Excise Tax Credit When Filing Your Return

Ready or not, tax season is here! Like so many Americans, you may be ready to simply hand over everything “tax” to someone more qualified to handle your finances. A lot of people use one of many trusted tax return companies, or an outside accountant or CPA. Unfortunately, as much as these financial consultants mean well, they don’t always have the expertise to handle working with excise tax credits. In fact, you might be surprised to know that they may not even know such a thing exists.   

Most business owners are familiar with the word “tax”, but “excise tax” can be a foreign term. Whether you have heard of it or not, you’ve been paying excise taxes for years- we all have. Keep in mind as a business owner, you have every right to recover some of your excise tax loss. By the time most business owners learn about excise tax credits, they have already lost out on thousands, maybe even millions in tax credit. Take some time to find out if you qualify for excise tax credit.  

 Excise Tax and Alternative Fuels 101 

Excise tax is only relevant to specific industries, so the understanding of how it works is somewhat specialized, making it complex and complicated. We’ve made it our mission at TIP Excise to lead the industry as experts in everything related to excise taxes. Our area of expertise goes above and beyond to focus on helping clients, especially with fuel or diesel excise taxes.  If you’re wondering if ALTERNATIVE FUELS fall under this category, the answer is YES! If your company uses alternative fuels to power the equipment used in the day-to-day operations of the business, chances are you qualify for an excise tax credit. 

Time to Learn More About Excise Tax  

An excise tax is a tax that targets a specific product or activity. It’s not a general, obligatory tax that affects a large portion of the population, like an income tax. 

The U.S. government imposes excise taxes on a variety of things, one of them being liquid fuels. Along with heavy vehicle use taxes and truck/trailer sales taxes, these excise taxes are collected by the IRS and placed in the federal Highway Trust Fund.  

  Some of these taxes are paid as a flat fee, per unit, for example. Others are paid as a percentage of what you spend rather than a flat fee. Wholesalers, importers, or manufacturers generally pay this tax to the federal government. They may pass this burden on to retailers, who in turn, pass it on to consumers. In other words, you paid this “hidden” excise tax, but you didn’t even know because it’s not an explicit line item on your receipt.  

How Do you Make a Claim for Excise Tax Credit? 

This is where it gets complicated. The long answer is that the taxpayer reports its fuel excise tax obligation on Form 720, Quarterly Federal Excise Tax Return. Once a taxpayer submits Form 720 and remits the excise taxes due, it is possible that 100% or more of the excise taxes paid can be refunded to the taxpayer if the fuel is being used for an exempt purpose or qualifies for any of several available fuel tax credits, refunds, or payments. 

  The short answer is that TIP Excise has been helping business owners through this process for more than 20 years. We’ve made it our business to stay up-to-speed on current state and federal fuel tax laws, rulings, and regulatory changes. Providing us with a few items about your business will allow us to navigate our way through the complex process of identifying and maximizing tax recovery for your company.  After your initial help, we do the rest of the work.  

What are Alternative Fuels? 

Alternative fuels are derived from sources other than petroleum, with most produced domestically, reducing our dependence on imported oil. Some are derived from renewable sources, and often produce less pollution than gasoline or diesel.  

             Types of Alternative Fuels  

• Liquified petroleum gas (propane) 
• P Series Fuels (renewable nonpetroleum-based fuels) 
• Compressed or liquified natural gas 
• Liquified hydrogen 
• Any liquid fuel that meets the carbon capture requirements [Sec.6426(d)(4)] and that is derived from coal through the Fischer-Tropsch process (which converts a mixture of hydrogen and carbon monoxide into liquid fuel) 

• Compressed or liquified gas derived from biomass 
• Liquified fuel derived from biomass 

          Alternative Fuel Use

• Fuel to power a generator for a business 
• Fuels for farming purposes, such as power farming equipment 
• Exported fuels
• Fuels for intercity, school, or local buses 
• Fuels by a qualified blood collector organization 
• Fuels in an aircraft or vehicle owned by an aircraft museum 
• Fuels exclusively for use by a nonprofit educational organization 
• Fuels exclusively for use by a state, political subdivision of a state, or the District of Columbia 

  How This Process Works 

Many businesses that use forklifts have converted the forklifts to run on propane instead of diesel. This conversion to propane qualifies as an alternative fuel.  

Liquefied petroleum gas (propane) is taxed as an alternative fuel at 18.3 cents per gallon. If a taxpayer sells or uses 10,000 gallons of propane in its trade or business during the calendar quarter, it could be subject to federal excise taxes of up to $1,830 on the propane. 

Currently, the credit is $0.50 per gallon of alternative fuel sold or used in a taxpayer’s trade or business. So, let’s say a taxpayer used the 10,000 gallons of propane to power forklifts used in its business, it would appear to be eligible to receive a $5,000 alternative fuel credit for the propane used during the quarter. However, since it had only a $1,830 excise tax liability associated with the propane, it can claim an excise tax credit only up to the amount of its excise tax liability. In this case, the taxpayer should claim a full $1,830 credit against its alternative fuel excise tax liability. The question is what becomes of the remaining $3,170 of tax credit associated with the propane the taxpayer used in its business? Depending on the circumstances, a taxpayer can receive either a payment or an income tax credit for the remaining $3,170. 

Let TIP Excise Figure It Out 

You might be taken back by all of this new information but know that you are not alone. If you have questions or need a more detailed guide, our tax experts at TIP Excise are here for you. We will carefully look at your tax case and provide you with all the information you need to understand how fuel excise tax credits work. We know that filing taxes isn’t always fun and easy, but we assure you that our experts in excise tax credits will make it a wonderful experience.  You’ll be happy that you took the time to claim the excise tax credit, especially when you see the amount of money the government owes you.  

Our Excise Tax Experts are Here for You 

TIP Excise is here to help make this year one that returns your best fuel excise tax credit possible. While the IRS is still reporting being backlogged, underfunded, and understaffed, that doesn’t mean that we can’t get to work. In fact, the IRS will begin processing 2021 federal income tax returns on January 24, 2022, so the time to act is now! The sooner you contact us at TIP Excise, the sooner you’ll receive that extra money in your pocket, back where it belongs!