What is an Federal Excise Tax?

An excise tax is a tax on use or consumption of certain products. Excise taxes (sometimes called “duties”) are sometimes included in the price of a product, such as motor fuels, cigarettes, and alcohol. Excise taxes may also be imposed on some activities, like gambling. Excise taxes may be imposed by the federal government or by a state.

What products must I pay excise taxes on?

Businesses must pay excise taxes on:

  • Environmental products, such as domestic petroleum oil spills and ozone-depleting chemicals.
  • Communications and air transportation taxes
  • Fuels used in business
  • Purchase of trucks, trailers, semi-trailers (at a percentage of the sales price)
  • Ship passenger tax (per passenger)
  • Manufacturers Taxes on coal, taxable tires, gas guzzlers, etc.
  • Foreign insurance taxes
  • Sport fishing equipment, fishing rods, poles, outboard motors, etc.
  • Floor stocks tax on ozone-depleting chemicals

How Do I File Form 720?

Quarterly Federal Excise Tax Return, is used to report and on excise taxes collected by the business for a variety of products and services. Use Schedule A to show the amount of your total liability for excise taxes for the quarter.

Excise Taxes as a Trust Fund Tax

Excise taxes are a trust fund tax, meaning that they are collected by the business and held in trust, then paid to the IRS at specific times. If the full amount of the tax is not submitted when due, a trust fund recovery penalty may be imposed.