How to Report and Pay Excise Taxes for a Business
An excise tax is a tax on the 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.
The Products You Must 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
In most cases, your business may be responsible for collecting these taxes and passing on the collected taxes to the IRS. For example, you should collect the tanning salon excise tax from customers.
The Tanning Salon Excise Tax
This excise tax on tanning salons began in 2010 and was instituted under the Affordable Care Act (Obamacare). The tax is 10% on tanning services that involve "phototherapy," but no tax is levied on spray tans. The tanning salon must keep records and pay the tax on services performed. The tax must be paid by all tanning salons, including those that are not "qualified physical fitness" facilities. You can find more information from the IRS.
Filing Form 720
Form 720, the 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.
Form 720 includes several pages of excise taxes that your business might have to pay and the rate. You would need to add up all the possible taxes in order to calculate a payment.
When Federal Excise Taxes Are Due
You must file Form 720 quarterly, one month after the end of the quarter:
- Quarter-end March - file by April 30
- Quarter-end June - July 31
- Quarter-end Sept. - Oct 31
- Quarter-end December - January 31
If the due date is a weekend or holiday, the form is due the next business day. You can e-file Form 720 using the IRS EFTPS system or send it in by mail. Read the instructions for Form 720, for more information.
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.
Even if you forgot to collect the tax from your customers, you must still pay it to the IRS. If you are in a business that has taxable products or services, be sure to set up collection and record-keeping systems to keep track of these amounts.