us internal revenue service: p510--2001

8/14/2019 US Internal Revenue Service: p510--2001

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ContentsImportant Changes for 2001 ............. 2

Important Reminder ........................... 2

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

Registration for Certain Activities .... 2

Environmental Taxes ......................... 2ODCs .............................................. 3

Imported Taxable Products ............ 3Floor Stocks Tax ............................. 4

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

Communications Tax ...................... 4Air Transportation Taxes ................ 5

Fuel Taxes ........................................... 7Registration Requirements ............. 7Measurement of Taxable Fuel ........ 8Refunds of Second Tax .................. 8Gasoline .......................................... 8Gasohol ........................................... 11Diesel Fuel and Kerosene .............. 12Aviation Fuel ................................... 15

Special Motor Fuels ........................ 16Compressed Natural Gas ............... 17Fuels Used on Inland Waterways .. 17Alcohol Sold as Fuel But Not Used

as Fuel ..................................... 18

Manufacturers Taxes ......................... 18Taxable Event ................................. 19Exemptions ..................................... 19Credits or Refunds .......................... 20Sport Fishing Equipment ................ 20Bows ............................................... 20Arrow Components ......................... 20Coal ................................................. 20Tires ................................................ 21Gas Guzzler Tax ............................. 22

Vaccines ......................................... 22

Retail Tax on Heavy Trucks, Trailers,and Tractors ................................ 22

Ship Passenger Tax ........................... 25

Luxury Tax .......................................... 25

Foreign Insurance Taxes ................... 26

Obligations Not in Registered Form 26

Filing Form 720 .................................. 27

Paying the Taxes ................................ 27

Credits and Refunds .......................... 29

Tax on Wagering ................................ 29

Penalties and Interest ........................ 30

Examination and Appeal Procedures 30

Rulings Program ................................ 31

How To Get Tax Help ......................... 31

Appendix A ......................................... 32

Appendix B ......................................... 33

Appendix C ......................................... 38

Index .................................................... 47

Departmentof theTreasury

InternalRevenueService

Publication 510(Rev. March 2001)Cat. No. 15014I

Exc ise Taxes

for 2001


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Important Changesfor 2001

New tax rates. The tax rates for gasohol andfor gasoline removed or entered for the pro-duction of gasohol have increased for 2001.See Form 720 for the new rates that apply tothese fuels.

Air transportation taxes. For transportationbeginning in 2001, the tax on transportationof persons by air is increased to $2.75 foreach domestic segment. The percentage taxremains at 7.5%.

For amounts paid during 2001, the tax onthe use of international air travel facilities is$12.80 for both arrivals and departures. Fordomestic segments that begin or end inAlaska or Hawaii, the tax is $6.40 and appliesonly to departures.

Luxury tax. For 2001, the luxury tax on apassenger vehicle is reduced to 4% of theamount of the sales price that exceeds thebase amount of $38,000. The base amountis increased for electric vehicles and clean-fuel vehicles.

Diesel fuel and kerosene. The definitionsof diesel fuel and kerosene have been modi-fied to exclude liquids with certain describedproperties. See Diesel Fuel and Kerosene.

Persons that must register. Beginning April1, 2001, certain pipeline operators and vesseloperators must be registered with the IRS.See Registration Requirements under FuelTaxes, later. Also see Definitionsunder Gas-oline.

Taxable fuel measurement. Beginning July

1, 2001, a new rule for measuring gasoline,diesel fuel, and kerosene goes into effect.See Measurement of Taxable Fuel, later.

Important Reminder

Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-wise be blank. You can help bring thesechildren home by looking at the photographs

and calling 1800THELOST (18008435678) if you recognize a child.

IntroductionThis publication covers the excise taxes forwhich you may be liable during 2001. It cov-ers the excise taxes reported on Form 720.It also provides information on wagering ac-tivities reported on Forms 11C and 730.

Comments and suggestions. We welcomeyour comments about this publication andyour suggestions for future editions.

You can e-mail us while visiting our website at www.irs.gov/help/email2.html.

