US Internal Revenue Service: p510--1999

8/14/2019 US Internal Revenue Service: p510--1999

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Contents

Important Changes ............................ 2

Introduction ........................................ 2

Excise Taxes Not Covered ................ 2

Registration for Certain Activities .... 2

Environmental Taxes ......................... 2

Ozone-Depleting Chemicals ........... 3

Communications and AirTransportation Taxes .................. 4

Communications Tax ...................... 4

Air Transportation Taxes ................ 5

Fuel Taxes ........................................... 7

Registration Requirements ............. 7

Gasoline .......................................... 7

Gasohol ........................................... 10

Diesel Fuel and Kerosene .............. 11

Aviation Fuel ................................... 14

Special Motor Fuels ........................ 15

Compressed Natural Gas ............... 16

Fuels Used on Inland Waterways .. 16Alcohol Sold As Fuel But Not UsedAs Fuel ..................................... 17

Manufacturers Taxes ......................... 17

Tax Liability ..................................... 17

Sport Fishing Equipment ................ 18

Bows ............................................... 18

Arrows ............................................. 18

Coal ................................................. 18

Tires ................................................ 19

Gas Guzzler Tax ............................. 19

Vaccines ......................................... 20

Tax on Heavy Trucks, Trailers, andTractors ........................................ 20

Ship Passenger Tax ........................... 22

Luxury Tax .......................................... 23

Other Excise Taxes ............................ 23

Policies Issued by Foreign Insurers 23

Obligations Not in Registered Form 24

Filing Form 720 .................................. 24

Paying the Taxes ................................ 24

Deposit Requirements .................... 24

Penalties and Interest ........................ 26

Examination and Appeal Procedures 26

Help With Unresolved Tax Issues .... 26

Rulings Program ................................ 26

Appendix AWagering Taxes .......... 27

Appendix BImported ProductsTable ............................................. 28

Appendix CModel Certificates ...... 33

How To Get More Information .......... 42

Index .................................................... 42

Departmentof theTreasury

InternalRevenueService

Publication 510(Rev. November 1998)Cat. No. 15014I

Exc ise Taxes

for 1999


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Important Changes

Air transportation taxes. For transportationbeginning in 1999, the taxes on transportationof persons by air are as follows.

For 1999, the tax on the use of interna-tional air travel facilities is $12.20 for botharrivals and departures. For air transportationbetween the continental United States andAlaska or Hawaii or between Alaska andHawaii, the tax on departures is $6.10.

Luxury tax. For 1999, the luxury tax on apassenger vehicle is 6% of the amount of thesales price that exceeds the base amount of$36,000. The base amount is increased forelectric vehicles and clean-fuel vehicles.

Vaccines. Any vaccine against rotavirusgastroenteritis is subject to the tax on vac-cines. This applies to sales or deliveries after

October 21, 1998.

Electronic deposit requirement. You mustmake electronic deposits for alldepository taxliabilities that occur after December 31, 1998,if you meet either of the following conditions.

Your Medicare, social security, railroadretirement, and withheld income taxeswere more than $50,000 in 1997.

You did not deposit employment taxes,but you had deposits of other depositorytaxes (such as excise taxes) that weremore than $50,000 in 1997.

If you were first required to use the Elec-tronic Federal Tax Payment System (EFTPS)to deposit taxes after June 30, 1997, you willnot be subject to a penalty for failure to makeelectronic deposits before July 1, 1999. SeeDeposit Requirements under Paying theTaxes.

IntroductionThis publication covers the excise taxes forwhich you may be liable during 1999. It cov-ers the excise taxes reported on Form 720,Quarterly Federal Excise Tax Return. It alsoprovides information on wagering activitiesreported on Forms 11C and 730.

Useful ItemsYou may want to see:

Publication

378 Fuel Tax Credits and Refunds

Form (and Instructions)

11C Occupational Tax and Registra-tion Return for Wagering

637 Application for Registration (ForCertain Excise Tax Activities)

720 Quarterly Federal Excise Tax Re-turn

730 Tax on Wagering

1363 Export Exemption Certificate

6197 Gas Guzzler Tax

6627 Environmental Taxes

8849 Claim for Refund of Excise Taxes

See How To Get More Information nearthe end of this publication for informationabout getting publications and forms.

Excise TaxesNot CoveredIn addition to the taxes discussed in thispublication, you may have to use other formsto report certain other excise taxes.

These forms and taxes are as follows.

IRS Form 2290: Heavy Vehicle Use Tax.

ATF Form 5630.5: Alcohol, Tobacco.

ATF Form 5630.7: Firearms.

ATF Form 5300.26: Firearms.

If any of these taxes appear to apply to you,

see the following discussions for informationabout them.

Bureau of Alcohol, Tobacco, andFirearms (ATF). If you need formsor information about the ATF forms,

write to or call:

Tax Processing CenterSpecial Occupational TaxP.O. Box 145433Cincinnati, OH 452505433(513) 6842979 or 18009378864

National Revenue CenterExcise Tax550 Main Street

Cincinnati, OH 452503263(513) 6843334 or 18003982282

IRS Form 2290:Highway Use TaxYou report the federal excise tax on the useof certain trucks, truck tractors, and buses onpublic highways on Form 2290. The tax ap-plies to highway motor vehicles with taxablegross weights of 55,000 pounds or more.Vans, pickup trucks, panel trucks, and similartrucks generally are not subject to this tax.

A public highway is any road in the UnitedStates that is not a private roadway. This in-cludes federal, state, county, and city roads.Canadian and Mexican heavy vehicles oper-ated on U.S. highways may be liable for thistax. For more information, get the instructionsfor Form 2290.

Registration of vehicles. Generally, youmust prove that you paid your federal high-way use tax before registering your taxablevehicle with your state motor vehicle depart-ment. Generally, a copy of Schedule 1 ofForm 2290, stamped after payment and re-turned to you by the IRS, is acceptable proofof payment.

ATF Form 5630.5:Alcohol, Tobacco;ATF Form 5630.7: FirearmsA number of excise taxes apply to alcoholicbeverages, tobacco products, and firearms.If you produce, sell, or import guns, tobacco,or alcoholic products, or if you manufactureequipment for their production, you may beliable for one or more excise taxes. Use Form5630.5 (Alcohol, Tobacco) or Form 5630.7(Firearms), Special Tax Registration and Re-

turn, to register your place of business andpay an annual tax. The businesses coveredby Form 5630.5 include:

Brewers and dealers of liquor, wine, orbeer.

Distillers, importers, wholesale and retaildealers of distilled spirits.

Manufacturers who use alcohol toproduce nonbeverage products.

Importers and wholesalers of importedperfumes.

The businesses covered by Form 5630.7include manufacturers, importers, and dealersin firearms (National Firearms Act).

ATF Form 5300.26: FirearmsUse ATF Form 5300.26, Federal Firearmsand Ammunition Excise Tax Return, to de-termine your firearms excise tax liability. Mailall domestic firearms excise tax returns to thespecial purpose post office box (lockbox) asindicated on the return form. File returns forPuerto Rico and Virgin Islands with the Chief,Puerto Rico Operations, Alcohol, Tobacco,and Firearms.

Registration for

Certain ActivitiesYou must register for certain excise tax ac-tivities. See the instructions for Form 637 forthe list of activities for which you must regis-ter. Each business unit that has, or shouldhave, a separate employer identificationnumber must register.

To apply for registration, use Form 637and provide the information requested in itsinstructions. File the form with the district di-rector for the district in which your books andrecords and principal place of business arelocated.

If the district director approves your appli-cation, you will receive a letter of registrationshowing the activities for which you are reg-istered, the effective date of the registration,

and your registration number. A copy of Form637 is not a letter of registration.

Environmental TaxesEnvironmental taxes are imposed on ozone-depleting chemicals. Figure the environ-mental tax on Form 6627. Enter the tax on theappropriate lines of Form 720. Attach Form6627 to Form 720 as a supporting schedule.

For environmental tax purposes, UnitedStates includes the 50 states, the District ofColumbia, the Commonwealth of Puerto Rico,any possession of the United States, theCommonwealth of the Northern Mariana Is-

TransportationBeginning

Percent-age Tax

Domestic-Segment

Tax

Before October 1, 1999 . ..... 8% $2.00

Af ter September 30, 1999 . . 7.5% $2.25

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lands, the Trust Territory of the Pacific Is-lands, the continental shelf areas (applyingthe principles of section 638 of the InternalRevenue Code), and foreign trade zones.No one is exempt from the environmentaltaxes, including the federal government, stateand local governments, Indian tribal govern-ments, and nonprofit educational organiza-tions.

Credits or refunds of environmental taxes.You can make a claim for credit or refund ofany overpayment of environmental taxes. Setforth in detail the grounds upon which youbase your claim and provide sufficient factsto support the claim.

You make a claim for refund of anyoverpayment of the tax on Form 8849. Youmake a claim for credit for any overpaymentof the tax on Form 720. Complete ScheduleC if you are filing a claim for a credit.

You may file a claim for refund for anyamount at any time within the 3-year statutoryperiod for filing a claim. There is no limit onthe number of claims for refund of environ-mental taxes that you may file in a year.There is no minimum dollar amount neces-sary for a claim.

