12

term "maximum limit of liability" would mean the total amount for
which the foreign reinsurer would be liable if each person insured
under an insurance policy which was, directly or indirectly,
reinsured by the reinsurance policy were simultaneously entitled to
the maximum recovery allowed under the reinsurance policy. The
taxable amount would not be reduced by any amount paid in
connection with the reinsurance of the foreign insurer's risks."

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 would be required to enter into a closing agreement with
the Treasury Department to ensure proper computation and payment of
the retrospective tax. Any closing agreement would continue to be
effective unless revoked with the consent of the Treasury.

Prospective tax

The prospective tax would be imposed on direct premiums for
certain commercial insurance contracts issued after the date of
enactment. The tax imposed would equal the direct premiums written
under the policy (as reported on the annual statement) multiplied
by an "applicable funding rate". In general, the tax would be
imposed on the person issuing the policy and would be due and
payable by the 14th day following the month in which the premium is
included in direct premiums written."

The prospective tax generally would apply to any insurance
policy that (1) covers hazards, risks, losses, or liabilities
within the United States and (2) the premiums for which are
required to be reported in the annual statement as relating to the
"commercial multiple peril", "fire", "product liability", or "other
liability" lines of business.

“ However, the alternative foreign excise tax would not be imposed on a

policy of reinsurance of a risk with respect to which the tax had been paid by
or on behalf of the reinsured foreign person.

SoA special withholding rule would apply to policies issued by a foreign

person unless the income from the premiums paid for such policies was effectively
connected with a U.S. trade or business and was not exempt from U.S. income tax
under a treaty. Under this special rule, the tax would be required to be
withheld and remitted to the Treasury Department by any person that had control,
receipt, custody, disposal, or payment of any premium or other amount under such
policy. A person that failed properly to withhold and remit the tax would be
personally liable for the tax.

'S The prospective fee would not apply to any policy relating to the "product
liability" line of business or "other liability" line of business that either (1)
does not provide any commercial coverage, or (2) does not provide any
comprehensive general liability coverage or any environmental liability coverage.



3
II. SUMMARY
A. 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;

(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; 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.

The Administration has proposed extending these taxes through
December 31, 2000. The Administration proposal is included in
Title IX of H.R. 3800. 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 Taxes

H.R. 3800 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 equal to a statutory percentage of
cleanup costs for which they are liable. In exchange, claims
against insurance companies would be extinguished.

The new Environmental Insurance Resolution Fund proposal to be
created under the bill would be financed by two new excise taxes on
insurance companies. The taxes were proposed in a separate
transmittal from the Administration to the House Committee on Ways
and Means and the Senate Committee on Finance on May 20, 1994.
These taxes are (1) a retrospective excise tax, to raise
approximately 70 percent of projected revenues, and to be
calculated by reference to net premiums from certain commercial



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

Taxable substance

Taxable substance

ti

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



8
B. Proposed Environmental Insurance Fund and Taxes

1. Commercial Liability Insurance 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-issued 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).

ind ati P. osal
vi ental by OL

H.R. 3800 would establish a new Environmental Insurance
Resolution Fund ("EIRF") to resolve disputes about insurance
coverage related to clean up of superfund sites. EIRF awards would
consist of statutorily prescribed percentages of cleanup costs for
which potentially responsible parties are liable. The percentages
would vary from 20 percent to 60 percent, depending on the State in
which the sites are located, and litigation experience in the
State.

Potentially responsible parties electing to receive payments
from the EIRF would waive 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 all sites with
respect to which they were potentially liable to the EIRF
procedures.

The EIRF would be established as a new, tax-exempt
organization,* whose members would be appointed by the President.

The EIRF would be funded with two new excise taxes‘ imposed
with respect to commercial liability insurance, as described below.
The gross revenues from these excise taxes would be deposited in
the Treasury in a new account established for this purpose.
Liability of the Federal Government under the program would be
limited to the amount deposited in the new EIRF account. The EIRF
would not be authorized to borrow from the Treasury.

* See discussion of Federal tax exemption in Item B.2., below.

6 The Administration proposal denominates these excise taxes as fees;
however, they are to be imposed and collected under the Internal Revenue Code in
the same manner as other current Federal excise taxes.



