Who Has to File Form 720: Federal Excise Tax Return?

Form 720, the Quarterly Federal Excise Tax Return, is used by businesses to report and pay certain federal excise taxes to the Internal Revenue Service (IRS). These taxes are distinct from income taxes and are levied on the sale or use of specific goods and services. Businesses responsible for these activities use this form to calculate and remit these specialized taxes on a quarterly basis to remain compliant.

Businesses and Activities Subject to Excise Tax

A diverse range of business activities triggers the requirement to file Form 720, with the responsibility for payment falling on the manufacturer, retailer, or provider. The primary categories of taxable activities that require filing Form 720 include:

• Environmental Taxes: This applies to businesses that produce or import domestic crude oil, certain petroleum products, or those that sell or use specific ozone-depleting chemicals as identified by federal regulations.
• Air Transportation: Entities providing air transportation for people or property must collect excise taxes based on the amounts paid for those services. The service provider is responsible for collecting the tax from the customer and remitting it to the government.
• Fuel Taxes: This requirement affects producers and sellers of various fuels, including gasoline, diesel, and kerosene. The tax is calculated on a per-gallon basis, and the entity that produces or first sells the fuel is liable for the tax.
• Retail and Manufacturing Taxes: This includes a retail tax on the sale of heavy trucks, trailers, and tractors. Manufacturers also face taxes on products like coal, certain types of tires, and “gas guzzler” vehicles that do not meet federal fuel efficiency standards.
• Health Insurance and Foreign Insurance Taxes: Issuers of specified health insurance policies and sponsors of self-insured health plans must file to pay the Patient-Centered Outcomes Research Institute (PCORI) Fee, which is calculated on the average number of lives covered. A tax is also imposed on insurance policies issued by foreign insurers.

Gathering Information and Preparing Form 720

Before filling out Form 720, a business must collect specific information and documentation. The process begins with the business’s legal name, address, and Employer Identification Number (EIN), which must be consistent with other IRS records.

The next step involves gathering the precise data needed to calculate the various excise taxes. For fuel taxes, this means compiling the total number of gallons sold for each applicable fuel type during the quarter. Businesses subject to the PCORI fee must determine the average number of lives covered under their health plan for the policy or plan year.

For other taxes, the required data varies. Companies liable for air transportation taxes need to sum the total amounts paid by customers for taxable flights. Retailers of heavy trucks must have the total sales price for each qualifying vehicle sold.

With the necessary data collected, obtain the current version of Form 720 and its instructions from the IRS website. Businesses use their gathered information to complete only the sections that apply to their specific liabilities, transferring the figures to the corresponding lines to calculate the tax due.

Filing Deadlines and Submission Procedures

The IRS requires Form 720 to be filed on a quarterly basis. The deadlines are consistent each year: April 30 for the first quarter, July 31 for the second, October 31 for the third, and January 31 for the fourth quarter of the prior year. If a due date falls on a weekend or legal holiday, the filing deadline is extended to the next business day.

Businesses have two primary methods for submitting the completed form. While a paper form can be mailed to the IRS, electronic filing through an approved e-file provider is more common and often required.

Payment of the excise tax is a separate but related procedure. Most businesses are required to use the Electronic Federal Tax Payment System (EFTPS), an online system that allows for direct debit payments from a business bank account. To avoid penalties, payments must be initiated by 8 p.m. Eastern Time the day before the due date.

While the return is filed quarterly, tax deposits are often due more frequently. For many excise taxes reported in Part I of the form, payments must be made on a semi-monthly basis. However, if the total net tax liability for the quarter is less than $2,500, the business can pay the full amount with the quarterly return, avoiding the need for semi-monthly deposits. Businesses should retain a copy of the submitted Form 720 and payment confirmation for their records.