Ozone-Depleting Chemicals(ODCs)Tax is imposed on chemicals that deplete theozone layer and on imported products con-taining or manufactured with these chemicals.In addition, a floor stocks tax is imposed onODCs held on January 1 by any person (otherthan the manufacturer or importer of theODCs) for sale or for use in further manufac-ture.

Taxable ODCsTax is imposed on an ODC when it is firstused or sold by its manufacturer or importer.The manufacturer or importer is liable for thetax.

For the taxable ODCs and tax rates, seeForm 6627.

Use of ODCs. You use an ODC if you put itinto service in a trade or business or for pro-duction of income. An ODC also is used if youuse it in the making of an article, includingincorporation into the article, chemical trans-formation, or release into the air. The loss,destruction, packaging, repackaging, orwarehousing of ODCs is not a use of theODC.

The creation of a mixture is treated as useof the ODC contained in the mixture. An ODCis contained in a mixture only if the chemicalidentity of the ODC is not changed. Generally,tax is imposed when the mixture is createdand not on its sale or use. However, you canchoose to have the tax imposed on its saleor use by checking the appropriate box in PartII of Form 6627. You can revoke this choiceonly with IRS consent.

The creation of a mixture for export or foruse as a feedstock is not a taxable use of theODCs contained in the mixture.

Exceptions. There is no tax on ODCs usedor sold for use as propellants in metered-doseinhalers.

Recycled. There is no tax on any ODCdiverted or recovered in the United States aspart of a recycling process (and not as partof the original manufacturing or productionprocess). There is no tax on recycled halon

1301 or 2402 imported from a country thathas signed the Montreal Protocol on Sub-stances that Deplete the Ozone Layer(Montreal Protocol).

The Montreal Protocol is administered bythe United Nations (U.N.). To determine if acountry has signed the Montreal Protocol,contact the U.N. The Internet address iswww.un.org/Depts/Treaty.

Export. Generally, there is no tax onODCs sold for export if certain requirementsare met. The tax benefit of this exemption islimited. For information on the requirementsand limit see section 52.4682-5 of the Envi-ronmental Tax Regulations.

Feedstock. There is no tax on ODCs soldfor use or used as a feedstock. An ODC isused as a feedstock only if the ODC is entirelyconsumed in the manufacture of anotherchemical. The transformation of an ODC intoone or more new compounds qualifies, butuse of an ODC in a mixture does not qualify.

For a sale to be nontaxable, you mustobtain a registration certificate that you relyon in good faith from the purchaser. Theregistration certificate must be in substantiallythe form set forth in section 52.46822(d)(2)of the regulations. Keep the certificate withyour records.

Imported Taxable ProductsTax is imposed on imported products con-taining or manufactured with ODCs when theproduct is first sold or used by its importer.The importer is liable for the tax. A product issubject to tax if it is entered into the UnitedStates for consumption, use, or warehousingand is listed in the Imported Products Table,discussed later.

Use of imported products. You use an im-ported product if you put it into service in atrade or business or for production of incomeor use it in the making of an article, includingincorporation into the article. The loss, de-struction, packaging, repackaging, ware-housing, or repair of an imported product isnot a use of that product.

Entry as use. The importer may chooseto treat the entry of products into the UnitedStates as the use of the product. Tax is im-posed on the date of entry. The choice ap-plies to all imported taxable products that youown and have not used when you make thechoice and all later entries. Make the choiceby checking the box in Part II of Form 6627.The choice is effective as of the beginning ofthe calendar quarter to which the Form 6627applies. You can revoke this choice only withIRS consent.

Sale of article incorporating importedproduct. The importer may treat the sale ofan article manufactured or assembled in theUnited States as the first sale or use of an

imported taxable product incorporated in thatarticle if:

You have consistently treated the sale ofsimilar items as the first sale or use ofsimilar taxable imported products, and

You have not chosen to treat entry intothe United States as use of the product.

Imported Products Table. The ImportedProducts Table appears in Appendix B at theend of this publication. Each listing in the ta-ble identifies a product by name and includesonly products that are described by thatname. Most listings identify a product by bothname and Harmonized Tariff Schedule (HTS)

heading. In those cases, a product is includedin that listing only if the product is describedby that name and the rate of duty on theproduct is determined by reference to thatHTS heading. A product is included in thelisting even if it is manufactured with or con-tains a different ODC than the one specifiedin the table.

Part II of the table contains a listing forelectronic items that are not included withinany other listing in the table. An importedproduct is included in this listing only if theproduct meets one of the following tests.

It is a component whose operation in-volves the use of nonmechanical amplifi-cation or switching devices such astubes, transistors, and integrated circuits.

It contains these components and morethan 15% of the cost of the product isfrom these components.

These components do not include passiveelectrical devices, such as resistors andcapacitors. Items such as screws, nuts, bolts,plastic parts, and similar specially fabricatedparts that may be used to construct an elec-tronic item are not themselves included in thelisting for electronic items.

Rules for listing products. Products are

listed in the table according to the followingrules.

1) A product is listed in Part I of the tableif it is a mixture containing ODCs.

2) A product is listed in Part II of the tableif the Commissioner has determined thatthe ODCs used as materials in themanufacture of the product under thepredominant method are used for pur-poses of refrigeration or air conditioning,creating an aerosol or foam, or manu-facturing electronic components.

3) A product is listed in Part III of the tableif the Commissioner has determined thatthe product meets both the following

tests.a) It is not an imported taxable prod-

uct.

b) It would otherwise be includedwithin a listing in Part II of the table.

For example, floppy disk drive units arelisted in Part III because they are not importedtaxable products and would have been in-cluded in the Part II listing for electronic itemsnot specifically identified, but for their listingin Part III.

The table gives the ODC weight in poundsper single unit of product unless otherwisespecified.

Base the tax on the weight of the ODCsused in the manufacture of the product. Fig-ure the tax based on either of the followingmeasures.

The actual weight of the ODCs used inmanufacturing the product.

The ODCs weight listed in the ImportedProducts Table for the product.

However, if you cannot determine the ac-tual ODC weight and the table does not listan ODC weight for the product, the rate of taxis 1% of the entry value of the product.

Modifying the table. A manufacturer orimporter of a product may request the IRS toadd a product and its ODC weight to the ta-ble. They also may request IRS to remove a

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product from the table, or change or specifythe ODC weight of a product. Your requestmust include all the following information foreach product to be modified.

The name of the product.

The HTS heading or subheading.

The type of modification requested.

The ODC weight that should be specified(unless the product is being removed).

The data supporting the request.

Include your name, address, taxpayeridentification number, and principalplace of business in your request.

Send your request to the following address.

Internal Revenue ServiceP.O. Box 7604Ben Franklin StationAttn: CC:DOM:CORP:R (ImportedProducts Table)Room 5228Washington, DC 20044

Floor Stocks TaxTax is imposed on any ODC held (other thanby the manufacturer or importer of the ODC)on January 1 for sale or use in further manu-facturing. The person holding title (as deter-mined under local law) to the ODCs is liablefor the tax.

These chemicals are taxable without re-gard to the type or size of storage containerin which the ODCs are held. The tax mayapply to an ODC whether it is in a 14-ouncecan or a 30-pound tank.

You are liable for the floor stocks tax if onJanuary 1 you hold any of the following.

1) At least 400 pounds of ODCs subject to

tax and not described in item (2) or (3).2) At least 50 pounds of ODCs that are

Halons subject to tax.

3) At least 1,000 pounds of ODCs that aremethyl chloroform subject to tax.

If you are liable for the tax, on January 1prepare an inventory of the taxable ODCsheld on that date for sale or for use in furthermanufacturing. You must pay this floor stockstax by June 30 of each year.

For the tax rates, see Form 6627.

Communications andAir TransportationTaxesExcise taxes are imposed on the users ofcertain facilities and services. If you are in thebusiness of furnishing communication ser-vices or air transportation and you receiveany payment on which tax is imposed, youare required to collect the tax, file returns, andpay the tax to the government. Ordinarily, thetax attaches at the time the payment is made.

If you fail to collect and pay over the taxes,you may be liable for the trust fund recoverypenalty. See Penalties and Interest, later.

Communications TaxThe 3% telephone excise tax is imposed onamounts paid for all the following services.

Local telephone service.

Toll telephone service.

Teletypewriter exchange service.

Local telephone service. Local telephoneservice is access to a local telephone system

and the privilege of telephonic quality com-munication with most people who are part ofthe system and any facility or services pro-vided in connection with the service. The taxapplies to lease payments for certain cus-tomer premises equipment (CPE) eventhough the lessor does not also provide ac-cess to a local telecommunications system.

Private communication service. Privatecommunication service is not local telephoneservice. Private communication service in-cludes accessory-type services provided inconnection with a Centrex, PBX, or othersimilar systems for dual use accessoryequipment. However, the charge for the ser-vice must be stated separately from thecharge for the basic system, and the acces-

sory must function in connection with inter-communication among the subscriber'sstations.

