Fuel Excise Taxes on Form 720 for Transportation Businesses
Transportation companies involved in the manufacturing, sale, importation, distribution, or utilization of fuel subject to federal excise taxes should be able to file their fuel tax liability using Form 720, Quarterly Federal Excise Tax Return. Knowing which fuel taxes are subject to federal taxes will help transportation companies fill out Form 720 properly.
Form 720 will be the key form to use when filing taxes related to any fuels transaction, and this includes taxes required by Internal Revenue Code Sections 4041, 4042, 4081.
What Is Fuel Excise Tax?
The fuel excise tax is a federal tax imposed on certain fuels and the consumption of such fuels. Unlike the income tax, the excise tax is always applied to a particular item, transaction, or consumption of a certain commodity. Examples of commodities that are subjected to excise tax are kerosene, gas, and aviation fuel etc.
For transportation businesses, fuel excise taxes generally apply when taxable fuel is:
1)Removed from a refinery or terminal rack
2)Entered into the United States
3)Sold or used for taxable purposes
4)Used for specific transportation purposes
5)Subject to special regulations related to fuel under the Internal Revenue Code
Taxes collected through Form 720 contribute to government trust funds such as the Highway Trust Fund and other transportation programs.
Who Should Pay Fuel Excise Tax?
The party that must pay the fuel excise tax will depend on the nature of the transaction and the action done. The IRS usually holds manufacturers, producers, importers, sellers, position holders, or the users liable for paying the tax according to their categories.
Common scenarios where fuel excise tax may apply:
Transportation Businesses That May Need to Consider Fuel Taxes
Examples include:
->Trucking companies using taxable fuel
->Fuel distributors and suppliers
->Marine transportation operators
->Aviation-related businesses
->Alternative fuel producers or users
->Businesses involved in fuel blending activities
The actual liability depends on the specific fuel activity and applicable IRS fuel tax category.
Source - Publication 510, Excise Taxes – Taxable Fuel Definitions and Liability Rules
How Much Is the Fuel Excise Tax?
The fuel tax amount depends on the IRS tax category reported on Form 720. The IRS assigns each fuel tax a specific IRS No. and corresponding rate.
Below are some common fuel-related tax categories:
Note: Fuel tax rates may change based on legislative updates and IRS revisions. Always refer to the latest Form 720 instructions before filing.
Why Are IRS Nos. 64, 125, 51, and 117 Separate From the Main Fuel Tax Section?
Transportation businesses may notice that some fuel-related categories, such as IRS No. 64, IRS No. 125, IRS No. 51, and IRS No. 117, appear separately from the primary fuel tax categories on Form 720.
The IRS does not provide a specific explanation stating why these categories are separated. However, based on IRS instructions, these taxes are different from normal fuel taxes because they generally relate to special fuel uses, environmental taxes, or credit recapture situations rather than regular taxable fuel removal or sale transactions.
Therefore, these categories are separated because they do not follow the standard fuel tax calculation method of taxable gallons multiplied by a fuel tax rate.
Although these categories are listed separately from the main Fuel Taxes section, taxpayers who are liable for IRS Nos. 64, 125, 51, or 117 must report and pay the applicable tax using the correct IRS Number on Form 720.
Fuel Excise Tax Exemptions
The IRS provides exemptions and special rules for certain fuel uses. Businesses must meet specific requirements to qualify.
Common fuel tax exemptions include:
1)Fuel Dyed and Kerosene: The fuel being used for specific purposes that are exempt from tax may also be tax-exempt under IRC Section 4082, as long as the fuel meets all the required requirements of dyeing and marking.
2)Other nontaxable fuel uses: Certain special uses such as agricultural purposes, exportation, and certain government uses can also qualify for exemption from tax payments.
3)Alternative fuel and biodiesel: Eligibility requirements are separate for alternative fuel, biodiesel mixture, and renewable fuel credits.
The most recent information regarding the requirements should be reviewed by businesses to see if they meet the conditions of exemption or refund of tax.
Current IRS Updates Pertaining to Fuel Excise Tax
The corporations have to use the latest version of IRS forms and instructions before filing.
Changes Pertaining to SAF Credit
There has been an IRS update with regard to how sustainable aviation fuel credits will be treated, including their limitations and expiration period.
Updated Refund and Credit Procedures
Certain fuel-related refunds may require filing Form 8849 schedules instead of adjusting Form 720 liabilities. Businesses should review IRS guidance before submitting refund claims.
Refer the details IRS page which can answer more of your queries related to fuel excise tax
File Your Fuel Excise Taxes Easily With QuickFile720
The filing of fuel excise taxes may be challenging because of different types of fuel, IRS numbers, rates, exemptions, and requirements. Properly completing the right type of fuel, rate, and all other necessary information is vital in filling out form 720.
QuickFile720 is an IRS-authorized web-based portal that can help businesses to easily file their quarterly excise tax return through Form 720.
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