Acetic Acid, Formic Acid, And Paraformaldehyde Added To List Of Taxable Toxic Substances.

The Service has announced that acetic acid, formic acid, and paraformaldehyde have been added to the list of taxable substances in section 4672(a)(3). This determination is effective July 1, 1990.

The Service stated in Notice 94-7 that the rate of tax prescribed for acetic acid under section 4671(b)(3) is $1.27 per ton; the rate for formic acid is $1.89 per ton; and the rate for paraformaldehyde is $2.31 per ton.

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This notice announces a determination, under Notice 89-61, 1989- 1 C.B. 717, that the list of taxable substances in section 4672(a)(3) of the Internal Revenue Code will be modified to include acetic acid, formic acid, and paraformaldehyde. This modification is effective July 1, 1990.

BACKGROUND

Under section 4672(a), an importer or exporter of any substance may request that the Secretary determine whether the substance should be listed as a taxable substance. The Secretary shall add the substance to the list of taxable substances in section 4672(a)(3) if the Secretary determines that taxable chemicals constitute more than 50 percent of the weight, or more than 50 percent of the value, of the materials used to produce the substance. This determination is to be made on the basis of the predominant method of production. Notice 8961 sets forth the rules relating to the determination process.

DETERMINATION

On December 13, 1993, the Secretary determined that acetic acid, formic acid, and paraformaldehyde should be added to the list of taxable substances in section 4672(a)(3), effective July 1, 1990.

The rate of tax prescribed for acetic acid under section 4671(b)(3), is $1.27 per ton. This is based upon a conversion factor for methane of 0.3709.

The rate of tax prescribed for formic acid under section 4671(b)(3), is $1.89 per ton. This is based upon a conversion factor for butane of 0.3900.

The rate of tax prescribed for paraformaldehyde under section 4671(b)(3), is $2.31 per ton. This is based upon a conversion factor for methane of 0.6716.

The petitioner is Hoechst Celanese, a manufacturer and exporter of these substances. No material comments were received on these petitions. The following information is the basis for the determinations.

ACETIC ACID

HTS number: 2915.21.00.00

Acetic acid is derived from the taxable chemical methane. Acetic acid is a liquid produced predominantly by methanol carbonylation. Carbon monoxide and methanol are produced from methane.

The stoichiometric material consumption formula for acetic acid is:

2 CH4 (methane) + 2 H2O (water) -----> C2H4O4 (acetic acid) +

Acetic acid has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 96.7 percent by value of the materials used in its production. The stated cost for methane is $0.0386 per pound and the stated cost for steam is $0.0023 per pound.

FORMIC ACID

HTS number: 2915.11.00.00

Formic acid is derived from the taxable chemical butane. Formic acid is a liquid produced predominantly as a co-product in the liquid phase oxidation of butane.

The stoichiometric material consumption formula for formic acid is:

C4H10 (butane) + 2.5O2, (oxygen) -----> CH2O2 (formic acid) =

Formic acid has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 98 percent by value of the materials used in its production. The stated cost for butane is $0.0543 per pound and the stated cost for oxygen is $0.0019 per pound

PARAFORMALDEHYDE

HTS number: 2912.60.00.00

Paraformaldehyde is derived from the taxable chemical methane. Paraformaldehyde is a solid produced predominantly from aqueous formaldehyde. Formaldehyde is produced by catalytic vapor phase oxidation of methanol. Methanol is produced from methane.

The stoichiometric material consumption formula for paraformaldehyde is:

10 CH4 (methane) + 5O, (oxygen) + H2O (water) -----> 10 H2 (hydrogen)

Paraformaldehyde has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 94.6 percent by value of the materials used in its production. The stated cost for methane is $0.0386 per pound, the stated cost for water (steam) is $0.0023 per pound, and the stated cost for oxygen is $0.0019 per pound.

The principal author of this notice is Tyrone J. Montague of the Office of Assistant Chief Counsel Passthroughs and Special Industries). For further information regarding this notice contact Tyrone J. Montague on (202) 622-3130 (not a toll-free call).