You can write to us at the following ad-dress:

Internal Revenue ServiceTechnical Publications BranchW:CAR:MP:FP:P1111 Constitution Ave. NWWashington, DC 20224

We respond to many letters by telephone.Therefore, it would be helpful if you wouldinclude your daytime phone number, includ-ing the area code, in your correspondence.

Useful ItemsYou may want to see:

Publication

378 Fuel Tax Credits and Refunds

509 Tax Calendars for 2001

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 Monthly Tax on Wagering

1363 Export Exemption Certificate

2290 Heavy Highway Vehicle Use TaxReturn

4136 Credit for Federal Tax Paid onFuels

6197 Gas Guzzler Tax

6478 Credit for Alcohol Used as Fuel

6627 Environmental Taxes

8849 Claim for Refund of Excise Taxes

See How To Get Tax Help near the endof this publication for information about get-ting 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 Highway VehicleUse Tax Return.

ATF Form 5630.5: Alcohol, Tobacco.

ATF Form 5630.7: Firearms.

ATF Form 5300.26: Firearms.

If the tax reported on IRS Form 2290 appearsto apply to you, see the following discussionfor information. If the taxes reported on theATF forms appear to apply to you, see Ap-pendix A at the end of this publication formore information.

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 subject to thistax. For more information, get the instructionsfor Form 2290.

Registration of vehicles. Generally, youmust prove that you paid your federal high-way use tax when you register your taxablevehicle with your state motor vehicle depart-ment or you enter into the United States aCanadian or Mexican vehicle. Generally, acopy of Schedule 1 of Form 2290, stampedafter payment and returned to you by the IRS,is acceptable proof of payment.

Registration forCertain 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 is requiredto have, a separate employer identificationnumber must register.

To apply for registration, complete Form637 and provide the information requested inits instructions. If your application is ap-proved, you will receive a Letter of Registra-tion showing the activities for which you areregistered, the effective date of the registra-

tion, and your registration number. A copy ofForm 637 is not a Letter of Registration.

Environmental TaxesEnvironmental taxes are imposed on the saleor use of ozone-depleting chemicals(ODCs)and imported products containing ormanufactured with these chemicals. In addi-tion, a floor stocks tax is imposed on ODCsheld on January 1 by any person (other thanthe manufacturer or importer of the ODCs) forsale or for use in further manufacture.

Figure the environmental tax on Form6627. Enter the tax on the appropriate linesof Form 720. Attach Form 6627 to Form 720as 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-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.

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ODCsFor the taxable ODCs and tax rates, see theForm 6627 instructions.

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

Use of ODCs. You use an ODC if you put it

into 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 theuse of the ODC contained in the mixture. AnODC is contained in a mixture only if thechemical identity of the ODC is not changed.Generally, tax is imposed when the mixtureis created and not on its sale or use. How-ever, you can choose to have the tax imposedon its sale or use by checking the appropriatebox in Part I of Form 6627. You can revokethis choice only 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. All of the following are exemptfrom the tax on ODCs.

Metered-dose inhalers.

Recycled ODCs.

Exported ODCs.

ODCs used as feedstock.

Metered-dose inhalers. There is no taxon ODCs used or sold for use as propellantsin metered-dose inhalers. For a sale to benontaxable, you must obtain from the pur-

chaser an exemption certificate that you relyon in good faith. The certificate must be insubstantially the form set forth in section52.46822(d)(5) of the regulations. Keep thecertificate with your records.

Recycled ODCs. There is no tax on anyODC diverted or recovered in the UnitedStates as part of a recycling process (and notas part of the original manufacturing or pro-duction process). There is no tax on recycledHalon-1301 or recycled Halon-2402 importedfrom a country that has signed the MontrealProtocol on Substances that Deplete theOzone 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 ishttp://untreaty.un.org/.

Exported ODCs. Generally, there is notax on ODCs sold for export if certain re-quirements are met. For a sale to be nontax-able, you and the purchaser must be regis-tered. You must obtain from the purchaseran exemption certificate that you rely on ingood faith. The certificate must be in sub-stantially the form set forth in section52.46825(d)(3) of the regulations. The taxbenefit of this exemption is limited. For moreinformation, see section 52.46825 of theregulations.

