Fuel Excise Taxes: Form 720 Filing Guide

Fuel Excise Taxes at a Glance

The correct IRS number depends on the fuel, how it is sold or used, and the event that creates the tax liability.

What Are Federal Fuel Excise Taxes?

Federal Fuel Excise Taxes are taxes imposed on certain taxable fuels and fuel transactions.

Depending on the fuel, tax can arise from events such as:

• Removal from a terminal
• Entry into the United States
• Sale of taxable fuel
• Use of taxable fuel
• Certain blending activities
• Delivery into the fuel supply tank of a vehicle or motorboat
• Certain aviation fuel transactions

Fuel taxes are generally reported in Part I of Form 720, Quarterly Federal Excise Tax Return.

Special rules apply depending on the fuel and transaction.

Who May Be Responsible for Fuel Excise Tax?

The person responsible for federal fuel excise tax depends on the taxable event.

Potentially responsible parties can include certain:

• Terminal operators
• Position holders
• Fuel importers
• Fuel producers
• Fuel blenders
• Fuel sellers
• Fuel users
• Alternative fuel sellers
• Aviation fuel operators
• Fractional aircraft program managers

Simply purchasing or using fuel does not automatically mean that a person must report fuel tax on Form 720.

Businesses should identify the specific taxable event and determine who is liable under the applicable fuel tax rules.

Diesel Fuel Tax — IRS No. 60

Federal excise tax generally applies to taxable diesel fuel.

Diesel fuel liability can arise from removal at a terminal rack and certain other taxable events.

Form 720 separates diesel reporting according to the type of transaction, including:

• Diesel removed at a terminal rack
• Diesel subject to tax from other taxable events
• Certain biodiesel blending transactions

The federal diesel fuel tax is generally $0.244 per gallon.

The applicable gallons are reported under IRS No. 60.

Businesses should maintain records supporting the number of taxable gallons and the transaction that created the liability.

Gasoline Tax — IRS No. 62

Federal excise tax generally applies to taxable gasoline.

Tax can arise from several taxable events, including when gasoline is:

• Removed from a refinery or terminal
• Entered into the United States
• Involved in another taxable transaction under federal fuel tax rules

The federal gasoline tax is generally $0.184 per gallon.

Taxable gasoline is reported under IRS No. 62.

Certain gasoline blending transactions can also create fuel excise tax liability.

Businesses should determine the number of taxable gallons and the event that caused the tax before completing Form 720.

Kerosene Tax — IRS No. 35

Federal excise tax generally applies to taxable kerosene.

Kerosene tax can arise from removal at a terminal rack and certain other taxable events.

The general federal kerosene tax is $0.244 per gallon, although different rules and reduced rates can apply when kerosene is used in aviation or for qualifying nontaxable purposes.

Taxable kerosene that is not reported under the separate aviation fuel rules is generally reported under IRS No. 35.

Aviation Gasoline — IRS No. 14

Federal excise tax also applies to aviation gasoline.

Aviation gasoline is reported separately from regular gasoline under IRS No. 14.

The applicable tax depends on the taxable gallons and federal aviation gasoline rules.

Businesses handling aviation gasoline should distinguish it from kerosene-based aviation fuel because the IRS numbers and tax treatment are different.

Kerosene for Use in Aviation — IRS Nos. 69, 77 and 111

Kerosene used in aviation has separate Form 720 reporting rules.

Depending on the use and transaction, the applicable IRS number can include:

• IRS No. 69 — certain kerosene removed directly into an aircraft fuel tank for use in aviation.
• IRS No. 77 — certain kerosene used in commercial aviation. This reporting category applies under specific registration requirements.
• IRS No. 111 — certain kerosene removed directly into an aircraft for qualifying nontaxable aviation uses.

Different tax rates apply depending on the aviation use, including:

• Noncommercial aviation
• Commercial aviation
• A qualifying nontaxable use

Businesses should identify the aviation use before selecting the IRS number and applicable rate.

Dyed Diesel and Dyed Kerosene — LUST Tax

Certain transactions involving dyed diesel fuel and dyed kerosene can be subject to the Leaking Underground Storage Tank (LUST) tax even when the regular highway fuel tax does not apply.

Form 720 includes:

• IRS No. 105 — Dyed diesel, LUST tax
• IRS No. 107 — Dyed kerosene, LUST tax
• IRS No. 119 — LUST tax on certain other exempt removals

The LUST tax for applicable transactions is generally $0.001 per gallon.

The fact that fuel is dyed does not by itself determine whether a particular taxpayer must file Form 720. Liability depends on the transaction and applicable federal fuel tax rules.

Other Fuels — IRS No. 79

Certain fuels that do not fall within the primary gasoline, diesel, kerosene, or alternative fuel categories can be reported under IRS No. 79.

The applicable rate depends on the particular fuel. Examples can include certain qualifying or partially exempt fuels.

Because multiple rates can apply under IRS No. 79, businesses should identify the specific fuel before calculating the tax.

Alternative Fuel Taxes

Federal excise tax applies to certain alternative fuels delivered into the fuel supply tank of a motor vehicle or motorboat and to certain other taxable alternative fuel transactions.

Form 720 uses separate IRS numbers for different alternative fuels.

Alternative fuel tax calculations can use different measurement methods and tax rates depending on the fuel.

Businesses should identify the correct fuel and applicable IRS number before calculating the tax.

Fractional Ownership Program Aircraft Fuel — IRS No. 13

A federal surtax applies to certain fuel used in an aircraft that is part of a fractional ownership program.

