Using the Correct IRS No. on Form 720 - Kerosene Used in Aviation

 

Kerosene is generally taxed at $0.244 per gallon unless a reduced rate applies. The $0.244 per gallon rate applies to kerosene removals unless it is removed from a terminal or refinery (or a qualified refueler truck, tanker or tank wagon that is treated as a terminal) directly into the fuel tank of an aircraft. The position holder is generally liable for the tax on removals of kerosene under IRS Nos. 35, 69 and 111 on Form 720, Quarterly Federal Excise Tax Return. The registered commercial aviation operator is liable for the tax under IRS No. 77, but only if certain conditions are met.

  • IRS No. 35, Kerosene removal from a terminal rack - Reportable by position holder at the $0.244 tax rate. Applies to:
    • Nonbulk kerosene removed from a terminal not located at an airport,
    • Nonbulk kerosene removed into an unqualified refueler, or
    • Kerosene removed from a qualified refueler into storage.  
  • IRS No. 69, Kerosene for use in aviation - Reportable by position holder at the $0.219 tax rate. Applies to:
    • Kerosene removed from a hydrant system directly into the fuel tank of an aircraft at either an airport terminal or a secure airport terminal (SAT).
    • Kerosene removed from a qualified refueler, tanker or tank wagon directly into the fuel tank of an aircraft at either an airport terminal or a SAT.
    • Kerosene used in noncommercial aviation.
    • Kerosene used in commercial aviation if the registered commercial aviation provider does not supply Model Certificate K to the position holder or if the commercial aviation provider is unregistered.
  • IRS No. 77, Kerosene for use in commercial aviation - Reportable only by a registered commercial aviation provider (Form 637 "Y" Registrant) at the $0.044 tax rate, and applies to:
    • Kerosene removed from a hydrant system directly into the fuel tank of an aircraft for use in commercial aviation (other than foreign trade)
    • Kerosene removed from a qualified refueler at a SAT directly into the fuel tank of an aircraft for use in commercial aviation.

The registered commercial aviation provider (Form 637 "Y" Registrant) must supply Model Certificate K to position holder. A position holder may not use IRS No. 77.

  • IRS No. 111, Kerosene for use in aviation, LUST tax on nontaxable uses - Reportable by position holder at the $0.001 leaking underground storage tank (LUST) tax rate, and applies to:
    • Kerosene removed from a hydrant system at either an airport terminal or a SAT directly into the fuel tank of an aircraft for nontaxable uses (exempt aviation).
    • Kerosene removed from a qualified refueler, tanker or tank wagon at either an airport terminal or a SAT directly into the fuel tank of an aircraft for nontaxable uses (exempt aviation).

The exempt aviation provider must supply Model Certificate K to the position holder.

There are no federal excise taxes on kerosene removed from a hydrant system or qualified refueler, tanker or tank wagon at either an airport terminal or a SAT directly into the fuel tank of an aircraft for use in foreign trade. These transactions are not reported on Form 720.

Other than Model Certificate K, the position holder's liability and tax rate are not affected by receipt of other certificates or waivers that may be secured from the position holder's customers. Other certificates and waivers may be obtained to support an ultimate vendor or credit card issuer's claim for refund. For more information about certificates and waivers, or claims for refund, refer to  Publication 510, Excise Taxes  PDF.

Terminology Related to Kerosene Used in Aviation

Airport Terminal - terminal located at an airport but is not included on the list of secure airport terminals.

Commercial Aviation - transportation of persons or property for compensation or hire, unless an exemption applies. IRC 4083(b)

Noncommercial Aviation - aviation other than commercial aviation. IRC 4083(b)

Exempt Aviation - kerosene which is exempt from tax imposed by IRC 4041(c). Examples include: use on a farm for farming purposes, foreign trade, certain helicopter and fixed-wing aircraft use, use by a qualified blood collector organization, exclusive use of a nonprofit educational organization, use in an aircraft owned by an aircraft museum, military aircraft. IRC 4082(e)

Foreign Trade - fuel used in civil aircraft employed in foreign trade or trade between the United States and any of its possessions. The term trade includes the transportation of persons or property for hire and the making of the necessary preparations for such transportation. In the case of aircraft registered in a foreign country, the country must allow reciprocal benefits for aircraft registered in the United States. IRC 4082(e)(2), 4041(g)(1), 4221(d)(3), and 4221(e)(1)

Form 637 "Y" Registration - buyer of kerosene for its use in commercial aviation (other than foreign trade).

Hydrant System - a system of pipelines that delivers fuel from storage directly into a fuel supply tank of an aircraft at an airport terminal.

Nonbulk Removal -removal of taxable fuel other than by pipeline or vessel. For example, removal by truck or rail.

Position Holder - with respect to taxable fuel in a terminal, the person that holds the inventory position in the taxable fuel, as reflected on the records of the terminal operator. A person holds the inventory position in taxable fuel when that person has a contractual agreement with the terminal operator for the use of storage facilities and terminaling services at a terminal with respect to the taxable fuel. The term also includes a terminal operator that owns taxable fuel in its terminal.

Qualified Refueler - a refueler that meets the qualifications listed in IRC 4081(a)(3).

  • Located at an airport terminal
  • Kerosene delivered directly into an aircraft
  • Storage, couplings, hoses for delivery into an aircraft
  • Not registered or required to be registered for highway use

Secure Airport Terminal (SAT) - terminal located within a secure area of an airport that has obtained a SAT designation.

  • In a SAT, a qualified refueler truck, tanker or tank wagon is treated as part of a terminal. See Notice 2016-15 PDF. In a SAT, the same rules apply to a qualified refueler truck, tanker or tank wagon as apply to a hydrant system directly into the aircraft’s fuel tank.
  • A list of SAT locations PDF can be found on IRS.gov. The last column indicates which IRS-approved terminals have the designation of a SAT.

Terminal - means a taxable fuel storage and distribution facility that is supplied by pipeline or vessel and from which taxable fuel may be removed at a rack.

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