ODCs used as feedstock. There is notax on ODCs sold for use or used as afeedstock. An ODC is used as a feedstock

only if the ODC is entirely consumed in themanufacture of another chemical. The trans-formation of an ODC into one or more newcompounds qualifies, but use of an ODC ina mixture does not qualify.

For a sale to be nontaxable, you mustobtain from the purchaser an exemption cer-tificate that you rely on in good faith. Thecertificate must be in substantially the formset forth in section 52.46822(d)(2) of theregulations. Keep the certificate with yourrecords.

Credits or RefundsA credit or refund (without interest) of tax onODCs may be claimed in the following situ-ations.

If a taxed ODC is used as a propellant ina metered-dose inhaler, then the personwho used the ODC as a propellant mayfile a claim.

If a taxed ODC is exported, then themanufacturer may file a claim.

If a taxed ODC is used as a feedstock,then the person who used the ODC mayfile a claim.

For general information about credits and re-funds, see Credits and Refunds, later.

Conditions to allowance for ODCs ex-ported. To claim a credit or refund for ODCsthat are exported, you must have repaid oragreed to repay the tax to the exporter, orobtained the exporter's written consent to al-lowance of the credit or refund. You must alsohave the evidence required by the Environ-mental Protection Agency as proof that theODCs were exported.

Imported Taxable ProductsAn imported product containing or manufac-tured with ODCs is subject to tax if it is en-

tered into the United States for consumption,use, or warehousing and is listed in the Im-ported Products Table, discussed later.

The tax is based on the weight of theODCs used in the manufacture of the product.Use either of the following to figure the ODCweight.

The actual weight of each ODC used asa material in manufacturing the product.

The ODC weight listed for the product inthe Imported Products Table, discussedlater.

However, if you cannot determine the ac-tual ODC weight and the table does not listan ODC weight for the product, the rate of tax

is 1% of the entry value of the product.

Taxable EventTax 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.

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 choose totreat the entry of a product 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 animported taxable product incorporated in thatarticle if both the following apply.

The importer has consistently treated thesale of similar items as the first sale oruse of similar taxable imported products.

The importer has not chosen to treatentry into the United States as use of theproduct.

Tax is imposed on the imported productincorporated in the article when the article issold.

Imported Products TableThe Imported Products Tableappears in Ap-pendix Bat the end of this publication. Eachlisting in the table identifies a product byname and includes only products that aredescribed by that name. Most listings identifya product by both name and HarmonizedTariff Schedule (HTS) heading. In thosecases, a product is included in that listing onlyif the product is described by that name andthe rate of duty on the product is determinedby reference to that HTS heading. A productis included in the listing even if it is manufac-tured with or contains a different ODC thanthe one specified in the table.

Part II of the table lists electronic itemsthat are not included within any other list inthe table. An imported product is included inthis list only if the product meets one of thefollowing tests.

1) It is an electronic component whose op-eration involves the use of nonmechan-ical amplification or switching devicessuch as tubes, transistors, and inte-grated circuits.

2) It contains components described in (1),above, which account for more than 15%of the cost of the product.

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 arelisted in the table according to the followingrules.

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

2) A product is listed in Part IIof 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,

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creating an aerosol or foam, or manu-facturing electronic components.

3) A product is listed in Part IIIof the tableif the Commissioner has determined thatthe product meets both the followingtests.

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

b) It would otherwise be includedwithin a list 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 list for electronic itemsnot specifically identified, but for their listingin Part III.

ODC weight. The Table ODC weight ofa product is the weight, determined by theCommissioner, of the ODCs used as materi-als in the manufacture of the product underthe predominant method of manufacturing.The ODC weight is listed in Part II in poundsper single unit of product unless otherwisespecified.

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 the IRS to removea product from the table, or change or specifythe ODC weight of a product.

Include your name, address, taxpayeridentification number, and principal place ofbusiness in your request. The request mustinclude the following information for eachproduct 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.

Send your request to the followingaddress.