The tax applies to a communications sys-tem with direct inward and outward dialing,set up for a single subscriber (such as aCentrex-type PBX system) that does not in-clude any internal service for which a sepa-rate charge is made.

Toll telephone service. This means a tele-phonic quality communication for which a tollis charged that varies with the elapsed trans-mission time of each communication. The tollmust be paid within the United States. It alsoincludes a long distance service that entitlesthe subscriber to make unlimited calls

(sometimes limited as to the maximum num-ber of hours) within a certain area for a flatcharge. Microwave relay service used for thetransmission of television programs and notfor telephonic communication is not a tolltelephone service.

Teletypewriter exchange service. Thismeans access from a teletypewriter or otherdata station to a teletypewriter exchangesystem and the privilege of intercommuni-cation by that station with most persons hav-ing teletypewriter or other data stations in thesame exchange system.

Figuring the tax. The tax is based on thesum of all charges for local or toll telephoneservice included in the bill. However, if the billgroups individual items for billing and taxpurposes, the tax is based on the sum of theindividual items within that group. The tax onthe remaining items not included in any groupis based on the charge for each item sepa-rately. Do not include state or local taxes thatare separately stated (such as a retail salesor excise tax) on the taxpayer's bill in thecharges for the services.

If the tax on toll telephone service is paidby inserting coins in coin-operated tele-phones, figure the tax to the nearest multipleof 5 cents. When the tax is midway between5 cent multiples, the next higher multiple ap-plies.

Prepaid telephone cards. A prepaidtelephone card is any card or any other simi-lar arrangement that allows its holder to getlocal or toll telephone service that it may payfor in advance. The tax is imposed when thecard is transferred by a telecommunicationscarrier to any person who is not a telecom-munications carrier. The tax is based on theface amount of the card. This applies whetherthe card provides the holder with a dollaramount or number of minutes (or units) oftelephone service.

ExemptionsPayments for certain services or from certainusers are exempt from the communicationstax.

Installation charges. The tax does not applyto payments received for the installation ofany instrument, wire, pole, switchboard, ap-paratus, or equipment. The tax does apply topayments for the repair or replacement ofthose items, incidental to ordinary mainte-nance.

Answering services. The tax does not applyto amounts paid for a private line, an an-swering service, and a one-way paging or

message service if they do not provide ac-cess to a local telephone system and theprivilege of telephonic communication as partof the local telephone system.

Mobile radio telephone service. The taxdoes not apply to payments for a two-wayradio service that does not provide access toa local telephone system.

Coin-operated telephones. Paymentsmade for services by inserting coins in coin-operated telephones available to the publicare not subject to tax for local telephone ser-vice. They also are not subject to tax for tolltelephone service if the charge is less than25 cents. But the tax applies if the coin-

operated telephone service is furnished for aguaranteed amount. Figure the tax on theamount paid under the guarantee plus anyfixed monthly or other periodic charge.

Telephone-operated security systems.The tax does not apply to amounts paid fortelephones used only to originate calls to alimited number of telephone stations for se-curity entry into a building. In addition, the taxdoes not apply to any amounts paid for rentedcommunication equipment used in the secu-rity system.

News services and radio broadcasts ofnews and sporting events. The tax on tolltelephone service and teletypewriter ex-change service does not apply to news ser-vices and radio broadcasts of news andsporting events. This exemption applies topayments received for messages from onemember of the news media to another mem-ber (or to or from their bona fide correspond-ents). However, the tax applies to local tele-phone services and related charges. The taxdoes not apply to charges for services dealingexclusively with the collection or dissem-ination of news for the public press. It alsodoes not apply to charges for services usedin the collection or dissemination of news bya news ticker service furnishing a generalnews service similar to that of the publicpress. For the exemption to apply, the chargefor these services or facilities must be billed

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in writing to the person paying for the serviceand that person must certify in writing that theservices are used for one of these exemptpurposes. However, toll telephone service inconnection with celebrities or special guestson talk shows is subject to tax.

Common carriers and communicationscompanies. The tax on toll telephone ser-vice does not apply to WATS or WATS-likeservice used by common carriers, telephoneand telegraph companies, or radio broad-casting stations or networks in their business.A common carrier is one holding itself out tothe public as engaged in the business oftransportation of persons or property forcompensation, offering its services to thepublic generally.

Military personnel serving in a combatzone. The tax on toll telephone services doesnot apply to telephone calls originating in acombat zone that are made by members ofthe U.S. Armed Forces serving there if theperson receiving payment for the call receivesa properly executed certificate of exemption.The signed and dated exemption certificatemust contain all the following information.

The name of the person who called from

the combat zone and that the person wasa member of the U.S. Armed Forcesperforming services in the combat zone.

The toll charges, point of origin, andname of carrier.

A statement that the charges are exemptfrom tax under section 4253(d) of theInternal Revenue Code.

The name and address of the telephonesubscriber.

This exemption also applies to members ofthe Armed Forces serving in a qualified haz-ardous duty area. A qualified hazardous dutyarea means Bosnia and Herzegovina,Croatia, or Macedonia. A qualified hazardous

duty area includes a country only while thespecial pay provision is in effect for thatcountry.

International organizations and the Amer-ican Red Cross. The tax does not apply tocommunication services furnished to aninternational organization or to the AmericanNational Red Cross.

Nonprofit hospitals. The tax does not applyto telephone services furnished to incometax-exempt nonprofit hospitals for their use.Also, the tax does not apply to amounts paidby these hospitals to provide local telephoneservice in the homes of its personnel whomust be reached during their off-duty hours.

Nonprofit educational organizations. Thetax does not apply to payments received forservices and facilities furnished to a nonprofiteducational organization for its use. Anonprofit educational organization is one thatsatisfies all the following requirements.

It normally maintains a regular faculty andcurriculum.

It normally has a regularly enrolled bodyof pupils or students in attendance at theplace where its educational activities areregularly carried on.

It is exempt from income tax under IRC501(a).

This includes a school operated by an or-ganization that is exempt under IRC 501(c)(3)if the school meets the above qualifications.

Federal, state, and local government. Thetax does not apply to communication servicesprovided to the government of the UnitedStates, the government of any state or itspolitical subdivisions, the District of Columbia,or the United Nations. Treat an Indian tribalgovernment as a state for the exemptionfrom the communications tax only if the ser-vices involve the exercise of an essentialtribal government function.

Exemption certificate. Any form of ex-emption certificate will be acceptable if it in-cludes all the information required by thepertinent sections of the Internal RevenueCode and Regulations. File the certificate withthe provider of the communication services.

The following users that are exempt fromthe communications tax do not have to filean annual exemption certificate after theyhave filed the initial certificate of exemptionfrom the communications tax.

Red Cross and other international or-ganizations.

Nonprofit hospitals.

Nonprofit educational organizations.

State and local governments.

The federal government does not have tofile any exemption certificate.

All other organizations must furnish ex-emption certificates when required.

Air Transportation TaxesThe air transportation taxes apply to amountspaid for all the following services.

Transportation of persons by air.

Use of international air travel facilities.

Transportation of property by air.

Transportationof Persons by AirThe tax on transportation of persons by air ismade up of the following two parts.

The percentage tax.

The domestic-segment tax.

However, see Rural airports, later.

Percentage tax. The percentage tax appliesto amounts paid for taxable transportation ofpersons by air. Amounts paid for transporta-tion include charges for layover or waitingtime and movement of aircraft in deadhead

service. The percentage tax applies to pay-ments to air carriers (and related persons) forthe right to award air travel benefits, such asfrequent-flyer miles. See Air travel benefits,later.

The percentage tax rate depends on whenthe transportation begins. (However, see Ru-ral airports, later.) The rates and the periodsto which they apply are shown in the followingtable.

Air travel benefits. The percentage taxapplies at the rate of 7.5% to any amount paid(in cash or in kind) to an air carrier for the right

to award air travel benefits. These includemileage awards and other reductions in thecost of any transportation of persons by air.This applies to frequent-flyer miles purchasedby credit card companies, telephone compa-nies, restaurants, hotels, etc.

Domestic-segment tax. The domestic-segment tax is a flat dollar amount for eachsegment of taxable transportation for whichan amount is paid. However, see Rural air-ports, later. A segmentis a single takeoff and

a single landing. The domestic-segment taxrate depends on when the segment begins.The amounts and the periods to which theyapply are listed in the following table.

After 2002, the domestic-segment tax will beadjusted for inflation.

Example. In January 1999, Frank Jonespays $220 to a commercial airline for a flightin January from Washington to Chicago withan intermediate stop in Cleveland. The flight

comprises two segments. The price includesthe $200 fare and $20 excise tax [($200 8%) + (2 $2)] for which Frank is liable. Theairline collects the tax from Frank and pays itto the government.

Rural airports. If a segment is to or from arural airport, the percentage tax rate is 7.5%.The domestic-segment tax does not apply.An airport is a rural airport for a calendar yearif it satisfies both the following requirements.

1) Fewer than 100,000 commercial pas-sengers departed from the airport duringthe second preceding calendar year.

