18
APPENDICES

Appendix A.--Present-Law Excise Tax Rates on Certain Chemicals
for the Hazardous Substance Superfund

Feedstock chemical Tax. per ton
(sec. 4661)

Acetylene $4.87
Benzene 4.87
Butane 4.87
Butylene 4.87
Butadiene 4.87
Ethylene 4.87
Methane 3.44
Naphthalene 4.87
Propylene 4.87
Toluene 4.87
Xylene 4.87
Ammonia 2.64
Antimony 4.45
Antimony trioxide 3.75
Arsenic 4.45
Arsenic trioxide 3.41
Barium sulfide 2.30
Bromine 4.45
Cadmium 4.45
Chlorine 2.70
Chromium 4.45
Chromite 1.52
Potassium dichromate 1.69
Sodium dichromate 1.87
Cobalt 4.45
Cupric sulfate 1.87
Cupric oxide 3.59
Cupruous oxide 3.97
Hydrochloric acid 0.29
Hydrogen fluoride 4.23
Lead oxide 4.14
Mercury 4.45
Nickel 4.45
Phosphorus 4.45
Stannous chloride 2.85
Stannic chloride 2.12
Zinc chloride 2.22
Zine sulfate 1.90
Potassium hydroxide 0.22
Sodium hydroxide 0.28
Sulfuric acid 0.26

Nitric acid 0.24



12

the net premiums written from unallocated reinsurance."

Net premiums written would only be subject to tax to the extent
that they are attributable to the coverage of United States
risks.

The determination of the net premiums written for a year
generally would be based on the underwriting and investment
exhibit of the annual statement filed for that year. If no
annual statement is filed for a given year, the premium
information would be determined on a basis consistent with the
annual statement requirements applicable to such year.

Alternative tax on foreign insurance

A foreign person that is not an assessable person, and that
therefore would not be liable for the retrospective tax,
generally would be subject to an alternative excise tax imposed
on a prospective basis (herein referred to as the "alternative
foreign excise tax"). The alternative foreign excise tax
generally would be imposed as a withholding tax on (1) any
casualty insurance policy that covers hazards, risks, losses, or
liabilities wholly or partly within the United States, and (2)
any reinsurance policy with respect to such an insurance policy.
For this purpose, a casualty insurance policy would be any
insurance policy other than any "policy of life, sickness, or
accident insurance, or annuity contract" as defined in Code
section 4372 (e).

The alternative foreign excise tax would be equal to one-
half of one percent (0.5%) of the maximum limit of liability of
the foreign insurer under the policy. The term "maximum limit of
liability" generally would be defined as the total amount for
which the foreign insurer (or reinsurer) would be liable if each
person entitled to recover from the insurer (or reinsurer) under

4 Unallocated reinsurance is any reinsurance other than
allocated reinsurance. During the base period, insurers could
report net premiums written from reinsurance on a separate line
for reinsurance and were not required to allocate such premiums
by lines of business on the annual statement. The Administration
has stated that the 21-percent rule is intended to approximate
the amount of unallocated reinsurance attributable to the
commercial multiple peril and other liability lines of business.

% The annual statement is the financial statement filed
for State regulatory purposes, on the form approved by the
National Association of Insurance Commissioners. If more than
one annual statement were filed in a given year, the
determination would be based on the annual statement filed with
any state that reports and identifies the relevant premiums most
specifically by line of business.



II. SUMMARY

A. Extension of Current Superfund Taxes and Trust Fund

The Internal Revenue Code imposes four different Superfund
taxes. These are--

(1) An excise tax on petroleum, imposed at a rate of 9.7
cents per barrel, on domestic or imported crude oil or refined
products;

(2) An excise tax on listed hazardous chemicals, imposed at
a rate that varies from $0.22 to $4.87 per ton (see Appendix A);

(3) An excise tax on imported substances that use as
materials in their manufacture one or more of the hazardous
chemicals described in (2) above (see Appendix B); and

(4) A corporate environmental income tax equal to 0.12
percent of the amount of modified alternative minimum taxable
income of a corporation that exceeds $2 million.

The revenues from these taxes are deposited in the Hazardous
Substance Superfund. These taxes generally are scheduled to
expire after December 31, 1995, unless (a) the unobligated
Superfund balance exceeds $3.5 billion, or (b) total Superfund
tax revenues exceed $11.97 billion, at specified times before
that date.

The Administration has proposed extending these taxes
through December 31, 2000. The Administration also has proposed
modifying the purposes for which the funds in the Hazardous
Substance Superfund may be spent.

B. Proposed Environmental Insurance Resolution Fund and
Excise Taxes

S. 1834 would create a new Environmental Insurance
Resolution Fund program to resolve disputes between potentially
responsible parties (persons potentially liable for cleanup of
Superfund sites) and their insurers regarding liability for
cleanup of Superfund sites. Under this program, awards would be
made to potentially responsible parties in an amount generally
equal to a statutory percentage of eligible cleanup costs
actually incurred. In exchange, claims against insurance
companies would be extinguished.

