Communications & Air Transportation Taxes: Form 720 Guide

Communications & Air Transportation Taxes at a Glance

These federal excise taxes are generally reported in Part I of Form 720.

What Are Communications and Air Transportation Taxes?

Communications and air transportation taxes are federal excise taxes imposed on certain communications services and amounts paid for taxable air transportation.

The communications tax generally applies to qualifying local telephone and teletypewriter exchange services.

Air transportation taxes can apply to:

• Transportation of persons by air
• Taxable domestic flight segments
• Use of international air travel facilities
• Transportation of property by air

Whether tax applies depends on the service, transportation route, payment, and applicable IRS rules or exemptions.

Who May Be Responsible for Communications and Air Transportation Taxes?

The person paying for a taxable communications service or air transportation is generally liable for the applicable tax. However, the business receiving the taxable payment generally collects the tax and pays it over to the federal government.

Depending on the transaction, businesses involved may include:

• Communications service providers
• Airlines
• Air carriers
• Charter operators
• Air cargo businesses
• Travel-related businesses
• Other parties receiving payments for taxable air transportation

The collected tax is generally reported quarterly on Form 720.

Communications Tax — IRS No. 22

A 3% federal communications excise tax generally applies to amounts paid for taxable local telephone service and teletypewriter exchange service.

The tax is reported on Form 720 under IRS No. 22.

Local telephone service generally includes access to a local telephone system and the privilege of telephone-quality communication with substantially all persons who are part of that local system.

The federal communications tax does not automatically apply to every telecommunications service. Certain long-distance and other communications services may not be subject to the tax.

Providers should determine whether a particular service or charge is taxable before calculating and collecting the communications excise tax.

Transportation of Persons by Air — IRS No. 26

Federal excise tax applies to amounts paid for certain taxable transportation of persons by air.

Passenger air transportation generally includes:

• A 7.5% tax on amounts paid for taxable transportation; and
• A separate tax for each taxable domestic flight segment.

These amounts are reported under IRS No. 26.

The domestic-segment amount is adjusted periodically. Businesses should use the current Form 720 instructions to determine the applicable amount instead of relying on an older rate.

What Is a Domestic Flight Segment?

A domestic flight segment generally consists of one takeoff and one landing.

An itinerary involving connecting flights may contain multiple taxable segments. The domestic-segment tax can therefore apply more than once during a passenger's trip.

Special rules and exemptions may apply, including rules for qualifying rural airports.

International Air Travel Facilities — IRS No. 27

A federal excise tax applies to the use of international air travel facilities for certain international transportation beginning or ending in the United States.

This tax is reported under IRS No. 27.

Unlike the 7.5% passenger transportation tax, the international facilities tax is generally a fixed amount per person rather than a percentage of the airfare.

Because this amount is adjusted periodically, businesses should check the current Form 720 instructions for the applicable rate.

Special rules may apply to certain transportation involving Alaska and Hawaii.

Transportation of Property by Air — IRS No. 28

A 6.25% federal excise tax generally applies to amounts paid for taxable transportation of property by air.

The tax is reported under IRS No. 28.

It generally applies when a person engaged in the business of transporting property by air for hire provides taxable transportation that begins and ends in the United States.

The person paying for the transportation is generally liable for the tax, while the business receiving the payment ordinarily collects and pays over the tax.

Taxable property transportation can include freight, cargo, and other property transported by air.

Air Transportation Tax Exemptions

Federal air transportation tax rules provide exemptions and special treatment for certain types of transportation.

Depending on the facts and applicable IRS requirements, these may include certain:

• Rural airport segments
• Cropdusting services
• Aerial firefighting
• Helicopter activities
• Emergency medical transportation
• Skydiving transportation
• Transportation connected with exportation
• Qualifying seaplane transportation
• Private aircraft management services
• Fractional ownership program aircraft

An exemption should not be claimed simply because a flight falls into one of these categories. Each exemption has specific requirements that should be reviewed before determining the tax treatment.

How Are Communications and Air Transportation Taxes Calculated?

