5.   Excise Taxes

Changes Effective for the First Quarter of 2008

Air Transportation Taxes

For amounts paid during 2008, the tax on use of international air travel facilities will be $15.40 per person for flights that begin or end in the United States, or $7.70 per person for domestic segments that begin or end in Alaska or Hawaii (applies only to departures). For amounts paid for each domestic segment of taxable transportation of persons by air, the domestic segment tax is $3.50 per segment for transportation that begins in 2008.

Arrow Shafts

The tax on arrow shafts (IRS No. 106) is $.43 per arrow shaft.

Dyed Diesel Fuel Used in Trains

The train operator is no longer liable for the leaking underground storage tank (LUST) tax on dyed diesel fuel used in trains. IRS No. 71 has been removed from Form 720, Quarterly Federal Excise Tax Return. The position holder of the dyed diesel fuel generally is liable for the LUST tax under IRS No. 105.

Inland Waterways Fuel Use Tax

Generally, the inland waterways fuel use tax is $.20 (IRS No. 64). However, the LUST tax (IRS No. 125) must be paid on any liquid fuel used on inland waterways that is not subject to LUST tax under section 4041(d) or 4081. For example, gallons of Bunker C fuel oil must be reported under both IRS Nos. 64 and 125.

Disregarded Entities and Qualified Subchapter S Subsidiaries (QSubs)

After 2007, qualified subchapter S subsidiaries (QSubs) and eligible single-owner disregarded entities are treated as separate entities for certain excise tax and related reporting purposes. QSubs and eligible single-owner disregarded entities must pay and report excise taxes (other than IRS Nos. 31, 51, and 117), register for excise tax activities, and claim any refunds, credits, and payments under the entity's EIN. These actions cannot take place under the owner's taxpayer identification number (TIN). Some QSubs and disregarded entities may already have an EIN. However, if you are unsure, please call the IRS Business and Specialty Tax Line at 1-800-829-4933. Generally, QSubs and eligible single-owner disregarded entities will continue to be treated as disregarded entities for other federal tax purposes. Thus, taxpayers filing Form 4136, Credit for Federal Tax Paid on Fuels, with Form 1040 can use the owner's TIN. For more information on these new regulations, see Treasury Decision 9356. You can find Treasury Decision 9356, 2007-39 I.R.B. 675, available at www.irs.gov/irb/2007-39_IRB/ar04.html.

Changes Effective for the Fourth Quarter of 2008

Arrow Shafts

After October 3, 2008, the tax does not apply to any shaft made of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) and used in the manufacture of any arrow that after its assembly meets both of the following conditions.

  • It measures 5/16 of an inch or less in diameter.

  • It is not suitable for use with a taxable bow.

Alternative Fuel Credit and Alternative Fuel Mixture Credit

You may be eligible to claim the alternative fuel credit and alternative fuel mixture credit for compressed gas derived from biomass and liquefied gas derived from biomass sold or used after October 3, 2008.

Alternative Fuel Used in Aviation

You can claim the alternative fuel credit for alternative fuel sold after October 3, 2008, for use as a fuel in aviation.

Credits for Fuel Limited to Fuels with Connection to the United States

After May 14, 2008, the alcohol fuel credit, alcohol fuel mixture credit, biodiesel credit, biodiesel mixture credit, alternative fuel credit, and alternative fuel mixture credit may not be claimed for alcohol, biodiesel, and alternative fuel that is produced outside the United States for use as a fuel outside the United States. The United States includes any possession of the United States.

Liquefied Gas Derived From Biomass

Liquefied gas derived from biomass sold or used after October 3, 2008, is taxable at $.184 per gallon. You are liable for tax on liquefied gas derived from biomass that is delivered into the fuel supply tank of a motor vehicle or motorboat and on certain bulk sales. Report this tax under IRS No. 79.

You can make a claim for nontaxable use of liquefied gas derived from biomass on Schedule C (Form 720) or Schedule 1 (Form 8849) at $.183 per gallon.

Renewable Diesel

After October 3, 2008, renewable diesel does not include any fuel derived from co-processing biomass (as defined in section 45K(c)(3)) with a feedstock that is not biomass.

Retail Tax

You can exclude the cost of certain idling reduction devices and insulation sold or installed after October 3, 2008, from the sales price of the taxable vehicle.

Changes Effective for the First Quarter of 2009

Alcohol Fuel Mixture Credit

The claim rate for alcohol fuel mixtures containing ethanol is $.45 per gallon.

Air Transportation Taxes

For amounts paid during 2009, the tax on use of international air travel facilities will be $16.10 per person for flights that begin or end in the United States, or $8.00 per person for domestic segments that begin or end in Alaska or Hawaii (applies only to departures). For amounts paid for each domestic segment of taxable transportation of persons by air, the domestic segment tax is $3.60 per segment for transportation that begins in 2009.

Arrow Shafts

The tax on arrow shafts (IRS No. 106) is $.45 per arrow shaft.

Biodiesel Mixture Credit

The claim rate for biodiesel mixtures is $1.00 per gallon.

Oil Spill Liability Tax

The oil spill liability tax (IRS Nos. 18 and 21) is $.08 per barrel.

Renewable Diesel Requirements

Renewable diesel used to produce a renewable diesel mixture must be derived from biomass, meet ASTM D975, D396, or other equivalent standard approved by the IRS, and meet EPA's registration requirements for fuels and fuel additives under section 211 of the Clean Air Act. Renewable diesel also includes fuel derived from biomass that meets a Department of Defense specification for military jet fuel or an ASTM specification for aviation turbine fuel. For a renewable diesel mixture used in aviation, kerosene is treated as diesel fuel.

Qualified Methanol and Ethanol Produced From Coal

The tax on qualified methanol and ethanol produced from coal (IRS No. 79) is $.184 per gallon.

Changes Effective for the Fourth Quarter of 2009

Carbon Capture Requirement

A credit for liquid fuel derived from coal (including peat) through the Fischer-Tropsch process can be claimed only if the fuel is derived from coal produced at a gasification facility that separates and sequesters not less than the following percentage of the facility's total carbon dioxide emissions.

  • 50% for fuel produced after September 30, 2009, and before December 31, 2009.

  • 75% for fuel produced after 2009.


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