The new Environmental Insurance Resolution Fund program to
be created under the bill would be financed by new excise taxes
and special assessments (imposed as excise taxes) on insurance



Appendix B.--List of Taxable Substances Subject to the Excise Tax
on Certain Imported (Chemical) Substances (Secs. 4671-4672)

Taxable substance

Taxable substance

Initial Items Listed

Cumene

Styrene

Ammonium nitrate

Nickel oxide

Isopropyl alcohol

Ethylene glycol

Vinyl chloride

Polyethylene resins, total

Polybutadiene

Styrene-butadiene, latex

Styrene-butadiene, snpf

Synthetic rubber, not con-
taining fillers

Urea

Ferronickel

Ferrochromium nov 3 pct.

Ferrochrome ov 3 pct. carbon

Unwrought nickel

Nickel waste and scrap

Wrought nickel rods and wire

Nickel powders

Phenolic resins

Polyvinylchloride resins

Polystyrene resins and copoly-
mers

Ethyl alcohol for nonbeverage
use

Ethylbenzene
Methylene chloride
Polypropylene
Propylene glycol
Formaldehyde
Acetone
Acrylonitrile
Methanol
Propylene oxide
Polypropylene resins
Ethylene oxide
Ethylene dichloride
Cyclohexane
Isophtalic acid
Maleic anhydride
Phtalic anhydride
Ethyl methyl ketone
Chloroform
Carbon tetrachloride
Chromic acid
Hydrogen peroxide
Polystyrene homopolymer resins
Melamine
Acrylic and methacrylic acid
resins
Vinyl resins
Vinyl resins, NSPF



16

percentages would not be subject to review by the Department of
the Treasury in any administrative proceeding.

E ivironmen suranc e280. ion Trust Fund

The Administration proposal would establish a new
Environmental Insurance Resolution Trust Fund (the "Trust Fund")
in the Trust Fund Code of the Internal Revenue Code. The Trust
Fund would receive deposits of the gross receipts from the new
excise taxes (including the assessments), as well as any
regulatory filing fees authorized under Title VIII of S. 1834 and
recoveries of certain amounts by the EIRF.

Amounts in the Trust Fund would be used to fund the new
direct spending authorized for the EIRF by Title VIII. The
liability of the United States for all obligations under the EIRF
would be limited to an amount equal to the excise taxes,
assessments, and other revenues deposited in the Trust Fund.
Also, the Trust Fund would be the sole source of payment for all
activities of the EIRF. The Trust Fund would not be permitted to
borrow from the Treasury.

Effective Dates

The retrospective tax (other than the alternative foreign
excise tax) would be effective on January 1, 1995. The
prospective tax would apply to policies for which direct premiums
were written on or after January 1, 1995. The assessment on
insurers and reinsurers would be imposed beginning in calendar
years after 1998. The alternative foreign excise tax would apply
to policies for which premiums were written after the close of
the contingency period specified in section 816 of S. 1834 (i.e.,
225 days after the date of enactment).

Notwithstanding the preceding paragraph, the imposition of
all of the new excise taxes and assessments would not take effect
unless the EIRF program under Title VIII of S. 1834 is in effect
on August 15, 1995, and the contingency period has expired by
such date. As discussed above, the EIRF program under Title VIII
would terminate if certain minimum levels of participation by
potentially responsible parties in the EIRF program were not
achieved by the end of the contingency period.

All of the new excise taxes (other than the alternative
foreign excise tax) and the assessments would terminate after
December 31, 2004. The alternative foreign excise tax would
terminate 10 years after the date that such tax first takes
effect.



8
Administration Propo
Overview

S. 1834, as reported by the Committee on Environment and
-Public Works, would establish a new Environmental Insurance
Resolution Fund (the "EIRF") to resolve disputes about insurance
coverage related to cleanup of superfund sites. EIRF awards
generally would consist of statutorily prescribed reimbursement
percentages of eligible cleanup costs incurred by potentially
responsible parties. The percentages would vary from 20 percent
to 60 percent, depending on the State in which the sites were
located and the litigation venue for the various sites.

Potentially responsible parties electing to receive payments
from the EIRF would waive all claims against insurance companies
with respect to cleanup of sites for which payments from the EIRF
were made. These parties would be required to submit to the EIRF
all claims related to all sites (past, present, and future) with
respect to which they were potentially liable for cleanup.

The EIRF would be established as a new, tax-exempt
organization,® and its board members would be appointed by the
President.