Internal Revenue ServiceP.O. Box 7604Ben Franklin StationAttn: CC:MSP:RU (Imported ProductsTable)Room 5226Washington, 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, whether or not delivery has beenmade.

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 totax and not described in item (2) or (3).

2) At least 50 pounds of ODCs that arehalons subject to tax.

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

If you are liable for the tax, prepare aninventory on January 1 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. Report the taxon Form 6627 and Form 720 for the secondcalendar quarter.

For the tax rates, see the Form 6627 in-structions.

ODCs not subject to floor stocks tax. Thefloor stocks tax is not imposed on any of thefollowing ODCs.

1) ODCs mixed with other ingredients thatcontribute to the accomplishment of thepurpose for which the mixture will beused, unless the mixture contains onlyODCs and one or more stabilizers.

2) ODCs contained in a manufactured arti-cle in which the ODC will be used for itsintended purpose without being releasedfrom the article.

3) ODCs that have been reclaimed or re-cycled.

4) ODCs sold in a qualifying sale for:

a) Use as a feedstock.

b) Export, or

c) Use as a propellant in a metered-dose inhaler.

Communications andAir TransportationTaxesExcise taxes are imposed on amounts paidby the users of certain facilities and services.

If you receive any payment on which tax isimposed, you are required to collect the tax,file returns, and pay the tax to the govern-ment.

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 TaxA 3% tax is imposed on amounts paid for allthe following communications services.

Local telephone service.

Toll telephone service.

Teletypewriter exchange service.

Local telephone service. This means ac-cess to a local telephone system and theprivilege of telephonic quality communicationwith most people who are part of the system.Local telephone service also includes any fa-cility or services provided in connection withthis service. The tax applies to lease pay-ments for certain customer premises equip-ment (CPE) even though the lessor does notalso provide access to a local telecommuni-cations 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 other

similar system for dual use accessory equip-ment. However, the charge for the servicemust be stated separately from the charge forthe basic system, and the accessory mustfunction, in whole or in part, in connection withintercommunication among the subscriber'sstations.

Toll telephone service. This means a tele-phonic quality communication for which a tollis charged that varies with the distance andelapsed transmission time of each communi-cation. The toll must be paid within the UnitedStates. It also includes a long distance ser-vice that entitles the subscriber to make un-limited calls (sometimes limited as to themaximum number of hours) within a certainarea for a flat charge. Microwave relay ser-vice used for the transmission of televisionprograms and not for telephonic communi-cation is not a toll telephone 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 in the tax base stateor local sales or use taxes that are separatelystated on the taxpayer's bill.

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 and pay forthose services in advance. The tax is im-posed when the card is transferred by a tele-communications carrier to any person who isnot a telecommunications carrier. The faceamount of the card is the amount paid forcommunications services. If the face amountis not a dollar amount, see section 49.42514of the regulations.

ExemptionsPayments for certain services or paymentsfrom certain users are exempt from the com-munications tax.

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

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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. The tax does not apply tocharges for the following services.

Services dealing exclusively with the col-lection or dissemination of news for orthrough the public press or radio or tele-vision broadcasting.

Services used exclusively in the col-lection or dissemination of news by anews ticker service furnishing a generalnews service similar to that of the publicpress.

This exemption applies to payments receivedfor messages from one member of the newsmedia to another member (or to or from their

bona fide correspondents). For the exemptionto apply, the charge for these services mustbe billed in writing to the person paying for theservice and that person must certify in writingthat the services are used for an exemptpurpose.

Services not exempted. The tax appliesto amounts paid by members of the newsmedia for local telephone service. Toll tele-phone service in connection with celebritiesor special guests on talk shows is subject tothe tax.

Common carriers and communicationscompanies. The tax on toll telephone ser-vice does not apply to WATS (wide areatelephone service) used by common carriers,telephone and telegraph companies, or radiobroadcasting stations or networks in theirbusiness. A common carrier is one holdingitself out to the public as engaged in thebusiness of transportation of persons orproperty for compensation and offering itsservices to the public 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 member of the U.S.Armed Forces performing services in thecombat zone who originated the call.