The fractional ownership program manager is generally responsible for this surtax.

The surtax is reported under IRS No. 13 and applies in addition to the applicable fuel tax.

Special rules determine whether an aircraft arrangement qualifies as a fractional ownership program.

What Is Schedule T?

Schedule T (Form 720), Two-Party Exchange Information Reporting, is used to report certain taxable fuel transactions involving two-party exchanges.

A two-party exchange generally involves a transaction where taxable fuel is transferred between registered parties under applicable IRS rules.

Schedule T is not required for every Form 720 fuel tax filer. It is completed when the filer has transactions that meet the applicable Schedule T reporting requirements.

Businesses involved in reportable two-party exchanges should maintain accurate information about the parties, fuel type, and gallons transferred.

How Are Fuel Excise Taxes Calculated?

Fuel excise taxes are generally calculated using the quantity of taxable fuel and the applicable tax rate. A common calculation is:

For example, gasoline, diesel, and kerosene have different federal tax rates.

Alternative fuels can also use different rates and measurement methods depending on the fuel.

Aviation fuel can have different rates depending on how the fuel is used.

Businesses should identify:

• Fuel type
• Taxable event
• Taxable quantity
• Applicable IRS number
• Applicable tax rate

before calculating the Form 720 liability.

Fuel Tax Exemptions and Nontaxable Uses

Certain fuel transactions or uses may qualify for exemption, reduced-rate treatment, a credit, or a refund when applicable IRS requirements are met.

Depending on the fuel, qualifying uses can include certain:

• Farming uses
• Off-highway business uses
• Exports
• Commercial fishing uses
• Bus uses
• School bus uses
• Government uses
• Aviation uses
• Foreign trade
• Other specifically defined nontaxable uses

The rules vary significantly by fuel and transaction.

A nontaxable use does not necessarily mean that the fuel should simply be omitted from all federal excise tax reporting. The applicable tax, credit, refund, or claim procedure depends on the specific circumstances.

Fuel Tax Credits and Claims

Eligible taxpayers may be able to claim credits for certain fuel taxes.

When a taxpayer is filing Form 720 and reporting a liability in Part I or Part II, certain eligible fuel claims can be reported using Schedule C (Form 720).

Fuel claims can involve qualifying:

• Nontaxable uses
• Exports
• Ultimate purchasers
• Registered ultimate vendors
• Aviation fuel transactions
• Other eligible fuel transactions

Each claim has specific eligibility requirements and may require a Credit Reference Number (CRN), registration information, certificates, or supporting documentation.

The same fuel tax amount should not be claimed more than once.

Form 637 and Fuel Tax Registration

Certain fuel tax activities require registration with the IRS using Form 637, Application for Registration (For Certain Excise Tax Activities).

Registration requirements can apply to certain:

• Fuel producers
• Fuel importers
• Terminal operators
• Position holders
• Ultimate vendors
• Aviation operators
• Other participants in specified fuel transactions

Form 637 registration is not required for every fuel taxpayer.

Businesses should determine whether registration applies to their specific fuel activity.

When Are Fuel Excise Taxes Reported?

Fuel Excise Taxes reported on Form 720 generally follow the quarterly Form 720 filing schedule.

If the due date falls on a Saturday, Sunday, or legal holiday, the return is generally due on the next business day.

Many fuel taxes reported in Part I are also subject to federal excise tax deposit requirements.

The deposit schedule is separate from the quarterly Form 720 filing deadline.

How to Prepare for Fuel Excise Tax Filing

Before preparing Form 720, identify the fuel transactions that occurred during the reporting period. Useful information can include:

Only gather the information relevant to the fuel taxes your business is reporting.

Once your fuel tax information is ready, Excise720 can be used to prepare and electronically file Form 720 for applicable Fuel Excise Taxes.

Common Fuel Excise Tax Filing Mistakes

• Using the wrong IRS number: Gasoline, diesel, kerosene, aviation fuel, and alternative fuels use different Form 720 reporting numbers.
• Reporting the wrong number of gallons: Fuel tax calculations depend heavily on accurate quantity records.
• Applying the wrong fuel rate: Rates differ depending on fuel type and, in some cases, how the fuel is used.
• Confusing gasoline and aviation gasoline: These fuels have separate Form 720 reporting categories.
• Incorrect aviation fuel classification: Commercial, noncommercial, and qualifying nontaxable aviation uses can have different treatment.
• Assuming Schedule T always applies: Schedule T is only required for applicable reportable transactions.
• Missing Form 637 requirements: Certain fuel activities require IRS registration.
• Claiming an ineligible fuel credit: Fuel tax claims have specific claimant, use, registration, and documentation requirements.
• Missing deposit requirements: Many Part I fuel taxes have deposit requirements separate from the Form 720 filing deadline.

Fuel Excise Tax Filing Checklist

Before filing, confirm that you have:

1. Identified each taxable fuel.
2. Determined the taxable event.
3. Selected the correct IRS number.
4. Identified who is responsible for the tax.
5. Determined the taxable gallons or other applicable quantity.
6. Used the correct tax rate.
7. Reviewed applicable exemptions and nontaxable uses.
8. Checked Form 637 registration requirements.
9. Reviewed Schedule T requirements.
10. Reviewed applicable Schedule C claims.
11. Verified federal excise tax deposits.
12. Maintained supporting fuel transaction records.
13. Reported the tax in the correct section of Form 720.

Fuel Excise Tax Filing Pricing

Frequently Asked Questions