Ship Passenger Tax: Form 720 & IRS No. 29 Filing Guide

Ship Passenger Tax at a Glance

What Is the Ship Passenger Tax?

The Ship Passenger Tax is a $3 federal excise tax imposed for each passenger on certain taxable commercial ship voyages.

The tax applies in two primary situations:

• Certain voyages on commercial passenger vessels that extend for more than 24 hours.
• Certain voyages involving passengers engaged in gambling beyond the territorial waters of the United States.

The operator of the vessel is liable for the tax.

Ship Passenger Tax is reported on Form 720 under IRS No. 29 – Transportation by Water.

Who Is Responsible for Ship Passenger Tax?

The person providing the voyage, generally the operator of the vessel, is liable for the Ship Passenger Tax.

Businesses that operate commercial passenger vessels should determine whether their voyages meet the IRS requirements for taxation.

The tax is based on the number of taxable passengers rather than the amount charged for tickets.

What Voyages Are Subject to Ship Passenger Tax?

There are two primary taxable situations under the federal Ship Passenger Tax rules.

Overnight Commercial Passenger Voyages

The $3 tax generally applies to each passenger on a commercial passenger vessel when:

• The vessel has berth or stateroom accommodations for at least 17 passengers; and
• The voyage extends over one or more nights.

For this tax, a voyage extends over one or more nights when it lasts longer than 24 hours.

Gambling Voyages

The tax can also apply to passengers on a commercial vessel when passengers engage in gambling aboard the vessel beyond the territorial waters of the United States.

This rule can apply even when the vessel does not meet the overnight passenger-voyage requirements.

What Is a Passenger?

For Ship Passenger Tax purposes, a passenger generally means an individual carried on the vessel.

However, certain individuals working in connection with the vessel are not treated as passengers.

This generally includes:

• The master of the vessel
• Crew members
• Other individuals engaged in the business of the vessel or its owners

Whether another person traveling on the vessel qualifies as a passenger depends on the person's role and the circumstances of the voyage.

What Is a Voyage?

A voyage generally includes the vessel's journey involving its outward and homeward trips or passages.

The voyage begins when the vessel starts loading passengers and continues until it has completed at least one outward and one homeward passage.

Ship Passenger Tax may apply even if an individual passenger does not complete both portions of the voyage, provided the applicable voyage begins or ends in the United States.

When Is a Voyage Considered to Begin or End in the United States?

For Ship Passenger Tax purposes, a voyage begins or ends in the United States when passengers first embark or finally disembark from the vessel in the United States.

A voyage may therefore involve foreign destinations and still be subject to the federal Ship Passenger Tax when the applicable requirements are satisfied.

The specific itinerary should be reviewed when determining whether the voyage is taxable.

How Is Ship Passenger Tax Calculated?

The calculation is straightforward:

For example, if a qualifying voyage has 500 taxable passengers:

The operator should maintain accurate passenger records for each taxable voyage.

When preparing the return, Excise720 can be used to enter the applicable passenger count and prepare the Ship Passenger Tax reported under IRS No. 29.

When Is Ship Passenger Tax Imposed?

The $3 tax is imposed only once for each taxable passenger.

Depending on the voyage, the tax is imposed at the time of the passenger's first embarkation or disembarkation in the United States.

This prevents the same passenger from being subject to the Ship Passenger Tax multiple times for the same taxable voyage.

Gambling Voyages and Territorial Waters

A separate taxable situation exists when a commercial vessel transports passengers who engage in gambling aboard the vessel beyond U.S. territorial waters.

For this purpose, U.S. territorial waters generally include waters:

• Within the international boundary between the United States and a contiguous foreign country; or
• Within 3 nautical miles from the U.S. coastline.

The gambling activity must meet the applicable federal definition for the voyage to be subject to this rule.

Operators offering gambling voyages should maintain sufficient voyage and passenger records to support their Form 720 reporting.

What Passenger Records Should Be Maintained?

Accurate passenger counts are important because Ship Passenger Tax is calculated on a per-passenger basis.

Useful records can include:

Records should support the number of taxable passengers reported under IRS No. 29.

How Is Ship Passenger Tax Reported on Form 720?

Ship Passenger Tax is reported on Form 720 under IRS No. 29 – Transportation by Water.

The general filing process is:

1. Identify potentially taxable voyages.
2. Determine whether each voyage meets the IRS taxable-voyage requirements.
3. Determine the number of taxable passengers.
4. Apply the $3-per-passenger tax.
5. Report the number of taxable passengers under IRS No. 29.
6. Calculate the resulting Ship Passenger Tax.
7. Maintain supporting voyage and passenger records.

Once your passenger information is ready, you can use Excise720 to prepare and electronically file the applicable Form 720 online.

When Is Ship Passenger Tax Reported?

Ship Passenger Tax is generally reported quarterly on Form 720.

If a filing deadline falls on a Saturday, Sunday, or legal holiday, the filing deadline generally moves to the next business day.

Operators should report taxable passenger activity for the applicable quarter.

How to Prepare for Ship Passenger Tax Filing

Before preparing Form 720, gather the information necessary to identify taxable voyages and passengers. Useful information can include:

Review each voyage separately to determine whether it meets the IRS requirements for Ship Passenger Tax.

Once the required information is available, Excise720 can be used to prepare and e-file Form 720 for applicable Ship Passenger Tax under IRS No. 29.

Common Ship Passenger Tax Filing Mistakes

• Reporting every passenger voyage as taxable: Ship Passenger Tax applies only when the applicable IRS requirements are met.
• Using ticket revenue to calculate the tax: The tax is $3 per taxable passenger, not a percentage of ticket revenue.
• Counting crew members as passengers: The master, crew members, and certain individuals engaged in the business of the vessel are generally not treated as passengers.
• Misunderstanding the overnight rule: For this tax, an applicable voyage extends over one or more nights when it lasts longer than 24 hours.
• Missing gambling voyages: Certain commercial voyages involving passenger gambling beyond U.S. territorial waters can also be taxable.
• Incorrect passenger counts: Because the tax is calculated per passenger, accurate passenger records are important.
• Using the wrong Form 720 IRS number: Ship Passenger Tax is reported under IRS No. 29.

Ship Passenger Tax Filing Checklist

Before filing, confirm that you have:

1. Identified potentially taxable voyages.
2. Determined whether each voyage meets IRS requirements.
3. Verified the voyage duration.
4. Determined the number of taxable passengers.
5. Excluded qualifying crew and other non-passengers.
6. Reviewed gambling voyage rules when applicable.
7. Confirmed applicable embarkation and disembarkation information.
8. Calculated tax at $3 per taxable passenger.
9. Reported the passenger count under IRS No. 29.
10. Maintained supporting voyage and passenger records.

Ship Passenger Tax Filing Pricing

Frequently Asked Questions