Act of 19S8 (Pub.
L. 100-@7) 1" 1988 Act") to the tax on
,,naln ~rnponcdsubsrances under section 4672 of the Code. These procedures
will bt tffccl~vcas of May 9, 1989.
1. BACKGROUND
Scciion 4671 of the Code imposes a
[ax on the sale or use. after Dccember
3 I , 1988. by the lrnponer of any taxable
subsrancc. Tht rate of lax for each taxable subslance is based upon thc raw of
LZX on ihc raxable chcm~calsfrom which
[he t a x a b l t subs~anccis dcrivcd The
amounl of tax impscd on a taxable substance is equal 10 rhc amount of lax thar
would have been imposcd on the raxabic
chtm~calsused as rnaterrals in the manufacture of [he raxabk substance if such
subsrancc had bccn rnanufacrurcd in the
United States.
Secrion 4671 of he Codc provides that
a substance shall bc added to thc List if
h e S c c r c t q dcrcnnines. in consultation
wlth thc Adm~nlslratorof thc Env~ronmental Protcc~lonAgency and the Comm~ssioncr of Customs. that taxable
ihernicals constilurc mo:c than 50 pcrcent of thc weight or morc than 50 percent 01 ht valut of the rnarcnals used to
produce such substancc (determined on
&c basis of chc prtdominant method of
p;oducrion). Thc S e c r e r ~may rcmovc
irom the tist only subsrancts thar rnect
neither rht weight nor the valuc test I f
an i r n p n e r or t x p n c r of any subsrancc
rcqucsrs thar thc Secretary dcrcrmlne
uhe!htr such subsrancc should bc added
10 rht L ~ s tor removed from rhc Lisr, the
Secrelary shall makc such dctcrminarion
uithin 180 days afrcr the date the rtqucsr
as filed.

A ~ ~ x a b svbrtcnce
le
is an! subsrancc
Ilsltd in sectlon 46!2(a)(3) of the Codt.
A r o . t ~ b l echemical i s ~ r i ) ' c h e m i c a l

chemical.
The types of taxable subsranccs cnumcratcd i n scction 4 6 7 ? ( a ) 1 3 ) of the

Code renccr the intent of Congrcss !hat
only chemrc~lr,that arc tntendcd Tor furr h t r chemical conversion and certain
meials should be subjtc~to the irnponed
substances tax. ~ h u s pcritions
.
l o add
substances to the L~srwill be tntenained
only for simrlar r y e s of chcm~caldcrivat ~ v c sand metals. Accord~nglp.for q n iheric organic c h c m t c a l s , the Icrrn
" s u b ~ t a n c e " excludes t c x ~ i l efibers,

yams. and staple. and fabricated products thar are molded. formed, woven. or
otherwise finishtd into end-ust p r d u c t s .
For inorganic chemrcols. rht term "sub~ t a n c c " excludes fabncatcd produc~sthat
arc molded. formed. or o ~ h t r w i s eflnishcd inro tnd-use producrs. For rnerols.
the tcrm "sub~rance" includcs ccnain
wrought metal and scrap.
For pcririons bascd on value, the term
"value" means the average market price
dunng thc preceding twclvt monrhs of
cach matcrial Ir. the chemical formula
describing [he producrion of thc subsranct.
The imporrer is thc person who CRtCrS
a nxabte subsrancc inro the tJn~ltdStates
for consumptaon. use, or warchousing. A
raxable subsrancc is c n ~ e r e dinto the
U n i ~ t dSratcs for consumprion, usc. ~r
warehousing whcn an tntry summary
(Customs Form 7501) is filed with thc
appropriate customs officer, In proper
lorm. with c s t ~ r n a ~ cddu t ~ t sattachcd
The person e n r e r l n g thc l a n a b l c substance is the person who riles rhe entry
summary I T he person f ~ l ~ n:heg tnrry
s u m r n a q 1 5 L l i n g 3s a n agent for anorhtr

pcr:Dn l l o r example. thc pcrson filine
the entry scmmary is a Cusloms broker
c n ~ a g c dby the owner). thcn the pr~nclpal for whom thc agcnr 1s acllng 1s
dccrncd to be ~ h cpcrson filing the tntry
summary. Thc exporter i s rhc pcrson
named a s shipper or consignor i n the
cxpon bill of lading. Tht U n ~ r c d$;nips
includcs thc SO States. the District o f
Columbia. rhe Comrnonwcalth of Pucrto
Rico. a n y possession of the U n ~ t c d
States. the Comrnonwealrh of rhc Nonhern Mariana Islands, the Trust Terntory
o f the Pacific Islands, the continenral
shelf areas (applying the principles of
section 638 of the Code!, and foreign
made zones

