Excise taxes are imposed on the sale of specific goods, services, or uses. An excise tax may be levied at the time of:
These taxes are separate from income taxes and sales taxes.
Excise taxes have often been referred to as “sin taxes” when intended to discourage certain behaviors (for example, alcohol and tobacco use). They’ve also been considered user fees (for example, fuel excise taxes reflecting public road use, etc.). Many excise taxes are directed into trust funds for projects related to the taxed product or service, such as highway and airport improvements.
Because excise taxes generally are collected by sellers or manufacturers, it’s up to them to remit the tax payments to the U.S. Department of Treasury.
The form is the information reporting return for taxpayers that must pay federal excise taxes. It includes three parts, plus Schedule A (Excise Tax Liability), Schedule T (Two-Party Exchange Information Reporting), and Schedule C (Claims). The form is complicated, so, at least initially, you’d be wise to consult a CPA if you’re required to file it.
If you own a business that sells various goods or services subject to federal excise taxes, you must generally file Form 720. Applicable excise taxes include those on:
You can find the complete list in Parts I and II of Form 720.
You generally must file Form 720 quarterly. The form is due on the last day of the month following the end of the calendar-year quarter:
| Quarter: | Due Date: |
| Jan. 1 - March 31 | April 30 |
| April 1 - June 30 | July 31 |
| July 1 - Sept. 30 | Oct. 31 |
| Oct. 1 - Dec. 31 | Jan. 31 |
If the due date falls on a weekend or legal holiday, the filing deadline extends to the next business day.
It’s probably best to file your form electronically through an IRS-approved software provider. You can mail your return to the address below, but the IRS has reported delays in the processing of paper forms:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0100
Most excise taxes are based on unit sales or weight. For example, the tax on diesel fuel is generally $0.244 per gallon. Arrow shafts are taxed at $0.55 per shaft.
Some excise taxes are based on the sales price. For example, sport fishing equipment is taxed at 10 percent of the sales price, and bows are taxed at 11 percent of the sales price.
Your deposit for a semi-monthly period must be at least 95 percent of that period’s net tax liability unless the safe harbor rule applies. Your net tax liability for a semi-monthly period is the total liability for the period minus any claims allowed on Schedule C for the period.
Note: Some businesses may qualify for a tax credit for federal fuel excise taxes that were passed on to them. For example, a credit is allowed for certain “nontaxable” fuel uses, including on a farm or off-highway business, such as on a construction site. Eligible companies that file Form 720 can claim the credit on the form’s Schedule C. Eligible businesses that aren’t required to file the form can claim the credit on Form 4136.
While you must file Form 720 quarterly, your payments (or “deposits”) generally are due more often — for every semi-monthly period. The payment for a semi-monthly period is due by the 14th day following that period — in other words, payments are generally due on the 29th day of a month (for the first semi-monthly period in that month) and the 14th day of the following month (for the second period). For example, your payments for January are due on Jan. 29 and Feb. 14.
(Excise taxes on communications or air transportation may be eligible for an alternative payment schedule.)
Note: If either of those days falls on a weekend or holiday, you must make the payment by the immediately preceding day that isn’t a weekend or holiday. This differs from other IRS deadlines, which typically extend to the following business day.
In certain circumstances, the IRS will allow you to delay payment until you file Form 720. For example, you can pay your excise taxes with your return if your net liability for taxes listed in Part I of Form 720 doesn’t exceed $2,500 for the quarter.
Don’t mail your payments to the IRS — you must deposit them through the Electronic Federal Tax Payment System (EFPTS). EFTPS payments will be made on time only if you initiate the transaction at least one day before they’re due (before 8:00 p.m. Eastern time).
If you miss this deadline, you can make a same-day wire payment via the Federal Tax Collection Service. You’ll need to make arrangements with your financial institution in advance, though, and it will likely charge additional fees.
If you receive a notice after filing a Form 720, you should reply to the notice with an explanation for the issue that triggered the penalty (for example, filing after the applicable deadline). Don’t include your explanation when filing your form. The IRS will then determine if you had “reasonable cause” and, therefore, are excused from the penalty.
This penalty may apply if the excise taxes of communications, air transportation, or indoor tanning services are collected but not paid. The penalty equals the full amount of the unpaid tax—in other words, you pay double (plus interest).
The IRS can impose trust fund recovery penalties on all “responsible persons” who are charged with collecting, accounting for, and turning over these taxes, if they acted willfully in not doing so. You act willfully if you know the required actions aren’t occurring.
A responsible person can be:
Yes. You can use Form 720-X to change the excise tax liability you’ve reported in earlier quarters.
Having EBC HR & Payroll Solutions, Inc. on your team allows you to move forward with confidence, knowing that we’re doing right by your employees, doing right by you, and it’s all being done in accordance with all the latest rules, regulations, and laws. Our philosophy is to provide a comprehensive, wide range of services to all our clients.
For more information regarding Tax/Banking and Payroll Services provided by EBC, please reach out to Mark Terry, Business Development Consultant at 716.998.4404 or mterry@ebchcm.com and/or Charles Bagley, Sr. Human Capital Management Business Consultant at 716.574.9947 or cbagley@ebchcm.com.
Source: Gusto Blog