S. 1834, as reported by the Committee on Environment and
Public Works, does not include funding provisions for the EIRF;
the Administration, however, has proposed that the EIRF be funded
with two new excise taxes and two new assessments generally
imposed with respect to commercial liability insurance, as
described below. The gross revenues from these excise taxes and
assessments would be deposited in the Environmental Insurance
Resolution Trust Fund (the "Trust Fund"), a new trust fund
established for this purpose in the Trust Fund Code of the
Internal Revenue Code. ,

Under the Administration proposal, the EIRF and the new
excise taxes and assessments would terminate unless minimum
participation standards were achieved. Insurers would be
required to submit to the EIRF a list of all potentially
responsible parties who had filed claims against the insurer as
of the date of enactment within 30 days of that date. Insurers
would also be required to notify all such parties of their
eligibility for resolution of their claims by the EIRF.

Each eligible party so identified would have to respond in
either of two ways: (1) file a declaration of intent within 90
days of the date of enactment indicating whether it intends to

5 See discussion of Federal tax exemption in Part III.C.,
below.



III. DESCRIPTION OF PROPOSED REVENUE PROVISIONS

A. Extension of Current Superfund Taxes and Trust Fund

Present Law

Four different Superfund taxes are imposed under the
Internal Revenue Code. These are in general:

(1) An excise tax on petroleum, imposed at a rate of 9.7
cents per barrel, on domestic or imported crude oil or refined
products;

(2) An excise tax on listed hazardous chemicals, imposed at
a rate that varies from $0.22 to $4.87 per ton (see Appendix A);

(3) An excise tax on imported substances that use as
materials in their manufacture or production one or more of the
hazardous chemicals described in (2) above (see Appendix B); and

(4) A corporate environmental income tax equal to 0.12
percent of the amount of modified alternative minimum taxable
income’ of a corporation that exceeds $2 million.

The Treasury Department is required to add to the list of
imported taxable substances any substance if it determines that
taxable chemicals constitute more than 50 percent of the weight
or value of the materials used to produce such substance
(determined on the basis of the predominant method of
production). The Treasury may remove from the list only those
substances which meet neither test.

No tax is imposed on the sale of any taxable chemical for
export. In addition, if tax was paid with respect to a taxable
chemical and the chemical is used as a material in the
manufacture of a taxable substance which is exported, a credit or
refund (without interest) is allowed to the person who paid the
initial tax.

The revenues from these taxes are deposited in the Hazardous
Substance Superfund (the "Superfund"). Amounts in the Superfund
generally are available for expenditures incurred in connection
with releases or threats of releases of hazardous substances into

2 Modified alternative minimum taxable income is a person's
alternative minimum taxable income, but determined without regard
to the alternative tax net operating loss deduction and the
deduction for the corporate environmental tax (sec. 56(d)).



4

companies. The Administration proposed the taxes in a separate
transmittal to the House Committee on Ways and Means on August
17, 1994. The taxes were ordered reported by the House Committee
on Ways and Means (with modifications) on August 19, 1994. (See
H. Rept. 103-582, Part 3, August 26, 1994.) These taxes are as
follows:

Years 1-4.--A retrospective excise tax calculated by
reference to insurance premiums written during the period 1968
through 1985 would raise approximately 70 percent of projected
revenues, with approximately 45 percent of total revenues coming
from a tax based on net direct insurance premiums written and 25
percent of such revenues coming from a tax based on net
reinsurance premiums written. The remaining 30 percent of
revenues would be raised by a prospective tax on premiums written
for direct insurance. Tax rates would be set to raise
approximately $810 million per year.

Years 5-10.--The prospective tax rate would be increased to
provide approximately 65 percent of total revenues. The
retrospective tax on direct insurance would be replaced by a
claims-based special assessment on direct insurers designed to
raise 10 percent of total revenues ($81 million per year). The
retrospective tax on reinsurance would be continued at a reduced
rate of 0.14 percent, and a special assessment structured
identically to that imposed on direct insurers would be imposed.
These two taxes would produce the remaining 25 percent of the
revenues. As in the first four years, total projected revenues
would be approximately $810 million per year.

The new tax provisions would be effective on January 1,
1995, and generaily would expire after December 31, 2004.

Cc. Tax Exemption for Environmental Insurance Resolution Fund

The Administration proposal would provide an exemption from
Federal income tax to the Environmental Insurance Resolution Fund

under section 501(i) of the Code.



17

c. Tax Exemption for Environmental Insurance Resolution Fund

Present Law

Federal tax exemption for an instrumentality of the United
States that is organized on or after July 18, 1984, may be
provided only by an amendment to the Internal Revenue Code or by
a provision enacted as part of a revenue act (sec. 501(c) (1)).
Tax-exempt status has previously been granted to the following
U.S. instrumentalities: (1) the Central Liquidity Facility; (2)
the Resolution Trust Corporation; and (3) the Resolution Funding
Corporation (sec. 501(l)).

