Blog Details

Sec. 4471, Internal Revenue Code, requires that an operator must collect from the public a certain fee for passenger travel using a vessel embarking from the port of the operator within the USA. Thus, if the operator's business involves transporting passengers via an inland waterway, then this tax involves filing Form 720- Quarterly Federal Excise Tax Return with IRS. This tax manifests when a passenger embarks on a voyage that lasts more than one day and that involves a covered vessel that has overnight accommodations. Knowing about excise tax liability is essential when trying to comply with IRS tax rules and avoiding penalties.

Such form must be filled out by cruise lines, maritime charter services as well as tour operators offering such services on overnight international or coastal voyages that leave from U.S. ports. Specifically, the activity giving rise to the Ship Passenger Tax (IRS No. 26) is when passengers embark on voyages exceeding 12 hours and where the ship offers staterooms or other sleep facilities on board. The tax amounts to $3 per passenger per voyage, and it's up to the carrier to convert and remit it quarterly. Understanding your monetary thresholds for taxable voyages is key for cruise operators and marine transport companies.

The Ship Passenger Tax must be reported in Form 720 on Part II - IRS No. 26, which should also itemize the number of passengers and travel dates. It is of essence to avoid making such mistakes through adequate documentation such as boarding manifests, ticket sales records, and voyage durations. Businesses should file Form 720 through an approved IRS Modernized e-File (MeF) provider for e-filing. Compliance goes a step further into all-time convenience with the IRS by precise reporting for quarterly excise taxes.

Many filers often erroneously overlook short international cruises or misunderstand voyage length criteria. Some filers also end up underreporting the taxable number of passengers due to a vague system of tracking. Ship classifications that do not meet the accurate definition of a particular vessel and wrong use of taxable voyage definitions can lead IRS into an audit. Avoid these by seeking consultation from a tax adviser well versed in marine excise taxes. Invest in reliable tax filing software that has backup Form 720 compliance. 

IRS filing requirements, timely collection by way of Form 720, and correct capture of all passenger voyage data mean that you are doing great with your compliance. As cruise and maritime tourism continues to expand, so also the requirement of proper excise tax management.