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Understanding federal excise taxes, especially those related to air transportation, can be complex and challenging for many businesses. If your business sells airline tickets, provides air transportation, or ships goods by air freight, you might be liable to file Form 720 of the Quarterly Federal Excise Tax Return. Through this form, various excise taxes, including those imposed on air passenger transportation and air cargo services, are tracked by the IRS. Let's see what air transportation excise tax is, who needs to file, and how to comply.

Air transportation excise tax is a tax levied federally on certain services related to air travel. It includes taxes on domestic ticket sales based on a percentage, taxes on international departures and arrivals, as well as taxes on air cargo transportation. They act as the source funding for aviation infrastructure into the Airport and Airway Trust Fund. Tax teams of travel agencies, air charter companies, and freight carriers should be well aware of the tax structure and apply the right rates at the time of ticket issuance or cargo shipment.

If you are in the air transport industry or have set it up yourself as a broker for another company providing air transport, you will be obliged to report these excise tax values on Form 720. Airline companies, air freight consolidators, and internet travel portals filing these forms constitute the most common filers of this form. Entities accepting payment of fares or shipping charges must pay taxes over to the IRS every quarter. Failure to report or reporting below liability can result in penalty, audit, or interest from the IRS.

Under Form 720, the Communications and Air Transportation Taxes part I mandate the filers to report the air transportation of persons (line 26), transportation of property by air (line 27), and use of international air travel facilities (line 28). Careful reporting of this information presupposes meticulous recordkeeping and the correct tax computations based upon ticket type, mileage, and departure locations. Additions of an e-file provider for Form 720 will fast-track the process, ensure accuracy, and take the stress out of the filing task.

For business compliance, it is necessary to track the taxable transportation services, maintain digital records, and file Form 720 quarterly, that is, by the last day of the month after the end of the quarter. In this era of increasing audits and regulatory scrutiny, one should strongly prefer excise tax software or consulting a federal excise tax specialist. Collect taxes at the point of sale and also report the same.

Knowledge of air transportation excise tax and how it works with Form 720 filing requirements will certainly let businesses in the air transport industry fly without any worry of being legally hindered. Ultimately, improvements for compliance consists of the use of computerized tools, compliance with IRS timelines, and training its staff on air services that are taxable versus those that are not.