A nistrati ‘oposal
The Administration proposal would provide an exemption from

Federal income tax to the Environmental Insurance Resolution Fund
under section 501(!) of the Code.

Effective Date

The proposal would be effective on January 1, 1995.



rfund spend: uu. S

The Administration proposal would conform the Superfund
expenditure purposes to the program as modified in S. 1834.
Additionally, in provisions outside the jurisdiction of the
Committee on Finance, the Administration proposal would amend the
current "joint and several" liability standards for potentially
responsible parties (persons liable for cleanup of pollution at
Superfund sites). Under the Administration's proposed changes,
the liability of parties agreeing to an arbitration proceeding
established under S. 1834 would be limited based on their
contribution to pollution of the site to be restored. Liability
for pollution by parties from whom no recovery is possible (e.g.,
persons no longer in existence with no successor in interest),
so-called "orphan shares," would be satisfied by the Superfund
through a new direct spending program (see sec. 412 of §. 1834) .4

B. Proposed Environmental Insurance Trust Fund and Excise Taxes

Present Law

No excise tax is imposed on domestic casualty insurance
policy premiums. An excise tax is imposed on premiums for
certain foreign-based casualty insurance and reinsurance. The
rate of tax is four cents per dollar of premiums paid with
respect to casualty insurance and one cent per dollar of premiums
paid with respect to reinsurance (sec. 4371).

Revenues from the present-law excise tax on foreign
insurance are deposited in the General Fund of the Treasury.
There is no trust fund or other fund for Federally sponsored
settlement of private environmental insurance claims.

* Under the 1990 Budget Act, new direct spending is "pay as
you go" spending and is separate from spending subject to the
annual discretionary spending limits. New direct spending may be
offset by new revenues.

The Budget Act assumes, for purposes of determining the
base line of Federal receipts, that the Superfund excise taxes
are permanent, notwithstanding their current 1995 scheduled
expiration. Therefore, no new revenues are recorded for
extension of these excise taxes. On the other hand, the
corporate environmental income tax is not assumed to be permanent
for purposes of determining the baseline of Federal receipts. In
the Administration proposal, a portion of the revenues from
extension of this tax would be used in part to offset the cost of
the new orphan share direct spending program.



REVENUE-RELATED PROVISIONS OF S. 1834
(SUPERFUND REFORM ACT OF 1994)

Scheduled for a Hearing
by the
SENATE COMMITTEE ON FINANCE

on September 14, 1994

Prepared by the Staff
of the
JOINT COMMITTEE ON TAXATION
September 13, 1994

JCX-18-94



10

Retr ective tax

In_general

The retrospective tax would be imposed on any "assessable
person" that engages in a trade or business (whether or not
related to the current issuance of insurance). The retrospective
tax would be based on the net premiums written for direct
insurance and reinsurance by the assessable person (or certain
predecessors in interest) during the 18-year period from January
1, 1968 through December 31, 1985 (the "base period"), with
respect to certain "qualified commercial policies".

In general, a qualified commercial policy would mean any
insurance policy: (1) with respect to hazards, risks, losses, or
liabilities within the United States®; and (2) the premiums for
which were reported in the applicable annual statement (or would
have been reported had an annual statement been filed) as
relating to the commercial multiple peril, or the "other
liability" lines of business.?

In the case of direct insurance, the retrospective tax
generally would equal the amount determined by applying an
“applicable funding rate" for the calendar year to the assessable
person's "adjusted base-period commercial direct premiums". For
reinsurance, the retrospective tax would be determined in the
same manner as for direct insurance, except that the applicable
funding rate would be different. Each insurer generally would be
allowed an exemption amount of $50 million,'® which would be
subtracted in determining the insurer's adjusted base-period
commercial premiums.

8 For purposes of the excise taxes and assessments under
the Administration proposal, the United States generally would
include Puerto Rico, and any U.S. possessions and territories.
The term "United States person", however, would have the meaning
in current Code section 7701. Thus, for purposes of determining
whether a person was a "United States person", the term "United
States" would not include Puerto Rico, and U.S. possessions and
territories.

9 RB qualified commercial policy, however, does not include
any policy for which premiums were required to be reported as
relating to the "other liability" line of business, if the policy
either (1) did not provide any commercial coverage, or (2) did
not provide any comprehensive general liability coverage or any
environmental liability coverage. For example, premiums related
to medical malpractice coverage would be excluded.