III. DESCRIPTION OF REVENUE PROVISIONS OF H.R. 3800

A. Extension of Current Superfund Taxes and Trust Fund
(secs. 59A, 4611, 4661, 4671, and 9507 of the Code)

Present Law

Four different Superfund taxes are imposed under the 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 ("Superfund"). Amounts in the Superfund are
generally available for expenditures incurred in connection with
releases or threats of releases of hazardous substances into the
environment as described in paragraphs (1), (2), (5), and (6) of
section 111(a), section 111(c) (other than paragraphs (1) and (2)),

2 Modified alternative minimum taxable income is an individual’s

alternative minimum taxable income, but determined without regard to the
alternative tax net operating loss deduction (sec. 56(d))..



4

insurance policies written from 1971 through 1985, and (2) a
prospective excise tax on similar policies written in the future.
The retrospective tax would be collected as a business privilege
tax on persons engaged in a trade or business after enactment of
the bill and that have insurance risk under affected policies.

The new excise taxes would be effective on the date of the
proposal’s enactment, and would expire after five years.



17

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

Continued

Taxable substance

Taxable substance

dit:

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

Li }

Methyl isobutyl ketone

Monochlorobenzene

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.



7

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 H.R. 3800 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.,
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(r) of H.R. 3800) .4

“ Under the 1990 Budget Act, new direct spending is "Pay Go" (Pay As You

Go) spending and is separate from spending subject to the annual discretionary
spending caps. New direct spending may be offset by new revenues.

The Budget Act assumes, for purposes of determining the baseline of
Federal receipts, that the Superfund excise taxes are permanent, notwithstanding
their 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, 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 H.R. 3800
(SUPERFUND REFORM ACT OF 1994)

Scheduled for a Hearing
by the
HOUSE COMMITTEE ON WAYS AND MEANS
on July 25, 1994

Prepared by the Staff
of the
JOINT COMMITTEE ON TAXATION
July 22, 1994

JCX-9-94



10

calendar year. Installments would be due by the last day of each
month.

Assessable person

An assessable person would be defined as any person that has
adjusted base-period commercial premiums, and that is either (1) a
U.S. person, or (2) any other person engaged in a trade or business
within the United States during the relevant calendar year, and
whose income is effectively connected with such trade or business
and is not exempt from 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.
Any foreign person that is an assessable person would be subject to
the retrospective tax in the same manner as a U.S. person.

Adjusted base-period commercial premiums

An assessable person's adjusted base-period commercial
premiums would be the excess of the total "commercial net premiums"
written by the person (or certain predecessors in interest) during
the base period (i.e., the period from the beginning of 1971 to the
end of 1985), over an exemption amount of $50 million.’ The
commercial net premiums from each base-period year would be indexed
for inflation and restated in 1985 dollars.

"Commercial net premiums" would mean the net premiums from any
qualified commercial policy providing insurance or allocated
reinsurance, and a share of the net premiums written from
unallocated reinsurance (as discussed below). 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 required to be
reported in the annual statement as relating to the "commercial
multiple peril", or the "other liability" lines of business.” For
purposes of the Administration proposal, the annual statement would
mean the National Association of Insurance Commissioners annual
statement filed for State insurance regulatory purposes that

For purposes of applying the exemption amount, all persons treated as a
single employer under either section 52(a) or section 52(b) of the Code would be
treated as one person. In such a case, the exemption amount would be allocated
among such persons in proportion to their respective total inflation-adjusted
commercial premiums during the base period.

oA qualified commercial policy, however, would 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.



9

Under the Administration proposal, the EIRF and the new excise
taxes would terminate unless minimum participation standards were
achieved. Insurers would be required to submit 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.
Each party identified would have 60 days from the date of enactment
to file a request with the EIRF for its applicable reimbursement
percentage. The EIRF would be required to respond to such requests
within 90 days from the date of enactment. Parties would then be
required to accept or reject the applicable reimbursement
percentage within 135 days of date of enactment. If more than 15
percent of all eligible potentially responsible parties rejected
their applicable reimbursement percentages (as submitted to them by
the EIRF), the EIRF and the imposition of the excise taxes would
terminate, and any excise taxes previously collected (less any
administrative expenses) would be refunded.

EIRF excise taxes
In_general

In a separate proposal,’ the Administration has proposed to
impose two new excise taxes with respect to certain commercial
liability insurance, a retrospective tax and a prospective tax.?
The retrospective tax would be imposed on any "assessable person"
engaged in any trade or business (whether or not related to the
current issuance of insurance) during the calendar year. The
retrospective tax would be based on the net premiums written for
certain commercial liability insurance policies covering U.S. risks
issued by the assessable person during the period from 1971 to
1985. The prospective tax would be imposed on direct premiums with
respect to certain commercial liability insurance policies issued
after the date of enactment. The rates of the two taxes would be
set to raise revenues of $3.1 billion over five years, 70 percent
of which would be raised by the retrospective tax and 30 percent of
which would be raised by the prospective tax.