2) The airport:

a) Is not located within 75 miles ofanother airport from which 100,000or more commercial passengersdeparted during the second pre-ceding calendar year, or

b) Was receiving essential air servicesubsidies as of August 5, 1997.

Revenue Procedure 9818, 19986 I.R.B. 20,contains a list of rural airports.

Taxable transportation. Taxable transpor-tation is transportation by air that meets eitherof the following tests.

It begins and ends either in the United

States or at any place in Canada orMexico not more than 225 miles from thenearest point on the continental UnitedStates boundary (this is the225-mile-zone rule).

It is directly or indirectly from one port orstation in the United States to another inthe United States, but only if it is not apart of uninterrupted international airtransportation.

Round trip. A round trip is consideredtwo separate trips. The first trip is from thepoint of departure to the destination. Thesecond trip is the return trip from that desti-nation.

Time Period TaxJanuary 1, 1999September 30, 1999 ........ $2.00October 1, 1999December 30, 1999 ...... ... $2.25January 1, 2000December 31, 2000 ...... ... $2.50January 1, 2001December 31, 2001 ...... ... $2.75January 1, 2002December 31, 2002 ...... ... $3.00

Time Period TaxJanuary 1, 1999September 30, 1999 ......... 8%After September 30, 1999 .............................. 7.5%

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Uninterrupted international air trans-portation. This means transportation entirelyby air that does not begin and end in theUnited States or in the 225-mile zone if thereis not more than a 12-hour scheduled intervalbetween arrival and departure at any stationin the United States. For a special rule thatapplies to military personnel, see Exemptionsfrom tax, later.

Transportation between the continentalU.S. and Alaska or Hawaii. The tax ontransportation of persons by air does not ap-ply to the part of the trip between the pointat which the route of transportation leaves orenters the continental United States (or a portor station in the 225-mile zone) and the pointat which it enters or leaves Hawaii or Alaska.Leaving or entering occurs when the route ofthe transportation passes over either theUnited States border or a point 3 nauticalmiles (3.45 statute miles) from low tide on thecoast line, or when it leaves a port or stationin the 225-mile zone. Therefore, this trans-portation is subject to the percentage tax onthe part of the trip in U.S. airspace, thedomestic-segment tax for each domesticsegment, and a single use-of-international-facilities tax of $6.10 per one-way flight.

Transportation within Alaska or Hawaii.The tax on transportation of persons by air

applies to the entire fare paid in the case offlights between any of the Hawaiian Islands,and between any ports or stations in theAleutian Islands or other ports or stationselsewhere in Alaska. The tax applies eventhough parts of the flights may be over inter-national waters or over Canada, if no pointon the direct line of transportation betweenthe ports or stations is more than 225 milesfrom the United States (Hawaii or Alaska).

Package tours. The air transportation taxesapply to complimentary air transportation fur-nished solely to participants in package holi-day tours. The amount paid for these packagetours includes a charge for air transportation

even though it may be advertised as free.This also applies to the tax on the use ofinternational air travel facilities, discussedlater.

Liability for tax. The person paying for tax-able transportation is liable for the tax and,ordinarily, the person receiving the paymentcollects the tax and files the returns. How-ever, the tax must be collected by the personfurnishing the initial transportation providedfor under a prepaid order, exchange order,etc., paid for outside the United States.

A travel agency that is an independentbroker licensed by the ICC and sells tours onaircraft that it charters is required to collectthe transportation tax, file the returns, and pay

the tax. However, a travel agency that sellstours as the agent of an airline must collectthe tax and remit it to the airline for the filingof returns and for the payment of the tax.

The fact that aircraft may not use publicor commercial airports in taking off and land-ing has no effect on the tax. But see Certainhelicopter uses, later.

For taxable transportation that begins andends in the United States, the tax applies re-gardless of whether the payment is made inor outside the United States.

Secondary liability. If the tax is not paidwhen payment for the transportation is made,the air carrier providing the initial segment of

the transportation that begins or ends in theUnited States becomes liable for the tax.

Exemptions from tax. The tax on transpor-tation of persons by air does not apply in thefollowing situations.

Special rule for military personnel.When traveling in uniform at their own ex-pense, United States military personnel onauthorized leave are exempt from the tax onthe domestic part of uninterrupted interna-tional air transportation(defined earlier) even

if the scheduled interval between arrival anddeparture at any station in the United Statesis actually more than 12 hours. However, theymust buy their tickets within 12 hours afterlanding at the first domestic airport and ac-cept the first available accommodation of thetype called for by their tickets. The trip mustbegin or end outside the United States andthe 225-mile zone.

Certain helicopter uses. The tax ontransportation of persons by air does not ap-ply to air transportation by helicopter if thehelicopter is used for any of the followingpurposes.

Transporting individuals, equipment, orsupplies in the exploration for, or the de-

velopment or removal of, hard minerals,oil, or gas.

Planting, cultivating, cutting, transporting,or caring for trees (including logging op-erations).

However, the tax applies if the helicoptertakes off from, or lands at, a facility eligible forassistance under the Airport and Airway De-velopment Act of 1970, or otherwise usesservices provided under section 44509 or44913(b) or subchapter I of chapter 471 oftitle 49, United States Code, during such use.For helicopters used in exploration for, ordevelopment or removal of, hard minerals, oil,or gas, treat each flight segment as a sepa-rate flight.

Emergency medical transportation.The tax on transportation of persons by airdoes not apply to air transportation by heli-copter or fixed-wing aircraft if used for emer-gency medical transportation. The exemptionapplies to fixed-wing aircraft equipped for andexclusively dedicated on that flight to acutecare emergency medical services.

Skydiving. The tax does not apply to anyair transportation exclusively for the purposeof skydiving.

Bonus tickets. The tax does not applyto free bonus tickets issued by an airlinecompany to its customers who have satisfiedall requirements to qualify for the bonus tick-ets. However, the tax applies to amounts paidby customers for advance bonus tickets when

customers have traveled insufficient mileageto fully qualify for the free advance bonustickets.

Use of InternationalAir Travel FacilitiesA $12.20 tax is imposed on amounts paid(whether in or outside the United States) forinternational flights that begin or end in theUnited States. This tax does not apply if allof the transportation is subject to the per-centage tax, discussed earlier.

For a domestic segment that begins orends in Alaska or Hawaii, a $6.10 tax appliesto departures.

Transportationof Property by AirA tax of 6.25% is imposed on amounts paid(whether in or outside the United States) fortransportation of property by air. The fact thatthe aircraft may not use public or commercialairports in taking off and landing has no effecton the tax. The tax applies only to amountspaid to a person engaged in the business oftransporting property by air for hire.

The tax applies only to transportation (in-cluding layover time and movement of aircraft

in deadhead service) that begins and endsin the United States. Thus, the tax does notapply to transportation of property by air thatbegins or ends outside the United States.

The tax on transportation of property byair does not apply to amounts paid forcropdusting, aerial firefighting service, or useof helicopters in construction to settle heatingand air conditioning units on roofs ofbuildings, to dismantle tower cranes, and toaid in construction of power lines and ski lifts.

The tax does not apply to payments fortransportation of property by air in the courseof uninterrupted exportation (including toUnited States possessions). Get Form 1363,Export Exemption Certificate, for more de-tails.

The tax does not apply to air transporta-tion by helicopter or fixed-wing aircraft for thepurpose of providing emergency medicaltransportation. The exemption applies tofixed-wing aircraft equipped for and exclu-sively dedicated on that flight to acute careemergency medical services.

The tax does not apply to any air trans-portation exclusively for the purpose ofskydiving.

Alaska and Hawaii. For transportation ofproperty to and from Alaska and Hawaii, thetax in general does not apply to the portionof the transportation that is entirely outsidethe continental United States (and the225-mile zone). But the tax on transportationof property applies to flights between portsor stations in Alaska and the Aleutian Islands,as well as between ports or stations in Hawaii.The tax applies even though parts of theflights may be over international waters orover Canada, if no point on a line drawn fromwhere the route of transportation leaves theUnited States (Alaska) to where it reentersthe United States (Alaska) is more than 225miles from the United States.

Liability for tax. The person paying for tax-able transportation pays the tax and, ordinar-ily, the person engaged in the business oftransporting property by air for hire who re-ceives the payment collects the tax and filesreturns.

If tax is not included in a taxable payment

made outside the United States, the personfurnishing the last segment of air transporta-tion collects the tax from the person to whomthe property is delivered in the United States.

Baggage. Regular and excess baggage ac-companying a passenger on an aircraft oper-ated on an established line is not propertyunder these rules.

Mixed load of persons and property. If youreceive a flat amount for air transportation ofa mixed load of persons and property, allo-cate the payment between the amount sub-

ject to the tax on transportation of personsand the amount subject to the tax on trans-

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portation of property. Your allocation must bereasonable and supported by adequate rec-ords.

Special Rules onTransportation TaxesIn certain circumstances, the taxes on trans-portation of persons and property by air donot apply to amounts paid for those services.

Aircraft used by affiliated corporations.The taxes on transportation by air do not ap-

ply to payments received by one member ofan affiliated group of corporations from an-other member for services furnished in con-nection with the use of an aircraft. However,the aircraft must be owned or leased by amember of the affiliated group and cannot beavailable for hire by a nonmember of the af-filiated group. Determine whether an aircraftis available for hire by a nonmember of anaffiliated group on a flight-by-flight basis.