10 Certain related parties would be required to share one
exemption amount.



9

accept or reject a resolution offer from the EIRF,® or (2) file a
request with the EIRF for its applicable reimbursement percentage
within 60 days of enactment. In the latter case, the EIRF would
be required to respond to such requests within 150 days from the
date of enactment. Parties would then be required to accept or
reject participation in the EIRF within 180 days of date of
enactment. If more than 20 percent of all eligible potentially
responsible parties reject participation in the EIRF, the EIRF
and the imposition of the excise taxes would terminate. If the
rejection rate is between 15 and 20 percent of all eligible
potentially responsible parties, the chairperson of the EIRF, in
consultation with the EIRF board, could elect to continue or to
terminate the EIRF. This determination would be required to be
made within 225 days from the date of enactment.

Excise taxes and assessments

The Administration has proposed to impose two new excise
taxes: a retrospective tax (including an alternative foreign
excise tax) and a prospective tax. In addition, the
Administration has proposed two assessments (imposed_as excise
taxes)--one on insurers and the other on reinsurers.’ The
retrospective tax generally would be imposed on persons that
wrote certain types of commercial liability insurance during the
18-year period from 1968 through 1985 and that are engaged in any
trade or business (whether or not related to the current issuance
of insurance) after December 31, 1994. The tax generally would
be based on the aggregate net premiums written for these types of
insurance during the 18-year period. The prospective tax would
be imposed on direct premiums written on or after January 1,
1995, with respect to certain insurance policies in predominantly
commercial lines of business. :

The assessment on direct insurers generally would be imposed
on any insurer if (1) a valid insurance contract (as determined
by the EIRF) issued by the insurer had been submitted by an
eligible person to the EIRF, and (2) the eligible person had
received a resolution payment from the EIRF during the prior four
year period. The assessment on reinsurers would be imposed on
any person that reinsured an assessable direct policy. Each of
these taxes and assessments is described in more detail below.

6 If an eligible person did not respond to the first
notification, the EIRF would be required to provide a second
notification. If such person did not respond to this second
notification within 120 days of the date of enactment, the person
would be deemed to have accepted participation in the EIRF.

7 The assessment on reinsurers was added as an amendment by
the House Committee on Ways and Means. This amendment was
endorsed at such time by the Administration.



6

the environment as described in paragraphs (1), (2), (5), and (6)
of section 111(a), section 111(c) (other than paragraphs (1) and
(2)), and section 111(m) of the Comprehensive Environmental

Response, Compensation, and Liability Act of 1980 ("CERCLA") (as
in effect on the date of the enactment of the Superfund
Amendments and Reauthorization Act of 1986).

Spending from the Superfund is discretionary spending and is
subject to the discretionary spending limits established in the
Budget Enforcement Act of 1990.

In general, the Superfund taxes are scheduled to expire
after December 31, 1995. However, the taxes would cease to be
imposed earlier if either (1) (a) the unobligated balance in the
Superfund exceeds $3.5 billion on December 31, 1994, and (b) the
unobligated balance is estimated to exceed this amount at the end
of 1995 (assuming no Superfund taxes were imposed during 1995),
or (2) if the Treasury Department estimates that more than $11.97
billion of revenues from these taxes has been credited into the
Superfund before January 1, 1996.3

Administration Proposal

Superfund taxes

In general, the Administration proposal would extend the
present-law Superfund excise taxes on petroleum, chemicals, and
imported substances through December 31, 2000, and the present-
law corporate environmental income tax through taxable years
beginning before January 1, 2001. However, these taxes would
cease to be imposed earlier if the unobligated balance in the
Trust Fund exceeds $3.5 billion on December 31, 1998, or December
31, 1999, and if the Treasury Department estimated that the
unobligated balance would exceed this amount at the end of
December 31, 1999 or December 31, 2000, respectively, if no
Superfund taxes were imposed during such year. Alternatively, no
further taxes would be imposed if the Treasury Department
estimated that more than $22.0 billion of these taxes had been
credited into the Superfund before
January 1, 2001.

3 Cumulative Superfund tax receipts through December 31,
1993, totaled $8.939 billion.

In consultation with the Environmental Protection Agency,
the Treasury Department determined that the unobligated balance
in the Superfund Fund as of September 30, 1993, was $1.625
billion.



Appendix B.--List of Taxable Substances Subject to the Excise Tax
on Certain Imported (Chemical) Substances (Secs. 4671-4672) --

Continued

Taxable substance

Taxable substance

Ad tems Listed’