Retrospective tax

In general, the tax would be determined by applying a
statutory "applicable funding rate" for the calendar year to the
assessable person's "adjusted base-period commercial premiums". In
general, the retrospective tax would be imposed on a calendar-year
basis and would be payable in equal monthly installments during the

7 See transmittal letter from Secretary of the Treasury Lloyd Bentsen to

the Committee on Ways and Means, dated May 20, 1994.

* The Administration proposal denominates these taxes as the "fee on

persons with potential base period exposure" and the "fee on current year
premiums," respectively.



6

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
subject to the discretionary spending caps 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.?

Admin Pr

Superfund taxes

In general, the Administration proposal (H.R. 3800) 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 exceeded $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 to be
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 has been credited into the Superfund before
January 1, 2001.

Super: U:
In provisions outside the jurisdiction of the Committee on

Ways and Means, the Administration proposal (H.R. 3800) would amend
the current "joint and several" liability standards for potentially

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

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



2
I. LEGISLATIVE BACKGROUND

H.R. 3800 (the "Superfund Reform Act of 1994"), the
Administration’s Superfund reauthorization proposal, was introduced
(by request) by Messrs. Swift, Dingell, Mineta, Rostenkowski, and
Applegate on February 3, 1994. Titles I-VIII of the bill were
veferred jointly to the Committee on Energy and Commerce and the
Committee on Public Works and Transportation. Title Ix ("Taxes")
was referred to the Committee on Ways and Means.

H.R. 3800 was ordered favorably reported, with an amendment,
by the House Committee on Energy and Commerce on May 18, 1994, and
the report was filed on June 30, 1994 (H. Rept. 103-582, Part I).
The Committee on Energy and Commerce did not amend Title Ix
("Taxes") of the bill. The Subcommittee on Water Resources and
Environment of the House Committee on Public Works and
Transportation held public hearings on H.R. 3800 on July 12 and 14,
1994.

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--hereinafter, referred to as excise taxes) on persons
issuing or bearing risks under certain commercial, multiperil
insurance policies. These new excise taxes are intended to be
incorporated in Title IX of H.R. 3800 as the financing source for
a new environmental insurance resolution program created by the
bill.



13

The determination of the direct premiums written for a year
generally would be based on the annual statement filed for that
year.

Applicable funding rates

The applicable funding rate for the retrospective tax would be
-20 percent for the first 24 months of the taxable period.” The
applicable funding rate for the retrospective tax would be
increased to .27 percent for the last 36 months of the taxable
period. A blended rate would apply in any calendar year in which
the rate changes.

The applicable funding rate for the prospective tax would be
-34 percent for policies issued in the first two years following
the date of enactment. For policies issued after the first two
years following the date of enactment, the applicable funding rate
would be increased to .44 percent.

After 1994 and before 1999, the Treasury would be required to
estimate on an annual basis the total amount of taxes to be
collected {including those taxes already collected) under the
proposal. If these estimates projected that the taxes to be
collected would differ by more than a de minimis amount from the
revenue target for either tax (i.e., $2.17 billion for the
retrospective tax, including tax revenues from the alternative
foreign excise tax, and $930 million for the prospective tax), the
Treasury would be required to prescribe a new applicable funding
rate to apply to calendar years beginning after the date of the
estimate.” The new rate would be established in a manner so that
the total amount estimated to be collected from the relevant tax
for all periods would equal the revenue target.

The Treasury would be permitted to reduce the revenue targets
if it determined that reduced target amounts would meet the
anticipated obligations of the EIRF. However, the revenue target
for the retrospective tax (including the alternative foreign excise
tax) could not be reduced below $1.75 billion and the revenue
target for the prospective tax could not be reduced below $750
million. Any reduction in the revenue target would be required to
be made such that the Treasury estimates that the retrospective tax
(including the alternative foreign excise tax) would account for 70
percent of the total taxes to be raised under the proposal and the
prospective tax would account for the remaining 30 percent.

‘The taxable period would be the first 60 full calendar months following

the date of enactment.

‘° The rate applicable to the alternative foreign excise tax could also be

adjusted, as the Treasury Department deemed necessary.



