Ten Dollars and Twenty Cents a Ton on Imported MDI

This morning's Federal Register carried three petitions asking the IRS to tax chemicals that carry no tax today.

One of them is MDI.

Huntsman International filed it, and the notice describes the petitioner, in the petition's own words, as "an exporter and importer of MDI." The rate the petition calculates is $10.20 per ton.

"Why does a company ask the government to tax the thing it imports?"

The list is the door

Section 4671 puts an excise tax on the importer of a taxable substance, and section 4672(a) defines a taxable substance as one that sits on a list the Secretary keeps.

Fifty substances came with the 1986 statute. The Secretary had added 101 more by November 2021, and 63 since the tax came back on 1 July 2022.

If your grade is not on that list, your import is not taxed.

Section 4662(e) is the other side of the same door. A US producer who exports can claim back the section 4661 tax it paid on the feedstock chemicals that went into the exported product, and the statute allows that refund only where the exported product is a "taxable substance (as defined in section 4672(a))."

So the list is a bill on one side of the fence and the only route to the refund on the other. A company that does both with the same molecule has a reason to want on it.

Huntsman's petition puts the arithmetic in public. MDI carries conversion factors of 0.62 for benzene, 0.56 for chlorine, 0.13 for methane and 0.50 for nitric acid, and the section 4661 rates on those are $9.74, $5.40, $6.88 and $0.48 a ton.

Multiply and add and you get $10.1972, which rounds to the $10.20 in the filing.