Par. 2. Section 52.4661-1 is added to read as follows:
(a) In general. Section 4661(a) of the Internal Revenue Code (Code) imposes an excise tax on any taxable chemical sold or used by the manufacturer, producer, or importer of the taxable chemical. See sections 4661(a)(1) and 4662(c)(1) of the Code.
(b) Person liable for tax. The manufacturer, producer, or importer of a taxable chemical is liable for the section 4661 tax.
(c) Attachment of tax —(1) In general. The section 4661 tax attaches when the manufacturer, producer, or importer of a taxable chemical first sells or uses the taxable chemical. No section 4661 tax attaches when the manufacturer, producer, or importer of a chemical mixture (as defined in § 52.4662-1(c)(1)) containing one or more tax-paid chemicals (as defined in § 52.4662-1(c)(12)), or a subsequent purchaser of such chemical mixture, dilutes the chemical mixture with a solvent to change the concentration of the tax-paid chemical or chemicals in the chemical mixture, provided the solvent is not a taxable chemical.
(2) Foreign manufacturers. No section 4661 tax attaches to a foreign manufacturer's sale of a substance listed in the table under section 4661(b) to an importer because the substance is not a taxable chemical at the time of sale. See section 4662(a)(1). Instead, the section 4661 tax attaches to the importer's first sale or use of the taxable chemical.
(3) Taxable chemical that is part of an imported chemical mixture. In the case of a taxable chemical that is part of an imported chemical mixture that is not a taxable substance (as defined in section 4672(a) and § 52.4672-1(b)(8)), the section 4661 tax attaches to the importer's first sale or use of the chemical mixture.
(4) Ores —(i) In general. In the case of a taxable chemical that is derived from an ore, neither the mining of the ore nor the extraction of the taxable chemical from the ore is a taxable event. Instead, the section 4661 tax attaches to the first sale or use of the taxable chemical by the manufacturer, producer, or importer after extraction of the taxable chemical from the ore, and the person that extracts the taxable chemical from the ore is the manufacturer of the taxable chemical. For purposes of this paragraph (c)(4)(i), the term extraction of a taxable chemical from the ore means the first process that a person uses in the United States to separate the taxable chemical from the ore. See paragraph (c)(4)(ii) of this section for the special rule regarding chromite.
(ii) Chromite. The mining of chromite, which is an ore, is not a taxable event. Instead, tax attaches to the first sale or use of chromite by the manufacturer, producer, or importer after the chromite is mined. For domestically-mined chromite, the person that mines the chromite is the manufacturer.
(d) Procedural rules. Part 40 of this chapter provides rules related to filing excise tax returns, making semimonthly deposits of excise tax, making payments of excise tax, and other procedural rules. See §§ 52.0-1 and 40.0-1(a) of this chapter. Each business unit that has, or is required to have, a separate employer identification number is treated as a separate person for purposes of filing excise tax returns, making semimonthly deposits of excise tax, making payments of excise tax, and the registration requirements under section 4662(b)(10)(C) and (c)(2)(B). See § 40.0-1(d) of this chapter.
(e) Amount of tax. The section 4661 tax is imposed as a rate per ton of taxable chemical sold or used by the manufacturer, producer, or importer. See section 4661(b) for the rate of tax per ton of each taxable chemical.
(f) Calculation of tax —(1) Overview. The section 4661 tax is calculated by multiplying the number of tons of the taxable chemical sold or used by the manufacturer, producer, or importer by the tax rate applicable to the taxable chemical under section 4661(b). In the case of a fraction of a ton, the tax is calculated by adding the number of whole tons (if any) and the number of fractional tons of the taxable chemical, and then multiplying the sum of those numbers by the tax rate applicable to the taxable chemical. See section 4662(a)(5).
(2) Determination of weight —(i) In general. The weight of a taxable chemical is the actual weight of the taxable chemical at the time of sale or use by the manufacturer, producer, or importer, measured in tons.
(ii) Imported chemical mixtures. In the case of a taxable chemical that is part of an imported chemical mixture that is not a taxable substance, the section 4661 tax is imposed on the actual weight of each taxable chemical in the chemical mixture at the time of sale or use of the chemical mixture by the importer. If there are multiple taxable chemicals in the chemical mixture, the amount of tax is calculated separately for each taxable chemical in the chemical mixture.