An affiliated group of corporations, for thisrule, is any group of corporations connectedwith a common parent corporation through80% or more stock ownership.

Small aircraft. Transportation taxes do notapply to transportation furnished by an aircraft

having a maximum certificated takeoff weightof 6,000 pounds or less. However, the taxesdo apply if the aircraft is operated on an es-tablished line. Operated on an establishedline means the aircraft operates with somedegree of regularity between definite points.

Consider aircraft operated on a charterbasis between two cities that are served bythat carrier on a regularly scheduled basis tobe operated on an established line.

Airline aircraft. Consider an aircraft usedby an airline not only on scheduled flights butalso to train its own pilots and carry its exec-utives on business flights to be used exclu-sively in commercial aviation. Thus, thetransportation taxes apply to its usenot thetax on fuels.

Fuel TaxesExcise taxes are imposed on all the followingfuels.

Gasoline.

Gasohol.

Diesel fuel.

Kerosene.

Aviation fuel other than gasoline.

Special motor fuels.

Compressed natural gas.

Fuels used in commercial transportationon inland waterways.

Registration RequirementsThe following discussion applies to registra-tion for purposes of the excise taxes on gas-oline, diesel fuel, and kerosene. The termsused in this discussion are explained later.See Registration for Certain Activities, earlier,for more information about registration.

Persons that must register. You must reg-ister if you are any of the following persons.

A blender.

An enterer.

A refiner.

A terminal operator.

A position holder.

In addition, bus and train operators mustregister if they will incur liability for tax at thebus or train rate.

Persons that may register. You may, butare not required to, register if you are any of

the following persons.

A gasohol blender.

An industrial user.

A throughputter that is not a positionholder.

A kerosene feedstock user.

An ultimate vendor of diesel fuel orkerosene.

Ultimate vendors do not need to register tobuy or sell diesel fuel or kerosene. However,they must be registered for filing certainclaims for the excise tax on these fuels.

Taxable fuel registrant. An enterer, an in-dustrial user, a refiner, a terminal operator,or a position holder who receives a letter ofregistration under this provision is a taxablefuel registrant if the registration has not beenrevoked or suspended. The term taxable fuelmeans gasoline, diesel fuel, and kerosene.The term registrant as used in the dis-cussions of these fuels means a taxable fuelregistrant.

Kerosene. For kerosene, a special ruleallows a person to be treated as a taxable fuelregistrant if, on June 30, 1998, either of thefollowing conditions are met.

The person is an enterer, refiner, terminaloperator, or throughputter of keroseneand is registered as a producer or

importer of aviation fuel. The person operates one or more termi-

nals that store only kerosene and eachposition holder at each terminal is a tax-able fuel registrant.

A person can only be treated as a regis-trant under this special rule until the earlierof:

The effective date of a registration issuedfor kerosene,

The effective date of a revocation orsuspension of registration, or

April 1, 1999.

Additional information. See the Form637 instructions for the information you mustsubmit when you apply for registration.

GasolineThe following discussion provides definitionsand an explanation of events relating to theexcise tax on gasoline.

DefinitionsThe following terms are used throughout thediscussion of gasoline. Some of these termsare also used in the discussions of diesel fueland kerosene. Other terms are defined in thediscussion to which they pertain.

Gasoline. This means finished gasoline andgasoline blendstocks. Finished gasolinemeans all products (including gasohol) thatare commonly or commercially known or soldas gasoline and are suitable for use as motorfuel. The product must have an octane ratingof 75 or more. Gasoline blendstocks are dis-cussed later.

To figure the number of gallons on whichtax is imposed, you may base your meas-urement on the actual volumetric gallons,gallons adjusted to 60 degrees Fahrenheit,or any other temperature adjustment methodapproved by the IRS.

Approved terminal or refinery. This is aterminal operated by a registrant that is aterminal operator or a refinery operated by aregistrant that is a refiner.

Aviation gasoline. This means all specialgrades of gasoline that are suitable for use inaviation reciprocating engines, as describedin ASTM Specification D 910 and MilitarySpecification MIL-G-5572.

Blended taxable fuel. This means any tax-able fuel that is produced outside the bulktransfer/terminal system by mixing taxablefuel on which excise tax has been imposedand any other liquid on which that excise taxhas not been imposed. This does not includea mixture removed or sold during the calendarquarter if all such mixtures removed or soldby the blender contain less than 400 gallonsof a liquid on which the tax has not been im-posed. Blended taxable fuel does not includegasohol that receives an excise tax benefit.

Blender. This is the person that producesblended taxable fuel.

Bulk transfer. This is the transfer of fuel bypipeline or vessel.

Bulk transfer/terminal system. This is thefuel distribution system consisting of refin-eries, pipelines, vessels, and terminals. Fuelin the supply tank of any engine, or in anytank car, railcar, trailer, truck, or other equip-ment suitable for ground transportation is notin the bulk transfer/terminal system.

Enterer. This is the importer of record for thefuel. However, if the importer of record isacting as an agent, the person for whom theagent is acting is the enterer. If there is noimporter of record, the owner at the time ofentry into the United States is the enterer.

Position holder. This is the person thatholds the inventory position in the fuel in theterminal, as reflected on the records of theterminal operator. You hold the inventory po-

sition when you have a contractual agreementwith the terminal operator for the use of thestorage facilities and terminaling services forthe fuel. A terminal operator that owns the fuelin its terminal is a position holder.

Rack. This is a mechanism for delivering fuelfrom a refinery or terminal into a truck, trailer,railroad car, or other means of nonbulktransfer.

Refiner. This is any person that owns, op-erates, or otherwise controls a refinery.

Registrant. This is a taxable fuel registrant(see Registration Requirements, earlier).

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Removal. This is any physical transfer offuel. It also means any use of fuel other thanas a material in the production of taxable orspecial fuels. However, fuel is not removedwhen it evaporates or is otherwise lost ordestroyed.

Sale. For fuel not in a terminal, this is thetransfer of title to, or substantial incidents ofownership in, fuel to the buyer for money,services, or other property. For fuel in a ter-minal, this is the transfer of the inventory po-

sition if the transferee becomes the positionholder for that fuel.

State. This includes any state, any of itspolitical subdivisions, the District of Columbia,and the American Red Cross. Treat an Indiantribal government as a state only if trans-actions involve the exercise of an essentialtribal government function.

Terminal operator. This is any person thatowns, operates, or otherwise controls a ter-minal. A terminalis a storage and distributionfacility that is supplied by pipeline or vessel,and from which fuel may be removed at arack. It does not include a facility at whichgasoline blendstocks are used in the manu-

facture of products other than finished gaso-line if no gasoline is removed from the facility.A terminal does not include a facility operatedby a registrant if all the finished gasoline andundyed diesel fuel stored at the facility hasbeen taxed previously upon removal from arefinery or terminal.

Throughputter. This is any person that is aposition holder or that owns fuel within thebulk transfer/terminal system (other than in aterminal).

Taxable EventsThe tax on gasoline is 18.4 cents a gallon. Itis imposed on each of the following events.

However, see the special rules that apply togasoline blendstocks, later. Also, see thediscussion under Gasohol, if applicable.

If the tax is paid on the gasoline in morethan one event, a refund may be allowed forthe second tax paid on the gasoline. SeeRefunds, later.

CAUTION

!Aviation gasoline is taxable under thesame rules as other gasoline. How-ever, the tax on aviation gasoline is

19.4 cents a gallon.

Removal from terminal. All removals ofgasoline at a terminal rack are taxable. Theposition holder for that gasoline is liable forthe tax.

Terminal operator's liability. The termi-nal operator is jointly and severally liable forthe tax if the position holder is a person otherthan the terminal operator and is not a regis-trant.

However, a terminal operator meeting thefollowing conditions at the time of the removalwill not be liable for the tax. The terminaloperator must meet all the following condi-tions.

Be a registrant.

Have an unexpired notification certificate(discussed later) from the position holder.

Have no reason to believe that any in-formation on the certificate is false.

Removal from refinery. The removal ofgasoline from a refinery is taxable if the re-moval meets either of the following condi-tions.

It is made by bulk transfer and the refineror the owner of the gasoline immediatelybefore the removal is not a registrant.

It is made at the refinery rack.

The refiner is liable for the tax.The tax does not apply to a removal of

gasoline at the refinery rack if all the followingrequirements are met.

The gasoline is removed from an ap-proved refinery that is not served bypipeline (other than for receiving crudeoil) or vessel.

The gasoline is received at a facility thatis operated by a registrant and is withinthe bulk transfer/terminal system.

The removal from the refinery is byrailcar.

The same person operates the refineryand the facility at which the gasoline isreceived.

Entry into the United States. The entry ofgasoline into the United States is taxable ifthe entry meets either of the following condi-tions.

It is made by bulk transfer and the entereris not a registrant.

It is not made by bulk transfer.

