Understanding the Different Types of Fuel Taxes Reported on Form 720
Introduction
Fuel excise taxes are crucial for businesses that use motor fuels in vehicles, aviation, and industrial machinery. Form 720, the Quarterly Federal Excise Tax Return, requires businesses to report various fuel taxes, including gasoline, diesel, aviation fuel, alternative fuels, and more. Accurate reporting under these categories is necessary to ensure compliance with IRS regulations and avoid penalties. This blog explains the different types of fuel taxes covered under Form 720, their respective IRS numbers, and the key points of each category.
1. Gasoline and Aviation Gasoline Taxes
- IRS No. 62: Gasoline is subject to excise tax at $0.184 per gallon for highway use. This tax is applied when gasoline is removed from a terminal rack or during other taxable events. It is the most common fuel tax businesses need to report.
- IRS No. 14: Aviation gasoline, which is used in piston-engine aircraft, is taxed at $0.194 per gallon. This tax is reported on Form 720 for businesses involved in aviation fuel usage.
Key Point: Both gasoline and aviation gasoline are widely used, and businesses involved in the sale or use of these fuels must accurately report them to avoid IRS audits or penalties.
2. Diesel and Kerosene Taxes
- IRS No. 60: Diesel fuel is taxed at $0.244 per gallon when removed from a terminal rack or during other taxable events for highway use. This includes diesel fuel used in vehicles that transport goods.
- IRS No. 35: Kerosene is taxed at $0.244 per gallon when it is removed from a terminal rack for non-aviation use. Businesses using kerosene for industrial or other off-road applications must report this tax.
- IRS No. 69: Kerosene used in aviation for non-commercial flights is taxed at $0.219 per gallon. This tax applies to kerosene used in piston-engine aircraft for general aviation purposes.
- IRS No. 77: Kerosene used in commercial aviation (other than foreign trade) is taxed at $0.044 per gallon. This is for commercial aviation purposes like airline operations.
Key Point: These fuel taxes apply to both on-road and off-road diesel and kerosene, as well as aviation kerosene. Correctly classifying and reporting these taxes is essential for compliance.
3. Alternative Fuel Taxes
- IRS No. 112: Liquefied Petroleum Gas (LPG), commonly known as propane, is taxed at $0.183 per gallon. This tax applies to LPG used as a motor fuel in vehicles.
- IRS No. 118: "P Series" fuels, including fuels that meet specific clean air standards, are taxed at $0.184 per gallon.
- IRS No. 120: Compressed Natural Gas (CNG) is taxed at $0.183 per gallon. CNG is a clean alternative fuel commonly used in commercial and fleet vehicles.
- IRS No. 121: Liquefied hydrogen, which is emerging as a cleaner alternative fuel, is taxed at $0.184 per gallon.
- IRS No. 122: Fischer-Tropsch process liquid fuel derived from coal is taxed at $0.244 per gallon. This tax covers synthetic fuels used as an alternative to petroleum products.
- IRS No. 123: Liquid fuel derived from biomass is taxed at $0.244 per gallon. These fuels are made from organic materials and are considered a renewable energy source.
- IRS No. 124: Liquefied Natural Gas (LNG) is taxed at $0.243 per gallon. LNG is used in some heavy-duty vehicles as an alternative to diesel.
Key Point: These taxes apply to a range of alternative fuels that are considered cleaner and more environmentally friendly than traditional gasoline and diesel. Businesses using these fuels must report their tax liabilities correctly.
4. Leaking Underground Storage Tank (LUST) Trust Fund Financing Tax
- IRS No. 105: Dyed diesel fuel, which is used for non-highway purposes, is subject to the LUST tax at $0.001 per gallon. This is to fund the cleanup of leaking underground storage tanks.
- IRS No. 107: Dyed kerosene used for non-highway purposes is also subject to the LUST tax at $0.001 per gallon.
- IRS No. 111: Kerosene used in aviation (non-commercial) for non-taxable purposes is subject to the LUST tax at $0.001 per gallon.
- IRS No. 119: Other exempt removals, such as certain gasoline blendstocks and kerosene feedstocks, are also subject to the LUST tax at $0.001 per gallon.
Key Point: The LUST tax applies to specific fuels that are used for non-highway purposes or exempt removals. This small tax helps fund environmental cleanup efforts.
5. Inland Waterways Fuel Use Tax
Unlike other fuel taxes, the Inland Waterways Fuel Use Tax is reported in Part 2 of Form 720 (not under the fuel taxes section).
- IRS No. 64: This tax applies to fuel used in the propulsion of commercial vessels on specified inland waterways. It is an additional tax imposed on the use of liquid fuel in these vessels, designed to support the maintenance and construction of inland waterways.
Key Point: Businesses involved in the operation of commercial vessels on inland waterways must report this additional fuel use tax in Part 2 of Form 720, not under the general fuel taxes section.
6. Fractional Ownership Program Aircraft Surtax
- IRS No. 13: A surtax is applied to any liquid fuel used in a fractional ownership program aircraft, taxed at $0.141 per gallon. This applies to aircraft fuel used in shared ownership arrangements.
Key Point: Businesses involved in fractional aircraft ownership programs need to report this surtax on fuel used in such aircraft.
7. Diesel‑Water Fuel Emulsion Tax
- IRS No. 104: Diesel-water fuel emulsions, which combine diesel with water to improve fuel efficiency and reduce emissions, are subject to a reduced tax rate of $0.198 per gallon.
Key Point: Businesses using diesel-water emulsions in vehicles or machinery must report this tax liability at the reduced rate.
8. Other Fuels Tax
- IRS No. 79: This category applies to other fuels used in motor vehicles or motorboats that do not fall under the specific fuel categories listed above. This category also applies to certain blends of gasoline or diesel with other substances that are not covered under existing categories.
Key Point: Businesses using fuels not listed in other categories (such as some specific fuel blends) must report them under IRS No. 79.
Conclusion
Understanding the different fuel taxes reported on Form 720 is crucial for businesses to stay compliant with IRS regulations. From gasoline and diesel taxes to alternative fuels and aviation fuels, each category has its own set of requirements and IRS numbers that must be followed. Additionally, categories like the Inland Waterways Fuel Use Tax and the Fractional Ownership Program Aircraft Surtax have specific reporting requirements under different parts of the form. Accurate reporting ensures businesses avoid penalties, reduce audit risks, and take advantage of any available credits. Make sure your business keeps thorough records of fuel purchases, usage, and tax liabilities. For more information and the latest tax rates, consult the official IRS Form 720 instructions.
By staying informed about these taxes, businesses can streamline their tax reporting process and maintain full compliance with federal excise tax laws.