1,3 butylene glycol

1,4 butanediol

2-ethyl hexanol

2-ethythexyl acrylate

2,2,4-trimethyl-1,3-
pentanediol diisobutyrate

2,2,4-trimethyl-1,3-
pentanediol monoisobutyrate

Acetic acid

Acetylene black

Adipic acid

Alpha-methylstyrene

Allyl chloride

Aniline

Benzaldehyde

Benzoic acid

Bisphenol-A

Butanol

Butyl acrylate

Decabromodiphenyl oxide

Dimethyl terephthalate

Diphenyl oxide

Diphenylamine

Di-n-hexyl adipate

Di-2 ethyl hexyl phthalate

Epichlorohydrin

Ethyl acrylate

Ethyl chloride

Ethylene dibromide

Formic acid

Glycerine

Hexamethylenediamine

Isobutyl acetate

Isopropyl acetate

Linear alpha olefins

Methyl acrylate

Methyl chloroform

Methyl isobutyl ketone

Monochiorobenzene

Normal butyl acetate

Normal propyl acetate

Ortho-dichlorobenzene

Ortho-nitrochlorobenzene

Para-dichlorobenzene

Para-nitrochlorobenzene

Para-nitrophenol

Parformaldehyde

Pentaerythritol

Perchloroethylene

Phenol

Poly (69/31 ethylene/
cyclohexylenedimethylene
terephthalate)

Poly (96.5/3.5 ethylene/
cyclohexylenedimethylene
terephthalate)

Poly (98.5/1.5 ethylene/
cyclohexylenedimethylene
terephthalate)

Polyalphaolefins

Polybutene

Polycarbonate

Polyethylene terephtalate
pellets

Propanol

Sodium nitriolotriacetate
monohydrate

Tetrachlorophthalic anhydride

Tetrahydrofuran

Terephthalic acid

Tetrabromobisphenol-A

Trichloroethylene

Trimethylolpropane

Vinyl acetate

1 Items listed after enactment of the tax on imported
chemical substances. The "initial" chemicals are specified in
the Internal Revenue Code. The "additional" chemicals have been
added to the list of taxable imported substances pursuant to the

Treasury Secretary's authority.



I. LEGISLATIVE BACKGROUND

S. 1834 (the "Superfund Reform Act of 1994"), the
Administration’s Superfund reauthorization proposal, was
introduced (by request) by Senators Baucus and Lautenberg, on
February 7, 1994. The bill was jointly referred to the Committee
on Environment and Public Works and the Committee on Finance for
matters under their respective committee jurisdiction. S. 1834,
as introduced, would extend the four present-law Superfund excise
taxes through December 31, 2000, and would make conforming
amendments to the Superfund Trust Fund expenditure purposes to
allow financing of the revised Superfund program.

S. 1834 was ordered favorably reported, with amendments, by
the Senate Committee on Environment and Public Works on August 3,
1994, and the report was filed on August 19, 1994 (S. Rept. 103-
349). The Committee on Environment and Public Works did not
amend Title IX ("Taxes") of the bill.

On May 20, 1994, the Administration separately submitted a
proposal for the imposition of two new insurance-related "fees"
(drafted as excise taxes imposed and collected under the Internal
Revenue Code). On August 17, 1994, the Administration submitted
to the House Committee on Ways and Means a substitute proposal
for funding a proposed Environmental Insurance Resolution Fund.
The substitute proposal would impose two new excise taxes and a
special assessment (also imposed as an excise tax under the
Internal Revenue Code) on persons issuing or bearing risks under
certain insurance policies. A second special assessment was
substituted for a portion of the excise taxes on reinsurers by
the House Committee on Ways and Means in its amendment to Title
IX of H.R. 3800 as approved on August 19, 1994. (See H. Rept.
103-582, Part 3, August 26, 1994.) The Administration intends
that these new excise taxes and special assessments be
incorporated in Title IX of S. 1834 as the financing source for
the new Environmental Insurance Resolution Fund program.



13

the policy was simultaneously entitled to the maximum recovery
allowed under the policy. The maximum limit of liability under a
policy would not be reduced by (1) any amount for deductibles and
self-insured retentions, or (2) the amount of any reinsurance.

All persons having control, receipt, custody, disposal, or
payment of any premium or other amount under the policy subject
to the tax would be personally liable for withholding and
remitting the tax to the Treasury Department.

Foreign persons could elect to be subject to the
retrospective tax in the same manner as an assessable person (see
discussion above), instead of the alternative foreign excise tax.
Electing parties generally would be required to enter into a
closing agreement with the Treasury Department to ensure proper
computation and payment of the retrospective tax and the
assessments imposed on insurers and reinsurers. '

Prospective tax

In general, the prospective tax would be imposed on the
direct premiums written after December 31, 1994, in excess of an
annual exemption amount, with respect to certain commercial
insurance policies that cover hazards, risks, losses, or
liabilities within the United States. The tax rate would be 0.33
percent during the period January 1, 1995 through December 31,
1998, and 0.63 percent thereafter. The determination of direct
premiums written for a year generally would be based on the
exhibit of premiums and losses of the annual statement for that
year. The exemption amount generally would be $5 million per
year. However, certain related parties would be entitled to only
one exemption amount, which would be allocated among them.

