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What Is an Excise Tax?

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What Is an Excise Tax?

An excise tax is a tax that that is often passed onto the consumer when they buy a certain product, such as gasoline. It is frequently factored into the price of the product. In addition, a consumer may pay excise taxes on activities, including gambling and trucks’ usage of highways. There are many general excise tax programs, one of which involves motor fuel.

Extension of Fuel Tax Credits

As a result of the Tax Increase Prevention Act of 2014, some fuel tax credits were extended, including the following:

  • Credit for biodiesel, including the renewable type
  • Credit for biodiesel mixture, including the renewable type
  • Credit for alternative fuel
  • Credit for alternative fuel mixture
  • Credit for second-generation biofuel producer

The above credits expired December 31, 2013, and were extended retroactively through December 31, 2014. Claims that arose in 2014 are required to be filed in accordance with Notice 2015-3.

Registration by the IRS

One kind of service provider that is required to file a federal excise tax return is an indoor tanning service. Under the Affordable Care Act, as of July 1, 2010, indoor tanning service providers were subject to an excise tax of 10 percent. According to the Internal Revenue Code and regulations, every person who participates in certain activities that are relevant to the excise tax, are required to be registered by the IRS prior to engaging in that activity.

In other instances, a prerequisite to receiving an excise tax benefit is registration by the IRS. An example of an excise tax benefit is the right to sell or purchase an article free of tax, or to file a claim. Form 637, or Application for Registration for Certain Excise Tax Activities, may be used by taxpayers to apply to register for activities under the following sections of the IRC:  4101, 4222, and 4682.
The taxpayer is required to pass certain registration tests, prior to receiving an approved registration number. Depending on the activity, the registration tests differ, and could include an inspection of the taxpayer’s business premises.

Exemptions From Excise Taxes

You may be able to claim an exemption from some federal excise taxes, such as excise taxes on fuel, if your company is a government organization, a nonprofit educational organization, or an emergency service provider, an example of which is an ambulance service. Using IRS Form 8849, you are required to claim a refund of such taxes at year-end. It is mandatory that you retain records, and document that the products and services for which excise taxes were collected were used solely for the exempt purchase. For example, you should make note of the fact that the gasoline was utilized solely in an ambulance or police vehicle, and not in a vehicle for personal use.

Should I Consult an Attorney?

If you think you owe excise taxes, but are unsure as to whether you must pay such taxes, or which excise taxes you are required to pay, you should consult a tax attorney who can help you navigate the tax laws, and determine which taxes apply to your business.

Photo of page author Roxanne Minott

, LegalMatch Legal Writer and Attorney at Law

Last Modified: 06-02-2015 02:10 PM PDT

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