There is no single calculation for all communications and air transportation taxes.

• Communications tax generally uses the taxable amount paid for qualifying communications services and the applicable 3% rate.
• Passenger air transportation tax generally uses the taxable amount paid and the applicable 7.5% rate, together with any applicable domestic-segment tax.
• International air travel facilities tax generally uses a fixed per-person amount that is periodically adjusted.
• Transportation of property by air generally uses the taxable amount paid and the applicable 6.25% rate.

Businesses should verify current IRS instructions when calculating taxes that involve inflation-adjusted amounts or special rules.

Regular vs. Alternative Deposit Method

Communications and air transportation taxes can be subject to federal excise tax deposit requirements.

The IRS provides regular and alternative methods for determining certain deposits.

A semimonthly period generally covers the first 15 days of a month and the remainder of the month.

Businesses using the alternative method should maintain appropriate records showing taxes included in amounts billed or tickets sold and related adjustments.

Deposit deadlines are separate from quarterly Form 720 filing deadlines. Businesses should review current IRS instructions when determining deposit requirements.

What If the Tax Cannot Be Collected?

If a person liable for communications or air transportation tax refuses to pay the tax, or collection is impossible, the collecting agent may have an uncollected tax reporting requirement.

The required information generally includes details about:

• The taxpayer
• The taxable service or transportation
• The taxable amount
• The transaction

The uncollected tax report is handled separately from Form 720 according to applicable IRS procedures.

Credits and Refunds

A business may sometimes collect communications or air transportation tax on a payment that is later determined to be nontaxable or exempt.

Depending on the circumstances, a credit, adjustment, or refund may be available.

The collector may need to repay the tax to the customer or obtain the customer's consent before claiming certain credits or refunds.

Applicable Form 720, Form 720-X, and IRS refund procedures should be reviewed when making an adjustment or refund claim.

When Are Communications and Air Transportation Taxes Reported?

Communications and air transportation excise taxes are generally reported quarterly on Form 720.

If the due date falls on a Saturday, Sunday, or legal holiday, IRS rules generally move the deadline to the next business day.

Quarterly Form 720 filing deadlines and federal excise tax deposit deadlines are separate requirements.

When your communications or air transportation tax information is ready, you can file the applicable Form 720 electronically with Excise720.

How to Prepare for Form 720 Filing

Before filing communications or air transportation taxes, identify the applicable tax category and gather the necessary records. Useful information can include:

Accurate records are particularly important when taxable and nontaxable services are included in the same transaction.

Once the required information is available, Excise720 can be used to prepare and e-file Form 720 for applicable communications and air transportation taxes.

Common Communications & Air Transportation Tax Filing Mistakes

• Using the wrong IRS number: Communications, passenger transportation, international facilities, and property transportation use different Form 720 IRS numbers.
• Applying the wrong tax rate: The 6.25% rate generally applies to taxable transportation of property by air, not international passenger travel.
• Missing domestic segments: Taxable passenger transportation may involve a 7.5% tax plus a separate tax for each taxable domestic segment.
• Using outdated amounts: Domestic-segment and international facilities amounts can be periodically adjusted.
• Treating every communications service as taxable: Federal communications excise tax applies only to qualifying taxable services.
• Missing exemptions: Certain air transportation activities may qualify for exemptions or special tax treatment.
• Confusing deposits with filing deadlines: Excise tax deposit requirements and quarterly Form 720 filing deadlines are separate.

Communications & Air Transportation Tax Filing Checklist

Before filing, confirm that you have:

1. Identified the correct taxable service or transportation.
2. Selected the correct Form 720 IRS number.
3. Calculated taxable payments correctly.
4. Checked current inflation-adjusted amounts when applicable.
5. Identified applicable domestic flight segments.
6. Reviewed available exemptions.
7. Determined applicable deposit requirements.
8. Reconciled excise tax deposits.
9. Maintained billing, ticket, and transportation records.
10. Reported each liability on the correct Form 720 line.

Communications & Air Transportation Tax Filing Pricing

Frequently Asked Questions