TECHNICAL EXPLANATION OF PROPOSED BILL TO PROVIDE FOR A TAX UPON LEAD ADDITIVES USED IN GASOLINE

SECTION 1. SHORT TITLE

Section 1 of the bill provides that it may be cited as the "Clean Air Tax Act of 1970".

SECTION 2. TAX ON LEAD ADDITIVES

Section 2 of the bill adds subchapter F of Chapter 39 of the Internal Revenue Code (relating to regulatory taxes) to provide:

(a) Section 4891 (a) imposes a tax upon the sale of lead additives by the manufacturer, producer, or importer of a lead additive which is, by definition, to be used in the manufacture or production of gasoline. The rate of tax is $4.25 per pound of lead contained in the additive,

(b) Section 4891 (b) imposes a tax upon the lead content of imported gasoline at the rate of $4.25 per pound of lead therein. This provision is to prevent circumvention of the tax imposed on lead additives by importing gasoline containing lead additives for domestic consumption.

(c) Section 4891 (c) imposes a floor stocks tax on inventories of lead additives held, on August 1, 1970, by anyone other than a manufacturer, producer, or importer of lead additives. The rate of tax is $4.25 per pound of lead. This provision is intended to bring the lead additive tax into full effect on August 1, 1970. Since sales of lead additives by a manufacturer, producer, or importer of lead additives will be taxable after July 31, 1970, such persons are not subject to the floor stocks tax. The phrase "importer thereof" is intended to limit exclusion from the coverage of the floor stocks tax to the actual importer who would be taxable upon a subsequent sale under section 4891 (a). The second sentence of (c) (1) excludes the lead content of gasoline inventories held on August 1, 1970, from the floor stocks tax whether held by a refiner, distributor, or dealer. Paragraph (2) provides that the floor stocks tax shall be paid at such time after September 30, 1970, as the Secretary or his delegate may prescribe.

(d) Section 4891(d) provides that the use of a lead additive by a person, who would be taxable upon a sale (manufacturer, producer, or importer of a lead additive) under 4891(a), shall be considered a sale. This provision would protect the revenue when an integrated refiner of gasoline also produces lead additives for use in his refining operations or when the refiner is the importer of lead additives.

(e) Section 4891(e) provides that the tax upon the lead content of imported gasoline shall be collected in the same manner as a tariff duty.

(27)

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(f) Section 4891(f) provides an exemption from the tax imposed y section 4891(a) for lead additives exported.

(g) Section 4891 (g) (1) provides that the term "gasoline" has the same meaning given to such term by section 4082(b). Section 4082(b) defines "gasoline" as "all products commonly or commercially known or sold as gasoline which are suitable for use as a motor fuel." Any future change in the meaning of the term "gasoline" under the manufacturers excise tax provisions would automatically affect the definition for purposes of this subchapter.

(h) Section 4891 (g) (2) defines the term "lead additive" to include any compound containing lead which is used in the production of gasoline. The definition is intended to be broad enough to cover lead additives presently being used (lead tetraethyl) or other additives containing lead which might be developed in the future.

(i) Section 4891 (h) provides a cross reference to general and administrative provisions of the Code.

(j) Section 2 (b) of the bill provides for the refund of the lead additive tax in the case of exportation of such additives upon which a tax has been paid under section 4891. The provision would be operative when there is an exportation subsequent to acquisition in a taxable transaction by a person who is not the original manufacturer or importer of the lead additives.

(k) Section 2(c) of the bill provides the following clerical amendments:

(1) A clerical amendment is made to add Subchapter F to the table of subchapters for chapter 39 (regulatory taxes) of Subtitle D (excise taxes).

(2) A clerical amendment is made to the table of sections for subchapter B of chapter 65 to include section 6428.

SECTION 3. PAYMENTS WITH RESPECT TO USE OF LEAD ADDITIVES

Section 3 of the bill adds section 6429 to subchapter B of Chapter 65 (relating to rules of special application for abatements, credits, and refunds) to provide:

(a) Section 6429 (a) provides for the payment to producers of gasoline an amount equal to $4.25 for each pound of lead used in the production of gasoline, subject to the limitations contained in section 6429(b). The rate of $4.25 is the same as the rate of tax imposed upon the sale of lead additives under section 4891(a).

(b) Section 6429 (b) limits the quantity of lead for which payment under section 6429 (a) is to be made. The number of pounds of lead for which payment would be made is the lesser of the number determined under paragraph (1) or paragraph (2). Paragraph (1) provides that the number of pounds for which payment shall be made shall be the actual pounds of lead used in the twelve month period commencing August 1, 1970, and during each succeeding twelve month period, except that actual usage may not exceed the greater of the actual pounds used in the twelve month period preceding August 1, 1970, or the annual average of the number of pounds used during each of the three years preceding August 1, 1970. Notwithstanding a

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greater actual usage, the pounds of lead for which payment is to be made is limited under paragraph 2 to 1,000,000 pounds during the year ended July 31, 1971, and is decreased 200,000 pounds per year thereafter. during the five year transitional period. No payments are to be made for usage after the twelve month period ended July 31, 1975.

(c) Section 6429 (c) provides that the limitations contained in section 6429 (b) (2), relating to the specific quantities eligible for payment during the transitional period, shall be applied to a controlled group of corporations as though such group were a single corporation. Only one member of a controlled group will be permitted to claim the payments under section 6429 (a). This provision would accord multiple-corporate groups the same treatment given a single corporate entity operating several refineries. For purposes of this subsection, the term "controlled group" has the same meaning as in section 1563 (a) except that 50% control is substituted for any 80% control test contained in section 1563 (a) Parent-subsidiary, brother-sister, or combined controlled groups would therefore be within the ambit of the poundage limitation of section 6429 (b) (2) as a single entity. By reference contained in section 1563 (a) to section 1563 (d), the constructive ownership rules of section 1563 (e) would be applicable.