The enterer is liable for the tax.Fuel is entered into the United States if it

is brought into the United States and appli-cable customs law requires that it be enteredfor consumption, use, or warehousing. Thisdoes not apply to fuel brought into PuertoRico (which is part of the U.S. customs terri-tory), but does apply to fuel brought into the

United States from Puerto Rico.

Removal from a terminal by unregisteredposition holder. The removal by bulktransfer of gasoline from a terminal is taxableif the position holder for the gasoline is not aregistrant. The position holder is liable for thetax. The terminal operator is jointly and se-verally liable for the tax if the position holderis a person other than the terminal operator.However, see Terminal operator's liabilityunder Removal from terminal, earlier, for anexception.

Bulk transfers not received at an approvedterminal or refinery. The removal by bulktransfer of gasoline from a terminal or refin-

ery, or the entering of gasoline by bulk trans-fer into the United States, is taxable, if thefollowing conditions apply.

1) No tax was imposed (as discussed ear-lier) on any of the following events.

a) The removal from the refinery.

b) The entry into the United States.

c) The removal from a terminal by anunregistered position holder.

2) Upon removal from the pipeline or ves-sel, the gasoline is not received at anapproved terminal or refinery (or at an-other pipeline or vessel).

The owner of the gasoline when it is re-moved from the pipeline or vessel is liable forthe tax. However, an owner meeting the fol-lowing conditions at the time of the removalfrom the pipeline or vessel will not be liablefor the tax. The owner must meet all the fol-lowing conditions.

Be a registrant.

Have an unexpired notification certificate(discussed later) from the operator of theterminal or refinery where the gasoline is

received. Have no reason to believe that any in-

formation on the certificate is false.

The operator of the facility where the gasolineis received is liable for the tax if the ownermeets these conditions. The operator is jointlyand severally liable if the owner does notmeet these conditions.

Sales to unregistered person. The sale ofgasoline located within the bulk transfer/terminal system to a person that is not aregistrant is taxable if tax was not imposedunder any of the events discussed earlier.

The seller is liable for the tax. However,a seller meeting the following conditions at

the time of the sale will not be liable for thetax. The seller must meet all the followingconditions.

Be a registrant.

Have an unexpired notification certificate(discussed later) from the buyer.


The buyer of the gasoline is liable for the taxif the seller meets these conditions. The buyeris jointly and severally liable if the seller doesnot meet these conditions.

The tax on these sales does not apply ifall of the following apply.

The buyer's principal place of business isnot in the United States.

The sale occurs as the fuel is deliveredinto a transport vessel with a capacity ofat least 20,000 barrels of fuel.

The seller is a registrant and the exporterof record.

The fuel was exported.

Removal or sale of blended gasoline. Theremoval or sale of blended gasoline by theblender is taxable. See Blended taxable fuelunder Definitions, earlier.

The blender is liable for the tax. The taxis figured on the number of gallons of blendedgasoline that was not previously subject to thetax on gasoline.

Notification certificate. The notificationcertificate is used to notify a person of theregistration status of the registrant. A copy ofthe registrant's letter of registration cannot beused as a notification certificate. A modelnotification certificate is shown in AppendixC as Model Certificate A. Your notificationcertificate must contain all information nec-essary to complete the model.

The certificate may be included as part ofany business records normally used for asale. A certificate expires on the earlier of thedate the registrant provides a new certificate,or the date the recipient of the certificate isnotified that the registrant's registration has

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been revoked or suspended. The registrantmust provide a new certificate if any informa-tion on a certificate has changed.

Additional persons liable. When the personliable for the tax willfully fails to pay the tax,

joint and several liability for the tax is imposedon:

Any officer, employee, or agent of theperson who is under a duty to ensure thepayment of the tax and who willfully failsto perform that duty, or

Any other person who willfully causesthat person to fail to pay the tax.

Gasoline BlendstocksGasoline includes gasoline blendstocks. Theprevious discussions apply to theseblendstocks. However, if certain conditionsare met, the removal, entry, or sale of gaso-line blendstocks is not taxable. Generally, thisapplies if the gasoline blendstock is not usedto produce finished gasoline or is received atan approved terminal or refinery.

Blendstocks. The following are gasolineblendstocks.

Alkylate Butane

Butene

Catalytically cracked gasoline

Coker gasoline

Ethyl tertiary butyl ether (ETBE)

Hexane

Hydrocrackate

Isomerate

Methyl tertiary butyl ether (MTBE)

Mixed xylene (not including any sepa-rated isomer of xylene)

Natural gasoline Pentane

Pentane mixture

Polymer gasoline

Raffinate

Reformate

Straight-run gasoline

Straight-run naphtha

Tertiary amyl methyl ether (TAME)

Tertiary butyl alcohol (gasoline grade)(TBA)

Thermally cracked gasoline

Toluene

Transmix containing gasoline

However, gasoline blendstocks do not in-clude any products that cannot be used with-out further processing in the production offinished gasoline.

Not used to produce finished gasoline.Gasoline blendstocks that are not used toproduce finished gasoline are not taxable ifthe following conditions are met.

Removals and entries not connected tosale. Nonbulk removals and entries are nottaxable if the person otherwise liable for thetax (position holder, refiner, or enterer) is aregistrant.

Removals and entries connected tosale. Nonbulk removals and entries are nottaxable if the person otherwise liable for thetax (position holder, refiner, or enterer) is aregistrant, and at the time of the sale, thatperson meets the following requirements.

Has an unexpired certificate (discussedlater) from the buyer.

Has no reason to believe that any infor-mation in the certificate is false.

Sales after removal or entry. The saleof a gasoline blendstock that was not subjectto tax on its nonbulk removal or entry, asdiscussed earlier, is taxable. The seller is lia-ble for the tax. However, the sale is not tax-able if, at the time of the sale, the seller meetsthe following requirements.

Has an unexpired certificate (discussednext) from the buyer.

Has no reason to believe that any infor-mation in the certificate is false.

Certificate of buyer. The certificate from thebuyer certifies that the gasoline blendstockswill not be used to produce finished gasoline.The certificate may be included as part of any

business records normally used for a sale. Amodel certificate is shown in Appendix C asModel Certificate B. Your certificate mustcontain all information necessary to completethe model.

A certificate expires on the earliest of thefollowing dates.

The date 1 year after the effective date(not earlier than the date signed) of thecertificate.

The date that a new certificate is providedto the seller.

The date that the seller is notified that thebuyer's right to provide a certificate hasbeen withdrawn.

The buyer must provide a new certificate ifany information on a certificate has changed.

The right to provide a certificate can bewithdrawn by the IRS if that buyer uses thegasoline blendstocks in the production of fin-ished gasoline or resells the blendstockswithout getting a certificate from its buyer.

Received at an approved terminal or re-finery. The nonbulk removal or entry ofgasoline blendstocks that are received at anapproved terminal or refinery is not taxable ifthe person otherwise liable for the tax (posi-tion holder, refiner, or enterer) meets all thefollowing requirements.

Is a registrant.

Has an unexpired notification certificate(discussed earlier) from the operator ofthe terminal or refinery where the gaso-line blendstocks are received.

Has no reason to believe that any infor-mation on the certificate is false.

Bulk transfers to registered industrialuser. The removal of gasoline blendstocksfrom a pipeline or vessel is not taxable if theblendstocks are received by a registrant thatis an industrial user. An industrial useris anyperson that receives gasoline blendstocks bybulk transfer for its own use in the manufac-ture of any product other than finished gaso-line.

RefundsIf the tax is paid on more than one taxableevent, the person paying the second taxmay claim a refund of that tax if certain con-ditions and reporting requirements are met.No credit against any tax is allowed for thistax.

Conditions for allowance of refund. Aclaim for refund of the tax is allowed only ifall the following conditions are met.

1) A tax on the fuel was paid to the gov-ernment and not credited or refunded(the first tax).

2) After the first tax was imposed, anothertax was imposed on the same fuel andwas paid to the government (the secondtax).

3) The person that paid the second tax filesa claim for refund containing the infor-mation required (see Refund claim,later).

4) The person that paid the first tax hasmet the reporting requirements, dis-cussed next.

Reporting requirements. Generally, theperson that paid the first tax must file with itsForm 720 for that quarter a First Taxpayer'sReport. A model first taxpayer's report isshown in Appendix C as Model Certificate C.Your report must contain all informationneeded to complete the model.

By the due date for filing the Form 720,you must send a separate copy of the reportto the following address.

Internal Revenue ServiceCincinnati, OH 459990002

Write EXCISE-FIRST TAXPAYER'S RE-PORT across the top of that copy.

Optional report. A first taxpayer's reportis not required for the tax imposed on a re-moval from a terminal rack, nonbulk entriesinto the United States, or removals or salesby blenders. However, if the person liable forthe tax expects that another tax will be im-posed on that fuel, that person should (but isnot required to) file a first taxpayer's report.

Providing information. The first tax-payer must give a copy of the report to thebuyer of the fuel within the bulktransfer/terminal system or, if the first tax-payer is not the owner at the time, to theperson that owned the fuel immediately be-fore the first tax was imposed. If the optionalreport is filed, a copy should (but is not re-quired to) be given to the buyer or owner.

