The IRS Form 720 is used by businesses to file a quarterly federal excise tax return. This is a different form than what is used to file business income tax returns. Excise taxes are taxes businesses must pay if they sell certain goods or services, such as taxable fuel, gasoline, petroleum products, air transportation, or certain sports fishing equipment. While it’s up to the business to pay these taxes, the cost is often not absorbed by the company but passed to customers as part of the cost of those goods and services.
Historically, the goods and services targeted by excise taxes are considered morally questionable or potentially damaging to health, but this is not always the case. Additionally, revenues from these taxes are often earmarked for programs that counteract any negative effects that might result from their sale. Gasoline excise tax might go toward environmental protection programs, for example.
Details About IRS Form 720
Any business that sells products or provides services subject to quarterly excise tax must file IRS Form 720 during each quarter of the year.
Form 720 is broken up into three main parts. The first part is where you list all environmental, communications and air transportation, fuel, retail, ship passenger, foreign insurance, and manufacturer taxes. Fuel taxes generally occur on a per-gallon basis, while retail tax is based on a percentage of the sale price. The environmental taxes are figured on Form 6627, which must be attached.
The second part of the form includes excise tax associated with patient-centered outcomes research. These taxes must be paid by insurers or issuers of health insurance policies. It also includes excise taxes for various sports fishing and hunting equipment, indoor tanning services, and waterways fuel.
The third part of the form is where the total tax from Part I and Part II are added up, deductions are made, taxes already paid are listed, and the net amount owed or amount due for reimbursement is computed.
In addition to the three main sections, there are several schedules included on the form: S chedule A, Schedule T, and Schedule C. Schedule A is filled out by those with tax liability for any taxes in Part I of the form and is where a monthly record of net tax liability is recorded. Schedule T is used for recording two-party exchange information associated with different taxed fuels. Schedule C is where non-taxable use of fuels is recorded to determine tax credits or reduce the tax owed.
The final page of IRS Form 720 includes a payment voucher that can be sent with payment for net taxes owed.
What Goods and Services Receive an Excise Tax?
Keep in mind that excise taxes are paid by the business and not by the consumer or purchaser of the goods and services, although costs may be passed along in the prices of items. Excise tax is distinctly different from sales tax, which is charged directly to the customer as a percentage of the price paid for items or services.
Goods and services for which businesses must pay excise tax include the following:
- Part I
- Part II
- Environmental taxes
- Communications and air transportation taxes
- Fuel taxes
- Retail tax
- Ship passenger tax
- Foreign insurance taxes
- Manufacturers taxes
- Patient-centered outcomes research institute fee
- Hunting and fishing equipment, including:
- Oil spill liability
- Ozone-depleting chemicals
- Imported products for which ozone-depleting chemicals were used as materials or in manufacture
- Floor stocks tax on ozone-depleting chemicals
- Local telephone services and teletypewriter services
- Transportation of persons by air
- Transportation of property by air
- Use of international air travel facilities
- Diesel fuel
- Diesel-water fuel emulsion
- Dyed diesel
- Dyed kerosene
- Kerosene removal
- Kerosene for use in aviation
- Liquefied petroleum gas
- "P Series" fuels
- Compressed natural gas
- Liquefied hydrogen
- Liquefied natural gas
- Other fuels
- Taxes on trucks, trailers, semitrailer chassis and bodies, and tractors
- Transportation by water
- Casualty insurance and indemnity bonds
- Life insurance, including sickness and accident policies
- Taxable tires (used on highway vehicles)
- Gas guzzler tax
- Specified health insurance policies
- Applicable self-insured health plans
- Sports fishing equipment
- Fishing rods and poles
- Electric outboard motors
- Fishing tackle boxes
- Bows, quivers, broadheads, and points
- Arrow shafts
- Indoor tanning services tax
- Inland waterways fuel use tax
- Other fuels
- Biodiesel sold as but not used as fuel
- Floor stocks tax
More details about each of these excise taxes can be found on the IRS website, including the amount of each tax, which is typically dependent on the amount of an item sold or a percentage of the sale price.
Note that you will also complete Schedule C when you complete IRS Form 720, which may reduce the amount of tax owed on certain fuel items, depending on how those fuels were used. For example, if fuel was sold to a nonprofit educational organization or a state or local government, you can claim sale at a tax-excluded price.
What to Include When Filing Form 720
To fill out the IRS Form 720, you must include your business name and address, the quarter end date, and your employer identification number (EIN). If you have environmental taxes to include, you will need to complete and attach Form 6627, in which you will determine the amount of those taxes owed for entering into Form 720.
Communications and air transportation taxes are entered based on calculations described in the instructions. The fuel taxes are determined by entering the number of gallons for each and multiplying by the tax rates listed on the form. Continue to enter any other taxes owed, and use the rates or percentages given to compute and enter the tax amounts.
The totals for excise tax liability from Part I and Part II are then entered in Part III. From there, you will need to fill out Schedule C to determine if you have any claims to enter. Assuming you have paid taxes during the quarter, you also enter the amount paid with any existing overpayment from previous quarters.
If you had to amend a previous quarterly return using Form 720, you would need to enter any adjustments from that, as well. Then, follow the steps to compute the net amount you owe or owed to you. If you owe tax, you must submit payment with your return. If you are owed a refund, you can expect to receive it after filing. The preparer of the form must sign and date the form before submitting it.
How to File Form 720 and Pay Your Excise Tax
It’s important to note that businesses must file Form 720 on a quarterly basis or four times during the calendar year. The due date for the first calendar quarter (January, February, March) return is April 30, the second quarter return is July 31, the third quarter return is Oct. 31, and the fourth quarter return is Jan. 31 of the following tax year.
Generally, businesses pay excise taxes semimonthly, so you will have recorded information about previous payments made in Schedule A of Form 720 when determining if you owe additional tax or are due a refund. Both the form and the payment can be handled by mail or online.
To submit Form 720 by mail, send it to:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0009
Form 720 can also be submitted electronically; however, this must be done through an approved transmitter/software developer. A list of e-file providers can be found on the IRS website. Note that filing this way will likely incur a filing fee paid to the e-file provider.
If you submit your return by mail, payment to the government can be made with a check or money order made out to "United States Treasury" and included with your return with the Form 720-V payment voucher. Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS) or the Federal Tax Collection Service (FTCS).
Note that you are usually automatically enrolled to make EFTPS payments when you apply for and receive your EIN. If you are not enrolled in EFTPS, it can take up to five business days for new enrollments to process, so you may need to pay by another method if your payment is due sooner.
Refunds can be returned to you electronically, by check, or can be applied to future taxes.
Good Record Keeping Is Key
Keeping track of financials is one of the challenges when running a small business. It’s important to keep good records and make sure you are up to date on all tax laws applicable to you. Skynova offers all-in-one invoicing and accounting to help you track payments and keep accurate records so that you can easily find the numbers you need when it’s time to file tax forms.
As a tax filer, you may additionally wish to consult a tax professional to make sure you accurately record transactions for which you will need to pay excise tax. You can also do your own tax research by visiting the www.irs.gov website.
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