Do I Need to File Form 720 for Federal Excise Tax?

Federal excise taxes apply to specific goods, services, or activities, differing from income taxes which are based on earnings. Businesses involved in certain industries may find themselves responsible for collecting and remitting these taxes to the Internal Revenue Service (IRS). Form 720, the Quarterly Federal Excise Tax Return, serves as the primary document for reporting these obligations. Understanding its purpose and requirements is an important step for compliance.

Understanding Form 720

Form 720 is a tax document used by businesses to report and pay federal excise taxes. Unlike sales taxes, excise taxes are often incorporated into the price of a product or service, making them less visible to the end consumer.

The form categorizes these taxes into several types. Environmental taxes, for instance, apply to certain chemicals or petroleum products. Fuel taxes are imposed on gasoline, diesel, and other motor fuels. Communications taxes pertain to specific services like local telephone and teletypewriter exchange services.

Air transportation taxes are levied on the transportation of persons and property by air. Form 720 also covers taxes on various manufactured goods, such as sport fishing equipment, bows and arrows, and certain tires. Retail taxes on items like heavy trucks and trailers, along with taxes on indoor tanning services and vaccines, also fall under the scope of this quarterly return.

Determining Your Filing Obligation

A filing obligation arises if you are liable for, or responsible for collecting, any federal excise taxes listed on Form 720 for the current quarter, or if you previously filed and have not submitted a final return.

For environmental taxes, manufacturers or importers of ozone-depleting chemicals or those dealing with petroleum products, including crude oil received at a U.S. refinery or imported petroleum products, are liable. These taxes are reported using Form 6627, Environmental Taxes, which is then attached to Form 720.

Fuel taxes are a category with liabilities falling on manufacturers, producers, and importers of various fuels. For example, the removal of diesel fuel at a terminal rack or the sale of dyed diesel fuel can trigger the excise tax. The blending of biofuels or the use of certain alternative fuels may also create a filing requirement.

For communications taxes, the tax rate is 3% of the amount paid for local telephone service and teletypewriter exchange service. The person receiving payment for these services is responsible for collecting and submitting the tax and filing Form 720. If a bundled service includes local telephone service but does not separately identify the charge for it, the tax may not apply unless the charge is unbundled.

For air transportation taxes, a 7.5% tax applies to amounts paid for taxable transportation of persons that begins and ends in the United States, plus a domestic segment tax, which for 2025 is $5.20 per segment. For property, a 6.25% tax applies to amounts paid for transportation by air that begins and ends in the United States. The service provider collects and reports this tax on Form 720.

Manufacturers and retailers of specific items also have filing obligations. This includes manufacturers or importers of sport fishing equipment, bows, arrows, certain tires, and businesses providing indoor tanning services. The tax on gas guzzler automobiles is a one-time tax paid by the manufacturer or importer, which may require a single Form 720 filing.

Preparing and Submitting Form 720

The official Form 720 and its instructions are available directly from the IRS website. Businesses should ensure they are using the most current revision of the form, as tax laws and rates can change.

Form 720 is filed on a quarterly basis, with specific due dates for each calendar quarter. The first quarter (January-March) is due by April 30, the second quarter (April-June) by July 31, the third quarter (July-September) by October 31, and the fourth quarter (October-December) by January 31 of the following year. If a due date falls on a weekend or legal holiday, the deadline extends to the next business day.

The form is structured into several parts and schedules to accommodate various excise taxes. Part I and Part II are used to report different types of excise taxes, categorized by IRS number. Part III summarizes the total tax liability for the quarter.

Schedule A is used to report the tax liability for semi-monthly periods, particularly for taxes listed in Part I, aiding in tracking deposits. Schedule C is used for claiming credits, refunds, or adjustments, such as for nontaxable uses of fuels. Schedule T is specifically for reporting two-party exchange information for taxable fuel transactions at terminals.

Payment of excise taxes is made electronically through the Electronic Federal Tax Payment System (EFTPS). This is required if the tax liability for a quarter exceeds $2,500. For smaller amounts, payment can be made by check or money order, accompanied by Form 720-V, the payment voucher, when mailing the return. Many excise taxes require semi-monthly deposits, which must be initiated at least one day before the due date to ensure timely processing.

Completed Form 720 can be submitted either electronically or by mail. The IRS encourages electronic filing through approved e-file providers, as it is often faster and helps reduce errors. If mailing the form, it should be sent to the appropriate IRS address specified in the Form 720 instructions. Keeping copies of the filed return and supporting records for at least four years is important for recordkeeping purposes.