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 is either of the following areas.

Bosnia and Herzegovina, Croatia, orMacedonia, effective November 21,1995.

Federal Republic of Yugoslavia(Serbia/Montenegro), Albania, theAdriatic Sea, and the Ionian Sea northof the 39th parallel, effective March 24,1999.

A qualified hazardous duty area includes anarea only while the special pay provision is ineffect for that area.

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 nonprofit

educational 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 sec-tion 501(a) of the Internal Revenue Code.

This includes a school operated by an or-ganization that is exempt under section501(c)(3) of the Internal Revenue Code if theschool 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 theInternal Revenue Code and Regulations. File

the certificate with the provider of the com-munication 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.

The American National Red Cross andother international organizations.

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.

Credits or RefundsIf tax is collected and paid over for certainservices or users exempt from the communi-cations tax, the collector may claim a creditor refund if it has repaid the tax to the personfrom whom the tax was collected or obtainedthe consent of that person to the allowanceof the credit or refund. Alternatively, the per-son who paid the tax may claim a refund. For

information on forms used to claim a creditor refund, see Credits and Refunds, later.

Air Transportation TaxesTaxes are imposed on amounts paid for allthe following services.

Transportation of persons by air.

Use of international air travel facilities.

Transportation of property by air.

Transportation ofPersons by AirThe tax on transportation of persons by air is

made up of the following two parts.

The percentage tax.

The domestic-segment tax.

However, see Rural airports, later.

Percentage tax. A tax of 7.5% applies toamounts paid for taxable transportation ofpersons by air. Amounts paid for transporta-tion include charges for layover or waitingtime and movement of aircraft in deadheadservice.

Mileage awards. The percentage taxmay apply to an amount paid (in cash or inkind) to an air carrier (or any related person)for the right to provide mileage awards for,or other reductions in the cost of, any trans-portation of persons by air. For example, thisapplies to miles purchased by credit cardcompanies, telephone companies, restau-rants, hotels, and other businesses.

Generally, the percentage tax does notapply to mileage awards for air transportationthat is not, under any circumstances, subjectto the tax, or for air transportation that is fullysubject to the tax. Until regulations are is-sued, the following rules apply to mileageawards.

Amounts paid for mileage awards thatcannot be redeemed for taxable trans-portation (for example, awards usable

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only on a foreign air carrier) are not sub-ject to the tax.

Amounts paid by an air carrier to anotherair carrier, foreign or domestic, for mile-age awards that can be redeemed fortaxable transportation are not subject tothe tax to the extent those miles will beawarded in connection with the purchaseof air transportation subject to the per-centage tax.

Amounts paid by an air carrier to anotherair carrier, foreign or domestic, for mile-age awards that can be redeemed fortaxable transportation are subject to thetax to the extent those miles will beawarded other than in connection with thepurchase of air transportation subject tothe percentage tax.

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 anda 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 2001, Frank Jonespays $242 to a commercial airline for a flightin January from Washington to Chicago withan intermediate stop in Cleveland. The flightcomprises two segments. The price includesthe $220 fare and $22 excise tax [($220 7.5%) + (2 $2.75)] for which Frank is liable.The airline collects the tax from Frank andpays it to the government.

Rural airports. If a segment is to or from

a rural airport, the domestic-segment tax doesnot apply. An airport is a rural airport for acalendar year if it satisfies both the followingrequirements.

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

2) Either of the following statements is true.

a) The airport is not located within 75miles of another airport from which100,000 or more commercial pas-sengers departed during the sec-ond preceding calendar year.

b) The airport was receiving essentialair service subsidies as of August

5, 1997.

Revenue Procedure 9818 in CumulativeBulletin 19981 is the most recent list of ruralairports published by the IRS. An updated listcan be found on the Department of Trans-portation web site at www.bts.gov/oai/rural.html.

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

It begins and ends either in the UnitedStates or at any place in Canada orMexico not more than 225 miles from the

nearest point on the continental UnitedStates boundary (this is the 225-milezone).

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, discussed later.