A person that receives a copy of the firsttaxpayer's report and later sells the fuel mustgive the copy and a Statement of Subse-quent Seller to the buyer. If the later sale isoutside the bulk transfer/terminal system andthat person expects that another tax will beimposed, that person should (but is not re-quired to) give the copy and the statement tothe buyer. A model statement of subsequentseller is shown in Appendix C as Model Cer-tificate D. Your statement must contain all in-formation necessary to complete the model.

If the first taxpayer's report relates to fuelsold to more than one buyer, copies of thatreport must be made when the fuel is divided.Each buyer must be given a copy of the re-port.

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Refund claim. You must make your claim forrefund on Form 8849. You must have filedForm 720 and paid the second tax before youfile for a refund of that tax. Do not include thisclaim with a claim under another tax pro-vision. You must attach the following infor-mation to your claim.

A copy of the first taxpayer's report (dis-cussed earlier).

A copy of the statement of subsequentseller if the fuel was bought from other

than the first taxpayer.

Credits and RefundsA credit or refund of the gasoline tax may beallowable if gasoline is, by any person:

Exported,

Used or sold for use as supplies for ves-sels or aircraft (as defined in section4221(d)(3) of the Internal RevenueCode),

Sold to a state for its exclusive use,

Sold to a nonprofit educational organiza-tion for its exclusive use,

Sold to the United Nations for its exclu-

sive use, or Used or sold in the production of special

fuels.

Claims by wholesale distributors. A creditor refund is allowable to a gasoline wholesaledistributor who buys gasoline tax paid andthen sells it to the ultimate purchaser (includ-ing an exporter) for a purpose listed in theprevious list. A wholesale distributor includesany person who makes retail sales of gaso-line at 10 or more retail motor fuel outlets.

A wholesale distributor must submit withits claim a statement that it has done the fol-lowing.

Sold the gasoline at a price that did not

include the tax, and did not otherwisecollect the tax from its buyer.

Obtained a certificate of ultimate pur-chaser or proof of export.

Claims by persons who paid the tax to thegovernment. A credit or refund is allowableto the person that paid the tax to the govern-ment if the gasoline was sold to the user (in-cluding an exporter) by either that person orby a retailer. A credit or refund also is allow-able to that person if the gasoline was soldto the user by a wholesale distributor and ei-ther of the following is true.

The distributor bought the gasoline at aprice that did not include the tax.

The sale to the user was charged on anoil company credit card.

The person must submit the following with itsclaim.

1) One of the three items below:

a) Proof of exportation,

b) A certificate of ultimate purchaser,or

c) A certificate of ultimate vendor.

2) A statement that it:

a) Has neither included the tax in theprice of the gasoline nor collected

the amount of the tax from thebuyer,

b) Has repaid, or agreed to repay, theamount of the tax to the ultimatevendor of the gasoline, or

c) Has gotten the written consent ofthe ultimate vendor to the allowanceof the credit or refund.

Claims by the ultimate purchaser. A creditor refund is allowable to the ultimate pur-chaser of tax-paid gasoline used for an ex-empt purpose. See Publication 378 for moreinformation about these claims.

GasoholGenerally, the same rules that apply to theimposition of tax on the removal and entry ofgasoline (discussed earlier) apply to gasohol.

However, the removal of gasohol from arefinery is taxable if the removal from an ap-proved refinery is by bulk transfer and theregistered refiner chooses to be treated asnot registered. This is in addition to the taxa-ble events discussed earlier under Removalfrom refinery.

Gasohol. Gasohol is a blend of gasoline and

alcohol that satisfies the alcohol requirement.Eligible blends include those made withethanol and methanol. The term alcoholdoes not include alcohol produced from pe-troleum, natural gas, coal, or peat, or alcoholthat is less than 190 proof. Methanolproduced from methane gas formed in wastedisposal sites is not alcohol produced fromnatural gas. Alcohol used to produce ethyltertiary butyl ether (ETBE) generally qualifiesas alcohol for this purpose.

Alcohol requirement. To qualify as gasohol,the mixture must contain a specific amountof alcohol by volume, without rounding. Figurethe alcohol content on a batch-by-batch basis.

10% gasohol. This is a mixture thatcontains at least 9.8% alcohol.

7.7% gasohol. This is a mixture thatcontains at least 7.55%, but less than9.8%, alcohol.

5.7% gasohol. This is a mixture thatcontains at least 5.59%, but less than7.55%, alcohol.

If the mixture is produced within the bulktransfer/terminal system, such as at a refin-ery, determine whether the mixture is gasoholwhen the taxable removal or entry of themixture occurs.

If the mixture is produced outside the bulktransfer/terminal system, determine whetherthe mixture is gasohol immediately after the

mixture is produced. If you splash blend abatch in an empty tank, figure the volume ofalcohol (without adjustment for temperature)by dividing the metered gallons of alcohol bythe total metered gallons of alcohol and gas-oline as shown on each delivery ticket. How-ever, if you add the metered gallons to a tankalready containing more than 0.5% of its ca-pacity in a liquid, include the amount of alco-hol and non-alcohol fuel contained in that liq-uid in figuring the volume of alcohol in thatbatch.

Example 1. John uses an empty 8,000gallon tank to blend alcohol and gasoline. Hisdelivery tickets show that he blended Batch1 using 7,200 metered gallons of gasoline

and 800 metered gallons of alcohol. John di-vides the gallons of alcohol (800) by the totalgallons of alcohol and gasoline delivered(8,000). Batch 1 qualifies as 10% gasohol.

Example 2. John blends Batch 2 in anempty tank. According to his delivery tickets,he blended 7,220 gallons of gasoline and 780gallons of alcohol. Batch 2 contains 9.75%alcohol (780 8,000); it qualifies as 7.7%gasohol.

Batches containing at least 9.8% alco-

hol. If a mixture contains at least 9.8%, butless than 10%, alcohol, part of the mixture isconsidered to be 10% gasohol. To figure thatpart, multiply the number of gallons of alcoholin the mixture by 10. The other part of themixture is excess liquid that is subject to therules on failure to blend, discussed later.

Batches containing at least 7.55% al-cohol. If a mixture contains at least 7.55%,but less than 7.7%, alcohol, part of the mix-ture is considered to be 7.7% gasohol. Tofigure that part, multiply the number of gallonsof alcohol in the mixture by 12.987. The otherpart of the mixture is excess liquid that issubject to the rules on failure to blend, dis-cussed later.

Batches containing at least 5.59% al-cohol. If a mixture contains at least 5.59%,but less than 5.7%, alcohol, part of the mix-ture is considered to be 5.7% gasohol. Tofigure that part, multiply the number of gallonsof alcohol in the mixture by 17.544. The otherpart of the mixture is excess liquid that issubject to the rules on failure to blend, dis-cussed later.

Gasohol blender. A gasohol blender is anyperson that regularly buys gasoline and alco-hol and produces gasohol for use in its tradeor business or for resale. A registered gaso-hol blender is one that has been registeredby the IRS. See Registration Requirements,earlier.

Tax RatesThe tax rate depends on the type of gasohol.These rates are less than the regular tax ratefor gasoline. The reduced rate also dependson whether you are liable for the tax on theremoval or entry of gasoline used to makegasohol, or on the removal or entry of gaso-hol. You may be liable for additional tax if youlater separate the gasohol or fail to blendgasoline into gasohol.

Tax on gasoline. The tax on gasoline thatis removed or entered for the production ofgasohol depends on the type of gasohol thatis to be produced. The rates apply to the taximposed on the removal at the terminal orrefinery, or on the nonbulk entry into theUnited States (as discussed under Gasoline,

earlier). The rates for gasoline used toproduce gasohol containing ethanol areshown on Form 720. The rates for gasolineused to produce gasohol containing methanolare shown in the instructions for Form 720.

Requirements. The reduced rates applyif the person liable for the tax (position holder,refiner, or enterer) is a registrant and:

1) A registered gasohol blender and thatperson produces gasohol with the gaso-line within 24 hours after removing orentering the gasoline, or

2) That person, at the time that the gasolineis sold in connection with the removalor entry:

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a) Has an unexpired certificate fromthe buyer, and

b) Has no reason to believe that anyinformation in the certificate is false.

Certificate. The certificate from the buyercertifies that the gasoline will be used toproduce gasohol within 24 hours after pur-chase. The certificate may be included aspart of any business records normally usedfor a sale. A copy of the registrant's letter ofregistration cannot be used as a gasoholblender's certificate. A model certificate isshown in Appendix C as Model Certificate E.Your certificate must contain all informationnecessary to complete the model.

A certificate expires on the earliest of thefollowing dates.

The date 1 year after the effective date(which may be no earlier than the datesigned) of the certificate.

The date that a new certificate is providedto the seller.

The date that the seller is notified that thegasohol blender's registration has beenrevoked or suspended.

The buyer must provide a new certificate ifany information on a certificate has changed.

Tax on gasohol. The tax on the removal orentry of gasohol depends on the type of gas-ohol. The rates for gasohol containing ethanolare shown on Form 720. The rates for gaso-hol containing methanol are shown in the in-structions for Form 720.