111. REQUESTS FOR
MODIFICATIONS f 0 THE LIST
A n imporrer or cxporttr of a n y subsrance that is not on the List or an imporrtr or exponcr of any raxablt subsrancc
ma!, requesi that tht List bc modified by
e r t h t r adding or removing such subsrance. Any person orhcr ~hanan importer or exporter may write suggtstlng
modifications to he List, but s u c h person may no1 pelition. Suggestion l e t ~ r n
do not require a response, and any acrlon
taken on such information i s at the discrerion of thc S c c r c t q
The request is made by pcrrtlon ro the

Commissioner of the Internal R c v t n u e
S c r v ~ c e .A n y subslance for which it 15
claamcd that taxable chemicals consrirute
more than 50 percent of rhr weight or
more than 50 pcrcent of thc valur of rhc
marcriais used to producc such subsrancc
(dcttrmined on the basis of the predomlnant method of production) may be the
subjccr of a petition. A sepazare petition
must be filcd for each substance for
which a claim is being madc. A separate
pttition i s rcquirtd for cach molccu~ar
form of any subslance rhar can include
morc than one rnolccular form.
I,V. FILING

OF PETITlONS

Petitions must be addressed to thc
Commissioner of the Inrernal Rcvcnue
Service. Arrn: CC:CORP,T:R (Pctlrionl,
Room 4429. Washingron. D.C.1 0 2 2 4 .
A pelition musr be sent by ccrtified
mail. rcrum rece~prrtqutsrcd. A pelitron
is no1 considered "filed" unr11 i t has
been acccprcd. A peti~ionw i l l be a c c r p ~ t donly ~f ir includcs all the required
information. E a c h perition wilt bc
acknowledged b y Ic1:cr m a ~ l e dw ~ r h l n
thlny days of rhe perrtron's receipr ( a s
srampcd on the return recelp! from the
1989-1 C.B.

717

Posi OTficc) Tk a c l ; n o u t t d ~ c m c n tIctacccpr i h t pctltlon. or

rtr uill clihcr

r t j e c t and reruln i l bccausc of insufiicicnr ~ n l o r m a r ~ o nI .f t h c petillon I S
a:ccp!td, i t s f i l ~ n edare I S the date the
~ c t ' ! i o nu.as r c r c r v t d . lf rcjectcd. rhc
petition may bt r e s u b m i ~ r c dusith r h t
addjlronal rcqu~rcdinformation, and the

-

filing dart would be rhe datc the rcsubmiticd pctltion ir accepted
I n order to bc acccprtd. the petition
must includc the follou,ing:
( 1 1 Thc namc of ~ h :subsrancc. incllrdlnp I r s physical Atarc and
form. fhar is rhc subject of t h e
pctit~on
( 2 ) The Harmonized Tariff System
IHTS) ]tern number as officially
clarsifled by [he U n i t e d S t a l e s
Cdstorns Servhce. the Schcdlllt B
irtm number. and if appiicablt rht
Chemical Abstract Scrvict IC.45)
number. for thc subsrance.
(3) Tht names. and HTS and Schcdulc B numbers. and CAS numbcrs
if applicable. or all ~ h taxablc
t
chem~calrthat t n n f lrutc l h t marerials ustd in rhc production of the
subsrancc.

name of rhc proccss that thc
p:tltloncr I S cla~rnin?is the predsminant method o f ~roduction
for thc subsuncc.
( 5 ) The d3ta supponing thc pctirioncr's
p s i ~ i o nha1 the producrion ptwcss
s:lected as rhc basis for r h t pcririon
:i thc predominmi one.
( 6 1.Sn explanation uf rht proccss
choscn as the prrdorninant r n c r h ~ d
af p r o d a t t i o n of the s u b s ~ a n c c .
cmphasiz~n; thr ovcrall chcrn~cai
rcacr~onfrom t i c raxablc chcmirals ro t,)t sgbsrancc.
( 4 ) Tht

rhai raxable chcmlcals constiru[e

over 50 percent of thc molecular
weicht or over 50 pcrccnl of thc
valut of ~ h cr a w mattrials used to
product the substance Included in
~ h cformula musr bc all marcnals.
l a x a b l t chcmzcals. nonraxablc
chemrcals, solvenrs and catalysis
not rccovcred or recycled. that arc
consumed in [he
I f the
rcqutst I S to remove a taxablc subsrancc from the List. rhc pctitioncr
must show that the taxable substance meets neither the weigh1
nor Ihc value t t s t ,
(8) The unit quanlirics (UQ) on a
wtight basis of all maltrials
lnvolved In tht producaon of a unit
of subsrancc. Marerials recycled in
the process would have a UQ based
on h e amount consumed, lost. purged. or dcsrroyed per unit of substance p r d u c d
(91 I n t h e case of a p t r i t i o n based
upon value. tht valut of the matcr ~ a l smull~plicdby !he unr[ quantity of each m a t e r ~ a l .
(101 The name, address. taxpayer
identification number. and princtpal
o f busincss of t h e
ptti~ioner:thc name and official
capacit!, rn such busincss of thc