The lines of business identified in the 1993 form of the
annual statement approved by the National Association of
Insurance Commissioners ("NAIC") that would be subject to tax
under the Administration proposal are: fire, allied lines,
farmowners multiple peril, commercial multiple peril, ocean
marine, inland marine, financial guaranty, products liability,
other liability, commercial auto no-fault, other commercial auto
liability, commercial auto physical damage, aircraft, fidelity,

16 The House Committee on Ways and Means adopted a special

rule applicable to certain foreign persons that had no adjusted
base-period commercial premiums. Under this rule, a foreign
person generally would not be required to enter into a closing
agreement (and would not be subject to the retrospective tax or
the alternative foreign excise tax) if such person filed a
statement certifying to the Treasury under penalties of perjury
that it had no adjusted base-period commercial premiums.
Adoption of this rule has been endorsed by the Administration.



15

one or more resolution payments to an eligible party (e.g., a
potentially responsible party) during any of the four calendar
years preceding the year in which the assessment is imposed.

The EIRF would be required to identify to each insurer its
assessable direct policies for each year, and to permit the
insurer to identify which, if any, of those policies was
reinsured. The coverage limit of any assessable direct policy
would be reduced by 80 percent of the amount of any
reinsurance."® This reduction also would be reflected in the
aggregate limits on all assessable direct policies for purposes
of determining the EIRF-certified percentage.

t on rei: rers

The assessment on reinsurers would be determined by
multiplying each reinsurer's annually-determined "EIRF-certified
percentage” by $167 million. The EIRF-certified percentage for
each reinsurer would be determined by dividing the coverage
limits on all assessable reinsurance policies of that reinsurer
by the aggregate coverage limits on all such policies of all
reinsurers.

An assessable reinsurance policy would be any reinsurance
policy issued by an assessable person and identified by an
insurer as reinsuring an assessable direct policy. As with
assessable direct policies, the EIRF would be required to
identify to each reinsurer its assessable reinsurance policies
for each year, and to afford the reinsurer an opportunity to
contest whether the policy was reinsured and to identify which,
if any, of those contracts was the subject of further
reinsurance. An 80-percent deduction for reinsurance similar to
that provided under the assessment on direct insurers would be
provided.

Administrative matters: judicial review

The EIRF would be required to determine the EIRF-certified
percentages and to report them to the Treasury Department no
later than August 1 of each calendar year in which the
assessments were imposed. The Treasury Department then would be
required to notify insurers of the amount of their assessments,
which would be payable no later than September 30 of each year.

Consistent with the provisions of Title VIII of S. 1834, the
determinations made by the EIRF of EIRF-certified percentages
would not be subject to judicial review. Similarly, the final

8 This reduction would not be allowed if the reinsurer and
the reinsured were members of the same controlled or commonly
managed group.



INTRODUCTION

This document,’ prepared by the staff of the Joint Committee
on Taxation, provides a description of the revenue provisions of
S. 1834 (Title IX of the "Superfund Reform Act of 1994"), which
are scheduled for a public hearing before the Senate Committee on
Finance on September 14, 1994. S. 1834 contains the
Administration's Superfund reauthorization proposal. The
Administration also separately submitted a proposal on May 20,
1994, and modifications thereto on August 17, 1994, to provide
revenues for a proposed "Environmental Insurance Resolution
Fund." That proposal was subsequently ordered reported on August
19, 1994, by the House Committee on Ways and Means (with further
modifications) to be incorporated into H.R. 3800 (See H. Rept.
103-582, Part 3, August 26, 1994). The Administration's
Environmental Insurance Resolution Fund revenue proposal is
intended to be incorporated into Title IX of S. 1834.

Part I of the document is the legislative background of S.
1834. Part II is a summary of present-law Superfund tax
provisions and the Administration's proposed Superfund revenue
provisions. Part III is a description of the Administration's
proposed Superfund tax extensions and the Environmental Insurance
Resolution Fund and accompanying revenue provisions, which are
the same as the provisions reported by the House Committee on
Ways and Means as an amendment to be incorporated into H.R. 3800.
(Appendix A shows the excise tax rates on certain chemicals
currently subject to the Superfund tax, and Appendix B lists the
taxable substances currently subject to the excise tax on
imported chemicals.)

1 This document may be cited as follows: Joint Committee

on Taxation, Revenue-Rela Provisi: 4 uperfund

Reform Act of 1994), (JCX-18-94), September 13, 1994.