Later separation. If a person separatesgasoline from gasohol on which a reduced taxrate was imposed, that person is treated asthe refiner of the gasoline. Tax is imposed onthe removal of the gasoline. This tax rate is

the difference between the regular tax rate forgasoline and the tax rate imposed on the priorremoval or entry of the gasohol.

Failure to blend. Tax is imposed on the re-moval, entry, or sale of gasoline on which areduced rate of tax was imposed if the gaso-line was not blended into gasohol, or wasblended into gasohol taxable at a higher rate.If the gasoline was not sold, the person liablefor this tax is the person that was liable for thetax on the entry or removal. If the gasolinewas sold, the person that bought the gasolinein connection with the taxable removal orentry is liable for this tax. This tax is the dif-ference between the tax that should haveapplied and the tax actually imposed.

Example. John uses an empty 8,000gallon tank to blend gasoline and alcohol. Thedelivery tickets show that he blended 7,205metered gallons of gasoline and 795 meteredgallons of alcohol. He bought the gasolineat a reduced tax rate of 14.444 cents pergallon. The batch contains 9.9375% alcohol(795 8,000). John determines that 7,950gallons (10 795) of the mixture qualifies as10% gasohol. See Batches containing at least9.8% alcohol, earlier. The other 50 gallons isexcess liquid that he failed to blend into gas-ohol. He is liable for a tax of 3.956 cents pergallon (18.40 (full rate) 14.444 (reducedrate)) on this excess liquid.

Diesel Fuel and KeroseneGenerally, diesel fuel and kerosene are taxedin the same manner as gasoline (discussedearlier). The following discussion provides in-formation about the excise tax on diesel fueland kerosene.

DefinitionsThe following terms are used in this dis-cussion of the tax on diesel fuel andkerosene. Other terms used in this discussion

are defined under Gasoline.

Diesel fuel. This is any liquid (other thangasoline) that, without further processing orblending, is suitable for use as a fuel in adiesel-powered highway vehicle or a diesel-powered train. It does not include kerosene.

Kerosene. This means the following fuels.

The two grades of kerosene (No. 1K andNo. 2K) described in ASTM Specifica-tion D 3699.

Aviation-grade kerosene.

Aviation-grade kerosene. This iskerosene-type jet fuel described in ASTM

Specification D 1655 and military specifica-tions MIL-T-5624R and MIL-T-83133D(Grades JP-5 and JP-8).

Diesel-powered highway vehicle. This isany self-propelled vehicle designed to carrya load over the public highways (whether ornot also designed to perform other functions)and propelled by a diesel-powered engine.Generally, do not consider specially designedmobile machinery for nontransportation func-tions and vehicles specially designed for off-highway transportation as diesel-poweredhighway vehicles. For information about ve-hicles not considered highway vehicles, getPublication 378.

Diesel-powered train. This is any diesel-powered equipment or machinery that rideson rails. The term includes a locomotive, worktrain, switching engine, and track mainte-nance machine.

Taxable EventsThe tax on diesel fuel and kerosene is 24.4cents a gallon. It is imposed on each of thefollowing events. The tax does not apply todyed diesel fuel or dyed kerosene, discussedlater.

If the tax is paid on the diesel fuel orkerosene in more than one event, a refundmay be allowed for the second tax paid.See Refunds, earlier under Gasoline.

Removal from terminal. All removals ofundyed diesel fuel or undyed kerosene at aterminal rack are taxable. The position holderfor that fuel is liable for the tax.

Terminal operator's liability. The termi-nal operator is jointly and severally liable forthe tax if the terminal operator provides anyperson with any bill of lading, shipping paper,or similar document indicating that undyeddiesel fuel or undyed kerosene is dyed (dis-cussed later).

The terminal operator is jointly and se-verally liable for the tax if the position holderis a person other than the terminal operatorand is not a registrant. However, a terminaloperator will not be liable for the tax in this

situation if, at the time of the removal, theterminal operator meets all the following re-quirements.

Is a registrant.

Has an unexpired notification certificate(discussed under Gasoline) from the po-sition holder.

Has no reason to believe that any infor-mation on the certificate is false.

Removal from refinery. The removal of un-

dyed diesel fuel or undyed kerosene from arefinery is taxable if the removal is:

By bulk transfer and the refiner or ownerof the fuel immediately before the re-moval is not a registrant, or

At the refinery rack.

The refiner is liable for the tax.The tax does not apply to a removal of

undyed diesel fuel or undyed kerosene at therefinery rack if all the following conditions aremet.

1) The undyed diesel fuel or undyedkerosene is removed from an approvedrefinery that is not served by pipeline

(other than for receiving crude oil) orvessel.

2) The undyed diesel fuel or undyedkerosene is received at a facility that isoperated by a registrant and is within thebulk transfer/terminal system.

3) The removal from the refinery is by:

a) Railcar and the same person oper-ates the refinery and the facility atwhich the undyed diesel fuel or un-dyed kerosene is received, or

b) For diesel fuel only, a trailer orsemi-trailer used exclusively totransport undyed diesel fuel from arefinery (described in (1)) to a facil-

ity (described in (2)) that is less than20 miles from the refinery.

Entry into the United States. The entry ofundyed diesel fuel or undyed kerosene intothe United States is taxable if the entry is:

By bulk transfer and the enterer is not aregistrant, or

Not by bulk transfer.

The enterer is liable for the tax.For information about fuel entered into the

United States, see Entry into the UnitedStatesunder Gasoline.

Removal from a terminal by an unregis-tered position holder. The removal by bulktransfer of undyed diesel fuel or undyedkerosene from a terminal is taxable if the po-sition holder for that fuel is not a registrant.The position holder is liable for the tax. Theterminal operator is jointly and severally liablefor the tax if the position holder is a personother than the terminal operator. However,see Terminal operator's liability under Re-moval from terminal, earlier, for an exception.

Bulk transfers not received at an approvedterminal or refinery. The removal by bulktransfer of undyed diesel fuel or undyedkerosene from a terminal or refinery or theentering of undyed diesel fuel or undyedkerosene by bulk transfer into the United

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States is taxable if the following conditionsapply.

1) No tax was imposed (as discussed ear-lier) on:

a) The removal from the refinery,

b) The entry into the United States, or

c) The removal from a terminal by anunregistered position holder.

2) Upon removal from the pipeline or ves-sel, the undyed diesel fuel or undyed

kerosene is not received at an approvedterminal or refinery (or at another pipe-line or vessel).

The owner of the undyed diesel fuel orundyed kerosene when it is removed from thepipeline or vessel is liable for the tax. How-ever, an owner meeting the following condi-tions at the time of the removal from thepipeline or vessel will not be liable for the tax.The owner must:

Be a registrant,

Have an unexpired notification certificate(discussed under Gasoline) from the op-erator of the terminal or refinery wherethe undyed diesel fuel or undyed

kerosene is received, and Have no reason to believe that any in-

formation on the certificate is false.

The operator of the facility where the undyeddiesel fuel or undyed kerosene is received isliable for the tax if the owner meets theseconditions. The operator is jointly and se-verally liable if the owner does not meet theseconditions.

Sales to unregistered person. The sale ofundyed diesel fuel or undyed kerosene lo-cated within the bulk transfer/terminal systemto a person that is not a registrant is taxableif tax was not imposed under any of theevents discussed earlier.

The seller is liable for the tax. However,a seller meeting the following conditions atthe time of the sale will not be liable for thetax. The seller must:

Be a registrant,

Have an unexpired notification certificate(discussed under Gasoline) from thebuyer, and


The buyer of the undyed diesel fuel or undyedkerosene is liable for the tax if the sellermeets these conditions. The buyer is jointlyand severally liable if the seller does not meetthese conditions.

The tax on these sales does not apply ifall the following tests are met.

The buyer's principal place of business isnot in the United States.

The sale occurs as the fuel is deliveredinto a transport vessel with a capacity ofat least 20,000 barrels of fuel.

The seller is a registrant and the exporterof record.

The fuel was exported.

Removal or sale of blended diesel fuel orkerosene. The removal or sale of blendeddiesel fuel or blended kerosene by the

blender is taxable. See Blended taxable fuelin Definitionsunder Gasoline, earlier.

The blender is liable for the tax. The taxis figured on the number of gallons of blendeddiesel fuel or kerosene that were not previ-ously subject to the tax.

Additional persons liable. When the personliable for the tax willfully fails to pay the tax,

joint and several liability for the tax is imposedon:

Any officer, employee, or agent of theperson who is under a duty to ensure thepayment of the tax and who willfully failsto perform that duty, or

Any other person who willfully causesthat person to fail to pay the tax.

Aviation-grade kerosene. The excise taxon kerosene is not imposed on aviation-gradekerosene if the following conditions are met.

Not connected to sale. The removal orentry of aviation-grade kerosene not in con-nection with a sale is not subject to the taxon kerosene if all the following conditions aremet.

1) The person otherwise liable for the tax

(position holder, refiner, or enterer) is aregistrant.

2) In the case of a removal from a terminal,the terminal is an approved terminal.

3) The kerosene will be used in an aircraft

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