(iii) Conversion required for volumetric measurements. Any volumetric measurement of a taxable chemical must be converted to a weight measurement. To calculate the weight (in pounds) of a taxable chemical from a volumetric measurement (in cubic feet), the volume of the taxable chemical (in cubic feet) is multiplied by the density of the taxable chemical (in pounds per cubic foot). To convert a volumetric measurement to a weight measurement for purposes of the section 4661 tax, the pressure and temperature used to determine density must be the same as the pressure and temperature used to determine volume.
(g) Examples. The following examples illustrate the rules of this section.
(1) Example 1. X, a foreign manufacturer of potassium hydroxide, sells 10 tons of potassium hydroxide to Y, a domestic corporation. Y enters the 10 tons of potassium hydroxide into the United States for consumption, use, or warehousing, and then sells it to Z, a domestic corporation. Under these facts, Y is the importer of the potassium hydroxide. The section 4661 tax attaches when Y sells the potassium hydroxide to Z. Y is liable for the section 4661 tax. The section 4661 tax is calculated by multiplying 10 tons (the weight of the potassium hydroxide) by $0.44 (the rate of tax per ton of potassium hydroxide). The amount of section 4661 tax is $4.40.
(2) Example 2. X, a foreign corporation, sells nickel ore to Y, a domestic corporation. Y enters the nickel ore into the United States for consumption, use, or warehousing, and then extracts nickel from the ore. Y sells 10 tons of the nickel to Z, a domestic corporation. Z further processes the nickel to remove impurities and then uses the nickel to create an alloy. Under these facts, Y is the manufacturer of the nickel. The section 4661 tax attaches when Y sells the nickel to Z. Y is liable for the section 4661 tax. The section 4661 tax is calculated by multiplying 10 tons (the weight of the nickel) by $8.90 (the rate of tax per ton of nickel). The amount of section 4661 tax is $89.00.
(3) Example 3. X, a domestic producer of chromite, sells 3,500 pounds of chromite to Y, a domestic corporation. The section 4661 tax attaches when X sells the chromite to Y. X is liable for the section 4661 tax. The section 4661 tax is calculated by adding the number of whole and fractional tons of chromite (1 ton + .75 ton = 1.75 tons), and then multiplying 1.75 tons by $3.04 (the rate of tax per ton of chromite). The amount of section 4661 tax is $5.32.
(4) Example 4. X, an importer, enters 1.2 tons of a chemical mixture comprised of 98.3 percent sulfuric acid and 1.7 percent water for consumption, use, or warehousing. X sells the chemical mixture to Y, a domestic corporation. The section 4661 tax attaches when X sells the chemical mixture to Y. X is liable for the section 4661 tax. The section 4661 tax is calculated based on the weight of the sulfuric acid in the chemical mixture (98.3% × 1.2 tons = 1.18 tons), and then multiplying 1.18 tons by $0.52 (the rate of tax per ton of sulfuric acid). The amount of section 4661 tax is $0.61.
(5) Example 5. X, an importer, enters 1.2 tons of a chemical mixture comprised of 98.3 percent sulfuric acid and 1.7 percent water for consumption, use, or warehousing. X sells the chemical mixture to Y, a domestic corporation. Y adds water to the chemical mixture, resulting in a chemical mixture of 93 percent sulfuric acid and 7 percent water, and sells the chemical mixture to Z, a domestic corporation. The section 4661 tax attaches when X sells the chemical mixture to Y. X is liable for the section 4661 tax. The section 4661 tax is calculated based on the weight of the sulfuric acid in the chemical mixture (98.3% × 1.2 tons = 1.18 tons), and then multiplying 1.18 tons by $0.52 (the rate of tax per ton of sulfuric acid). The amount of section 4661 tax is $0.61. No additional section 4661 tax is imposed when Y dilutes the chemical mixture by adding water or when Y sells the diluted chemical mixture to Z.
(h) Cross references —(1) Definitions. For definitions that relate to sections 4661 and 4662, see section 4662(a) and § 52.4662-1.
(2) Exceptions and special rules. For exceptions and special rules applicable to the section 4661 tax, see section 4662(b) and § 52.4662-2.
(3) Inventory exchanges. For special rules related to inventory exchanges, see section 4662(c)(2) and § 52.4662-3.
(4) Credit or refund of tax. For rules related to credits and refunds of the section 4661 tax, see section 4662(d) and § 52.4662-4.
(5) Exports. For rules related to exports, see section 4662(e) and § 52.4662-5.
(i) Applicability date. This section applies to sales or uses in calendar quarters beginning on or after [date of publication of final regulations in the Federal Register ].