The Federal Oil Spill Tax: Who Pays and How to Report It

The Federal Oil Spill Tax is an excise tax levied on domestic crude oil and imported petroleum products. It capitalizes the Oil Spill Liability Trust Fund (OSLTF), a reserve used to finance the cleanup of oil spills and cover associated damages when the responsible party is unable or unwilling to do so. The tax ensures that funds are readily available for immediate response and long-term environmental restoration. The OSLTF is managed by the U.S. Coast Guard’s National Pollution Funds Center.

Determining Who is Liable for the Tax

Responsibility for paying the oil spill tax falls to specific parties within the oil production and importation chain. The operator of a U.S. refinery that receives crude oil is a liable party. For tax purposes, “crude oil” includes crude oil condensates and natural gasoline. The refinery operator is responsible for remitting the tax on all such barrels received.

Another liable party includes anyone who imports crude oil or petroleum products into the United States for consumption, use, or warehousing. The term “petroleum products” covers a range of items derived from crude oil. The importer of record is responsible for the tax when these products enter the country.

The tax is imposed only once on any given barrel of oil or petroleum product. For instance, if the tax has already been paid on imported crude oil upon its entry, the refinery operator who later receives that crude oil is not liable for a second payment. However, the operator must provide documentation to prove the tax was previously paid. If domestic crude oil is used for certain purposes before it reaches a refinery, the user of that crude oil becomes liable for the tax.

Calculating the Tax Liability

The federal petroleum excise tax is calculated based on the total number of barrels of crude oil or petroleum products subject to the levy. The tax is applied on a per-barrel basis, with a standard barrel containing 42 U.S. gallons. For any quantity that is a fraction of a barrel, the tax is calculated proportionately.

The total federal excise tax is the sum of two separate rates. The first is the Oil Spill Liability Trust Fund financing rate of $0.09 per barrel. The second is the Hazardous Substance Superfund financing rate, which for 2025 is $0.17 per barrel. This results in a combined tax of $0.26 per barrel.

Certain exemptions can reduce the total taxable volume of oil. An exemption applies to crude oil that is ultimately exported from the United States. Following a 2022 court decision, the IRS no longer applies the tax to exports of domestic crude oil. Another exemption is for crude oil used for extracting oil or natural gas on the same premises where it was produced. Additionally, products like bonded jet fuel, designated for use in international flights, are also exempt.

Reporting and Paying the Tax

The primary document for reporting these taxes is Form 720, the Quarterly Federal Excise Tax Return. This form is used for a variety of federal excise taxes, and the petroleum taxes are reported within its environmental tax section.

To compute the tax owed, taxpayers must complete and attach Form 6627, Environmental Taxes, to Form 720. Because the total tax is split into two components, reporting is also split. The Oil Spill tax and the Superfund tax are reported separately for domestic crude oil and imported petroleum products on Form 6627. The totals are then carried over to Form 720.

Form 720 is filed on a quarterly basis. The deadlines are the last day of the month following the end of the calendar quarter. For example, the return for the first quarter, ending March 31, is due by April 30.

Payments are required more frequently than the quarterly filing deadline. Most businesses liable for these taxes must make semi-monthly deposits of the tax. These deposits must be made through the Electronic Federal Tax Payment System (EFTPS), an online system for remitting federal taxes.