15
APPENDICES

Appendix A.--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
Zinc sulfate 1.90
Potassium hydroxide , 0.22
Sodium hydroxide 0.28
Sulfuric acid 0.26

Nitric acid 0.24



INTRODUCTION

This document,' prepared by the staff of the Joint Committee
on Taxation, provides a description of the revenue provisions of
H.R. 3800 (Title IX of the "Superfund Reform Act of 1994"), which
are scheduled for a public hearing before the House Committee on
Ways and Means on July 25, 1994. H.R. 3800 contains the
Administration’s Superfund reauthorization proposals. The
Administration also separately submitted a proposal on May 20,
1994, to provide revenues for its proposed "Environmental Insurance
Resolution Fund." This proposal is intended to be incorporated in
Title IX of H.R. 3800.

Part I of the document is the legislative background of H.R.
3800. Part II is a summary of present-law Superfund tax provisions
and the revenue provisions of the bill (Title IX). Part III isa
description of the bill’s proposed Superfund tax extensions and the
Administration’s proposed Environmental Insurance Resolution Fund
and excise taxes to finance this new Fund. (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.)

‘This document may be cited as follows: Joint Committee on Taxation,
A 4

= Provision: -R._ 3800 ex:
(JCX-9-94), July 22, 1994.



Page
INTRODUCTION... 2... . . ee 1
I. LEGISLATIVE BACKGROUND ............. 2
II. SUMMARY... ...............2.. . 3
A. Current Superfund Taxes and Trust Fund... 3
B. Proposed Environmental Insurance Resolution
Fund and Taxes . 2... . oe. 3
III. DESCRIPTION OF REVENUE PROVISIONS OF H.R. 3800 . 5
A. Extension of Current Superfund Taxes
and Trust Fund... ........... 5
B. Proposed Environmental Insurance Resolution
Fund and Taxes... .........0.. 8
APPENDICES... 1... eee ee ee ee ee 15
Appendix A. Excise Tax Rates on Certain Chemicals
for the Hazardous Substance
Superfund ............. 15

Appendix B. List of Taxable Substances Subject
to the Excise Tax on Certain Imported
(Chemical) Substances ....... 16



il

reports and identifies the relevant premiums in the most specific
manner. !!

rmi- n ba wri n

In general, the determination of the net premiums written for
a year would be based on the annual statement for that year. A
special rule, however, would apply to determine the net premiums
written from certain "unallocated reinsurance" relating to the
"commercial multiple peril" and the “other liability" lines of
business.’ Under the special rule, the net premiums written in a
base-period year with respect to unallocated reinsurance would be
the total amount of premiums reported in the annual statement
relating to the reinsurance line of business, multiplied by a
“commercial reinsurance share" of 21 percent.”

Treatment of foreign insurers

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, (herein referred to
as the "alternative foreign excise tax"). The alternative foreign
excise tax would be imposed on each policy issued after the date of
enactment. The 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, and would be withheld and remitted to the
Treasury Department by any person that had control, receipt,
custody, disposal, or payment of any premium or other amount under
such policy. A person that failed properly to withhold and remit
the alternative foreign excise tax would be personally liable for
the tax.

Under the proposal, a policy would be subject to the
alternative foreign excise tax if it is a policy of casualty
insurance or reinsurance covering hazards, risks, losses, or
liabilities within the United States. "Maximum limit of liability"
would be defined, for insurance policies, as the total amount for
which the foreign insurer would be liable if each person insured
under the policy were. simultaneously entitled to the maximum
recovery allowed under the policy. For reinsurance policies, the

The relevant premium information is reported in the underwriting and

investment exhibit of the annual statement.

% The special rule would be necessary because, during the base period

(1971-1985), 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.

3 the commercial reinsurance share could be adjusted by the Treasury, as

necessary, to reflect the proper amount allocable to reinsurance of qualified
commercial policies.



14
Effective Date

The retrospective tax (including the alternative foreign
excise tax) would be effective after the date of enactment and
would continue in effect until the date immediately following
completion of the 60th full calendar month following the date of
enactment . The prospective tax would apply to direct premiums
written for commercial insurance contracts issued after the date of
enactment and before the date that is five years after the date of
enactment. As noted above, however, these excise taxes would
terminate if at least an 85 percent participation rate in the EIRF
were not attained within 135 days after the date of enactment.

2. 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(1)).

Administration Proposal

The Administration proposal (H.R. 3800) would provide an
exemption from Federal income tax to the Environmental Insurance
Resolution Fund under section 501(1) of the Code.

Effective Date

The proposal would be effective after the date of enactment.