C. R o r p of rar based upon con3,erslon

fuc~ors

Tht following i s an example of hou to
calculaic the rate of lax for a subsranct.
Thc ralc of rax lor c t h y l b c n z c n c .
bascd u p o n thc unlr quanrity of each
chemical cunsumcd i n producrion, i s calculalcd as follows:
The rare of tax for bcnzcne (51 81 p r
tonr i s muliiplied by t h t conversion
factor for benzenc d e r j v c d from rhc
above t q u i t l o n ( 0 7 5 ) which equals
718

1989-1 C.B.

conducrcd.

( I 1 ) The s t a t e m e n t , slgned under
prnaltjts of pcrjurj,. that l h c
pttltioner has cxarnlned the pctilion a n d ro t h t b t s ~of p e l t tiontr's knowlcdp and bellcf. it
is true, correct. and c o m p ) c ~ t
V . EXAMPLES OF REQUIRED
INFORMATION
A . P r e d o m i n a ~ r r merhod of producI~QR.

The foliowing art examples. accordlng to ~ndusrrysources, of r n f o r m a t ~ o n
s a ~ i s f y i n gitems (4) and (51of the ptrl-

lion. relatng

lo

rhc predominant merhod

of production.

i l l Ethylcnc oxide is generally prod u c e d by ~ h cd i r c c ~oxidation o f
e t h y l t n c . Direct o r ~ d a ~ l ohas
n
repiaced the chtorqhydrin process
as rhc predominant method.

( 2 ) E ~ h y l b e n z c n t15 produccd by thc
Friedel-Craf~sall;!.lation between
k r , z c n e and ethylcnc Only 3 percent of the erhylbcnzcnc produccd
i s isolated by supcrfrac~iona~ion.

filling out tht pelition;

B . Stoichiome~r~cmorcriol co/lxulrrprron
jormulo.
bcrs held by rhc, busincss or ~ h c
individuals involved: and the
The f o l l o u . ~ n pis an cxamp!e o f a
dislrac! in which Form 710 i s stoichiometric formula.
Ciltd. if any. Thc peirrion must
i n c l u d c a n explanarion of the
an? Form 637 rcyisrratron n u m -

CbH,
bcnztnc
molecular wc~ghr
u n ~ tquanrrtics

p e ~ ~ t i ~ n cclrylhr711j.
r's
(as a n
importcr or czpnrtcr o f l h c subslancc !ha! i s rhc svbjcct of thc
p c i ~ l r o n llo f ~ l ea perlrion. including the typr o l bus~ncss2nd
how long such bus~ncsshas been

(7) Thc s~oichiomerricmatcr~alcons u m p t i o n formula. a s s u m i n g a
1 0 0 - p c r c c n ~yield, basrd on ~ h c
p r c d o m ~ n a n rmethod of producuon. for th: substancc rha~shows

7

78 I
0.75 lb.

CHI = CHI
trhglcne
8
0.38 Ib.

53.65. Thc rate of tax for t t h y l t n e
( 5 4 87 ptr on) i s mulrrplicd b y the
factor

C O ~ I V C ~ ~ ~ Q ~
for

erhylcnc derived

from ~ h cabovc equation (0 28) whlch
equals 51.36. Thus. rht tatc of tax that
would have becn ~ m p o s t don bcnzcnc
and cthylcnc ustd in thc Unired Stares
to producc one ton o f c~hylbtnrcnc
equals 53.65 plus 51.36 or 55.01 per
ton Thcrcfort. t h t rabe of lax for ethylbcnzcne. b a s e d o n t h r predominant
mtthod o f p r o d u c i ~ o n .rs 55.01 per

ton.

D. Unir quanrir~rsformula.
Thc following i s an example of how to
show. by using unit quanrltlcs. lhar r a h able chemicals conslltutc marc rhan 50
pcrcrnr of thc weight or all thc marcrials
used in [he producrion of a unit of sub.
stance
Assumc thar A . B . C, and D rtprcsenr
thc materials used to producc s u b slancc €. and rhat .4 and C are laxablc
chcrniclils.