Tax Deadline is Almost Here
If you haven’t heard by now, you may be eligible for a tax refund on the excise taxes you pay for any fuel used “off-road” to power your business. However, did you know that your business may be responsible for reporting these taxes to the IRS on a quarterly basis?
The federal excise taxes, tax credits, and exemptions for various types of fuel are a terribly confusing area of the tax law, involving several Internal Revenue Code sections and overlapping provisions. Seeing a need to assist taxpayers in filing for excise fuel tax returns, TiP Excise made it our business to become top tax experts to help navigate this process. Whether you are a rookie or veteran tax filer, TiP Excise is here to help you with managing fuel excise taxes, payments, and possible overpayment recovery.
What is an Excise Tax?
An excise tax is a tax the federal government imposes on specific services or goods manufactured in or imported into the United States. Excise taxes are often included in the price of products, so taxpayers are most likely unaware that they even paid an excise tax. A federal excise tax is usually collected from airline tickets, heavy trucks and highway tractors, indoor tanning, tires, tobacco, goods and services, and more specific to this article, fuel sales.
What is Fuel Excise Tax Used For?
The U.S. government imposes excise taxes on a variety of liquid fuels. These excise taxes are collected by the IRS and placed in the federal Highway Trust Fund.
Take a look at the three accounts for the Highway Trust Fund:
- highway account that funds road construction
- mass transit account that funds transit-related projects
- leaking underground storage tank (LUST) account that, as the name implies, funds the remediation of leakage issues involving underground storage tanks
Once deposited into the Highway Trust Fund, the taxes are distributed to individual states based on a legislatively determined formula.
Exemptions, Credits, Refunds, and Payments Associated with Fuel Excise Taxes
After fuel leaves a refinery, it can pass through many intermediate channels before reaching the ultimate consumer. However, any gallon of fuel should be taxed only once. If a purchaser pays the excise tax on fuel and can substantiate that another taxpayer has already paid the excise taxes due, the purchaser may be eligible to submit a claim for a refund of fuel excise taxes paid.
Fuel excise Taxes are also placed on fuel utilized in the nation’s transportation system, as stated previously. However, if fuel is used for a nontaxable purpose, it may be considered taxable. Taxpayers paying excise taxes on fuels used for nontaxable purposes may claim credits or refunds for any excise taxes paid.
There are a variety of exemptions from excise taxes, as well as procedures for claiming credits, refunds, and payments related to the taxes.
Nontaxable Uses of Fuel
The following uses of fuels are considered nontaxable for excise tax purposes:
- off-highway business use, such as fuel used to power a generator, a compressor, a power saw, or similar equipment
- a farm for farming purposes, such as to power farming equipment
- Exported fuels
- intercity, school, and local buses
- used by a qualified blood collector organization
- an aircraft or vehicle owned by an aircraft museum
- for use by a nonprofit educational organization
- for use by a state, a political subdivision of a state, or the District of Columbia
Credits Against Fuel Excise Taxes
Taxpayers are entitled to a credit against the excise taxes imposed for the following fuel types produced in the United States:
- Alcohol fuel mixtures
- Biodiesel mixtures
- Alternative fuel mixtures
- Alternative fuels
Filing Form 720 Quarterly
Excise taxes are primarily a business tax, separate from other taxes a business must pay, like income taxes. Businesses charging and receiving excise taxes are required to file Form 720 Federal Excise Tax Return on a quarterly basis and include quarterly payments. Business collectors of excise taxes must also maintain their obligations for passing on excise taxes to state and local governments as required.
|Quarter 1||January, February, March||April 30|
|Quarter 2||April, May, June||July 31|
|Quarter 3||July, August, September||Oct. 31|
|Quarter 4||October, November, December||Jan. 31|
IRS Form 720: Tips for Completing the Form
Here are some tips to keep in mind when filling out IRS from 720.
- Prepare ahead of time. One of the best ways to avoid errors and stress when completing tax forms, such as Form 720, is to stay organized. Keep track of your inventory, sales, and other important financial metrics. This way, when it’s time to fill out Form 720, all of your information will be up to date, organized, and complete. However, you can keep up with the semimonthly excise tax payments and quarterly filing deadlines for Form 720. If you’re unprepared, you’re more likely to make mistakes on the form or even file late, which may trigger penalties.
- Use a tax professional. If you hire a tax advisor to help you complete Form 720, you’ll have access to someone with years of experience. A good tax professional should be able to complete the form quickly and accurately, and if issues arise after you file Form 720, your tax pro will be able to address them.
TiP Excise Tax Recovery Services
If you have been paying excise fuel taxes, TiP Excise can help ensure that you are receiving the maximum tax credit owed to you by focusing our efforts on:
- identifying all available fuel excise tax exemptions, deductions, and credits.
- evaluating specific equipment types to maximize applicable exemptions.
- developing and implementing a system for fuel consumption tracking so that your Quarterly Federal Excise Tax Return forms are accurate and manageable.
If you want to know if your business needs to file Form 720 this quarter, or need assistance in filing Form 720, reach out to us. With careful attention to detail, TiP Excise will take over the complexity and confusion of filing your excise taxes and make certain you recover what is owed to you.