How to File Form 720: Quarterly Excise Tax Return
Ensure your business complies with quarterly federal excise tax rules. This overview explains the reporting and payment process associated with Form 720.
Federal excise taxes are levied on the sale or use of particular goods, services, and activities, and are often built into the price paid by the consumer. The government uses these taxes to fund specific programs, such as highway construction funded by fuel taxes. Businesses that engage in these specified activities are responsible for collecting these funds and remitting them to the government.
This system requires affected businesses to report and pay these taxes on a recurring basis. The reporting cycle is quarterly, meaning businesses must calculate their liability four times a year. This process requires diligent record-keeping and compliance from the businesses involved.
Determining Your Filing Requirement
A business’s obligation to file a quarterly federal excise tax return hinges on whether it deals in specific, federally taxed goods or services. These taxes are grouped into several categories, and engaging in any of them triggers a filing requirement. One category involves environmental taxes, which apply to the sale or use of certain ozone-depleting chemicals and specific imported products that use these chemicals in their manufacturing process.
Another area is communications and air transportation taxes. Businesses providing local telephone service or air transportation for people or property are subject to these excise taxes. The tax on air travel is calculated based on passenger ticket prices and cargo shipping costs. Fuel taxes represent a broad category, encompassing taxes on gasoline, diesel fuel, kerosene, and alternative fuels.
Retail taxes apply to the first retail sale of certain items, such as heavy trucks, trailers, and tractors. Other categories capture a wide range of activities, including the tax on indoor tanning services and taxes on manufacturers of sport fishing equipment and archery gear. If a business’s operations include any of these products or services, it is required to file and pay the associated federal excise tax.
Preparing Your Form 720
The primary document for this process is Form 720, the Quarterly Federal Excise Tax Return. Obtain the most current version from the Internal Revenue Service (IRS) website to ensure compliance. Before beginning, a filer must gather business information, including the official business name, mailing address, and Employer Identification Number (EIN), to enter at the top of the form.
The form is divided into distinct sections. Part I is used to report common excise taxes, such as those on communications, air transportation, and various fuels. Part II covers other taxes, including retail taxes on heavy vehicles, taxes on manufacturers, and taxes on foreign insurance policies. Part III is a summary where the total tax liabilities from Parts I and II are combined to calculate the total tax due.
To calculate the tax for a specific line item, you must multiply the taxable base by the applicable tax rate. For example, to calculate the tax on diesel fuel, a business would multiply the number of gallons sold or used by the current tax rate per gallon. This amount is then entered on the corresponding line in Part I. The process is repeated for each taxable activity the business conducted during the quarter.
If a business has overpaid taxes or is claiming a credit, such as for the nontaxable use of fuel, it must complete and attach Schedule C, Claims. The total claim amount from Schedule C is then entered in Part III of Form 720, reducing the total tax liability. For instance, if fuel was purchased with tax included but was later used for an exempt purpose like farming, the business can claim a credit.
Filing and Paying Your Excise Tax
Once Form 720 is completed, it must be filed by the last day of the month following the end of the quarter. The deadlines are as follows:
- First quarter returns (January-March) are due by April 30.
- Second quarter returns (April-June) are due by July 31.
- Third quarter returns (July-September) are due by October 31.
- Fourth quarter returns (October-December) are due by January 31.
Filers have two primary methods for submitting the form. Businesses can mail the paper form to the IRS address specified in the instructions or e-file the return through an IRS-approved software provider, which offers faster processing and confirmation of receipt.
Payment of the excise tax liability is a separate step. Businesses are required to pay electronically, and the Electronic Federal Tax Payment System (EFTPS) is a primary method. For certain taxes reported in Part I, deposits must be made semi-monthly if the net tax liability for the quarter is over $2,500. If the liability is below this threshold, the tax can be paid when the return is filed.
After filing and making payments, businesses should maintain comprehensive records. This includes keeping copies of the filed Form 720, any attached schedules, and payment confirmations to substantiate the filings in case of future IRS inquiries.