(d) Section 6429 (d) provides that only one claim may be submitted with respect to lead additives used during any twelve month period. The second sentence imposes a period of limitations for filing claims which ends on October 31 of the year during which a twelve month period ends. Gasoline producers, who did not use all of their eligible poundage until the month of July during a particular twelve month period, would generally have a three month period in which to file claims. Quarterly refund claims also would be permitted when the claim for a quarter exceeded $1,000. No claim shall be allowed for amounts allowed as a credit against gasoline excise taxes as permitted under section 6429 (e).

(e) Section 6429 (e) provides that the payment authorized by section 6429 (a) to gasoline producers in respect of lead additives used by such producers may be claimed as a credit against payments due by the producer for the manufacturer's excise tax on gasoline imposed by section 4081. Credit for the lead additive payments under this provision would be taken during the reporting period for gasoline excise taxes as the lead additives are used and to the extent of the periodic liability for gasoline excise taxes. In the event the amount of authorized lead additive payments exceed periodic liabilities for gasoline excise tax, claim may be made under the terms of section 6429 (d).

(f) Section 6429 (f) (1) adopts the definition of gasoline contained in section 4082(b). Section 4082(b) defines "gasoline" as "all products commonly or commercially known or sold as gasoline which are suitable for use as a motor fuel".

(g) Section 6429 (f) (2) defines the term "production of gasoline" as including the refining, compounding and blending of gasoline. The definition borrows some of the language used in defining "producer" in section 4082 (a) for purposes of the manufacturer's

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excise tax on gasoline. The definition is intended to encompass all operations during which a gasoline manufacturer or processor may add a lead additive.

(h) Section 6429 (f) (3) adopts the definition of "lead additive" contained in section 4891 (g) (2) (section 2 (a) of the bill).

(i) Section 6429 (g) (1) provides that all provisions of law, including penalties, applicable to section 4891, which imposes the tax on lead additives, shall also be applicable to payments under section 6429 insofar as those provisions are not inconsistent.

(j) Section 6429 (g) (2) provides that the Secretary or his delegate shall have the authority granted under section 7602 to examine books and witnesses to ascertain the correctness of any claim made for payment on the use of lead additives under section 6429.

(k) Section 6429 (h) provides cross references to the civil penalty under section 6675 and to criminal penalties under chapter

75.

(1) Section 3(b) of the bill provides the following conforming, clerical, and technical amendments:

(1) A technical amendment is made to the cross references to manufacturers excise taxes contained in section 4227 to provide a reference to credits available against gasoline excise taxes for the payment under section 6429 for the use of lead additives.

(2) A clerical amendment is made to the table of sections for subchapter B of chapter 65 to include section 6429.

(3) A conforming amendment is made to section 6206 to provide that excessive payments made under section 6429 may be assessed in the same manner as the tax on lead additives under section 4891.

(4) A technical amendment to section 6504 (relating to cross references to limitations on assessment and collection) is made to provide a cross reference to the assessment provisions under section 6206 which particularly relate to assessments to recover excessive payments under section 6429 and civil penalties under section 6675 for such excessive claims.

(5) A technical amendment is made to section 6511 (g) (relating to limitations on credit or refund) to provide a cross reference to the special limitation upon the period for filing claims for payment under section 6429 (d).

(6) A conforming amendment is made to section 6675 (relating to assessable penalties for excessive claims under various special payment provisions) to provide that the penalties contained in such section shall apply to excessive claims for the payment for the use of lead additives in the production of gasoline.

(7) Conforming amendments are made to section 7210 (relating to criminal penalties for failure to obey summons), section 7603 (relating to service of summons), section 7604 (relating to enforcement of summons), and section 7605 (relating to time and place of examination) to provide that these sections shall be applicable to section 6429.

(8) A clerical amendment is made to the table of sections for subchapter A of chapter 63 to reflect the change in the

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heading of section 6206 (relating to special rules for assessment of excessive claims under sections 6420, 6421, 6424, 6427 and, under this bill, 6429).

(9) A clerical amendment is made to the table of sections for subchapter B of chapter 68 to reflect the change in the heading of section 6675 (relating to assessable penalties for excessive claims with respect to the use of fuels or lubricating oil and, under this bill, lead additives.)

SECTION 4. HIGHWAY TRUST FUND AMENDMENTS

Section 4 of the bill amends subsection (c) of section 209 of the Highway Revenue Act of 1956 to make it clear that the highway trust fund receipts consist of all of the manufacturer's gasoline excise tax without regard to credit taken against gasoline excise taxes for the credit for payment for lead additives used in the production of gasoline.

SECTION 5. EFFECTIVE DATES

Section 5 provides effective dates as follows:

(a) Tax on sale of lead additives. Sales of lead additives after July 31, 1970, are subject to the tax on lead additives.

(b) Tax on importation of gasoline containing lead additives. The lead content of gasoline imported after July 31, 1970, is subject to the tax on lead additives.

(c) Lead additives floor stocks tax. Lead additives held on August 1, 1970, by a person other than a manufacturer, producer, or the importer of lead additives are subject to the lead additives floor stocks tax.

(d) Payments with respect to the use of lead additives in the production of gasoline. Section 6429 applies with respect to the pounds of lead used after July 31, 1970, in the production of gasoline.