INTRODUCTION . . 2 6 ee eee ee ee ee ee ee ee
I. LEGISLATIVE BACKGROUND. . ... - +--+ ee ee eee
II. SUMMARY . 2. 2. 1 1 1 ee ee ee ee ee ee ee

A. Extension of Current Superfund Taxes and Trust
Fund 2... 1 ee ee ee ee ee ee ee

B. Proposed Environmental Insurance Resolution
Fund and Excise Taxes .......-+-.-+-+e-s

c. Tax Exemption for Environmental Insurance
Resolution Fund ........--+-4++-+-+2-s

III. DESCRIPTION OF PROPOSED REVENUE PROVISIONS ... .-

A. Extension of Current Superfund Taxes
and Trust Fund... .... 4-2 ee ee eee

B. Proposed Environmental Insurance Resolution
Trust Fund and Excise Taxes ......-+---

Cc. Tax Exemption for Environmental Insurance
Resolution Fund ...... eee ee ee eee

APPENDICES . 2. 2. eee ee ee ee ee eee ee ee

Appendix A. Excise Tax Rates on Certain Chemicals
for the Hazardous Substance Superfund .

Appendix B. List of Taxable Substances Subject
to the Excise Tax on Certain Imported
(Chemical) Substances ........-



11

For calendar years 1995 through 1998, the annual funding
rate applicable to direct insurers would be 0.22 percent and the
annual funding rate applicable to reinsurers would be 0.83
percent. For calendar years after 1998, the annual funding rate
applicable to reinsurers would decrease to 0.14 percent and the
tax applicable to direct insurers would expire.

Asse. 1 9:

An assessable person would be defined as any person that has
"commercial net premiums" (as defined below), and that is either
(1) a United States person," or (2) any other person that (a) is
engaged in a trade or business within the United States during
the calendar year; (b) has taxable income effectively connected
with such trade or business; and (c) is not exempt from net basis
U.S. income tax under a treaty. For example, an assessable
person would include a resident of a treaty country that has a
permanent establishment in the United States.

A te se-peri comm ial _premi:

An assessable person's adjusted base-period commercial
direct premiums would be defined as the excess of the total
commercial net premiums for direct insurance written by the
person {or -by certain predecessors in interest) during the base
period, over an allocable portion of the exemption amount. '%
Adjusted base-period commercial reinsurance premiums would be the
excess of the total commercial net premiums written for
reinsurance by the assessable person during the base period, over
an allocable portion of the exemption amount. These
determinations would be made after the commercial net premiums
from each base-period year were indexed for inflation and
restated in 1985 dollars.

"Commercial net premiums" would mean the aggregate of the
net premiums written from any qualified commercial policy
providing insurance or allocated reinsurance," and 21 percent of

"See footnote 8 above.

% For insurers with both direct insurance and reinsurance
premiums during the base period, the exemption amount is
allocated between direct insurance and reinsurance based upon the
proportion that the inflation-adjusted commercial net premiums
for each bear to the total of such premiums.

3 Allocated reinsurance is any reinsurance for which the
net premiums written were reported on the underwriting and
investment exhibit of the annual statement (or would have been
reported had an annual statement been filed) as relating toa
specific line of business.



14

surety, glass, burglary and theft, and boiler and machinery."
Thus, as shown on the exhibit of premiums and losses on the 1993
NAIC annual statement form, lines of business that would not be
subject to the prospective tax are: multiple peril crop,
homeowners multiple peril, mortgage guaranty, medical
malpractice, earthquake, accident and health, workers'
compensation, private passenger auto no-fault, other private
passenger auto liability, private passenger auto physical damage,
and credit.

Premiums written for directors and officers liability
insurance, professional liability insurance, and fire insurance
on residential or farm owner-occupied housing units would not be
subject to the prospective tax, even though those premiums are
required to be reported on the annual statement as relating to a
listed line of business.

sessments on direct insurers and nsurer:

Beginning on January 1, 1999, a portion of the EIRF's
revenues would be raised by assessments imposed on direct
insurers and reinsurers. The assessments would be imposed by
reference to EIRF awards paid with respect to policies issued
during prescribed prior periods by the insurer (or certain
predecessors in interest). Each direct insurer's or reinsurer's
assessment would be determined annually. These assessments would
be imposed as excise taxes under the Internal Revenue Code.

Assessment on direct insurers

The assessment on direct insurers would be determined by
multiplying an insurer's annually-determined "EIRF-certified
percentage" by $81 million. The EIRF-certified percentage of
each insurer would be determined by dividing the coverage limits
on all assessable direct policies of that insurer by the
aggregate coverage limits of all such policies of all direct
insurers. Generally, the coverage limit of an assessable direct
policy would be the aggregate limit on coverage under the policy.

An assessable direct policy would be an insurance contract
(1) that has been presented to the EIRF in connection with a
claim for an award, (2) that the EIRF has determined to be a
valid contract, and (3) with respect to which the EIRF has made

7 These lines of business and those listed in the
following sentence are based on the 1993 form of the annual
statement as approved by the NAIC. The Treasury Department would
be granted authority to designate additional lines of direct
insurance business, on a prospective basis, to be subject to the
tax in order to preserve the inclusion of premiums for types of
insurance coverage intended to be subject to the prospective tax.