Round trip. A round trip is consideredtwo separate trips. The first trip is from thepoint of departure to the destination. The

second trip is the return trip from that desti-nation.

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. This transporta-tion is partially exempt from the tax on trans-portation of persons by air. The tax does notapply to the part of the trip between the pointat which the route of transportation leaves or

enters 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 the tax on the use of interna-tional air travel facilities, discussed later.

Transportation within Alaska or Hawaii.The tax on transportation of persons by airapplies to the entire fare paid in the case of

flights 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 transportationfurnished solely to participants in packageholiday tours. The amount paid for thesepackage tours includes a charge for airtransportation even though it may be adver-tised as free. This rule also applies to the tax

on the use of international air travel facilities,discussed later.

Liability for tax. The person paying for tax-able transportation is liable for the tax and,ordinarily, the person receiving the paymentcollects the tax, files the returns, and pays thetax to the government. However, the tax mustbe collected by the person furnishing the ini-tial transportation provided for under a pre-paid order, exchange order, or similar orderpaid for outside the United States.

A travel agency that is an independentbroker and sells tours on aircraft that it char-ters must collect the transportation tax, file thereturns, and pay the tax to the government.

However, a travel agency that sells tours asthe agent of an airline must collect the tax andremit it to the airline for the filing of returnsand for the payment of the tax to the govern-ment.

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.

If the tax is not paid when payment for thetransportation is made, the air carrier provid-ing the initial segment of the transportationthat begins or ends in the United States be-comes 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 deemed to be travelingin uninterrupted international air transporta-tion (defined earlier) even if the scheduledinterval between arrival and departure at anystation in the United States is actually morethan 12 hours. However, such personnel mustbuy their tickets within 12 hours after landingat the first domestic airport and accept thefirst available accommodation of the typecalled for by their tickets. The trip must beginor end outside the United States and the225-mile zone.

Certain helicopter uses. The tax doesnot apply to air transportation by helicopter ifthe helicopter is used for any of the followingpurposes.

1) Transporting individuals, equipment, orsupplies in the exploration for, or thedevelopment or removal of, hard min-erals, oil, or gas.

2) Planting, cultivating, cutting, transport-ing, or caring for trees (including loggingoperations).

3) Providing transportation for emergencymedical services.

However, during a use described in items(1) and (2), 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. For item (1), treateach flight segment as a separate flight.

Fixed-wing air ambulance. The tax doesnot apply to air transportation by fixed-wingaircraft if used for emergency medical trans-portation. The aircraft must be equipped forand exclusively dedicated on that flight toacute care 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 whencustomers have traveled insufficient mileageto fully qualify for the free advance bonustickets.

Time Period TaxJanuary 1, 2001December 31, 2001 ...... ... $2.75January 1, 2002December 31, 2002 ...... ... $3.00

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Use of InternationalAir Travel FacilitiesA $12.80 tax is imposed on amounts paidduring 2001 (whether in or outside the UnitedStates) for international flights that begin orend in the United States. This tax does notapply if all of the transportation is subject tothe percentage tax, discussed earlier.

For a domestic segment that begins orends in Alaska or Hawaii, a $6.40 tax appliesonly to departures.

Transportation ofProperty 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 aircraftin 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.

Exemptions from tax. The tax does notapply to amounts paid for cropdusting, aerialfirefighting service, or the use of helicoptersin construction to set heating and air condi-tioning units on roofs of buildings, to disman-tle tower cranes, and to aid in constructionof power lines and ski lifts.

The tax does not apply to payments fortransportation of property by air in the courseof exportation (including to United Statespossessions) by continuous movement. GetForm 1363, Export Exemption Certificate, formore details.

The tax does not apply to air transporta-tion by helicopter or fixed-wing aircraft for thepurpose of providing emergency medical

transportation. The fixed-wing aircraft mustbe equipped for and exclusively dedicated onthat flight to acute care emergency medicalservices.

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

The tax does not apply to excess bag-gage accompanying a passenger on an air-craft operated on an established line.

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 (or the 225-milezone if the aircraft departs from or arrives at

an airport in the 225-mile zone). But the taxapplies to flights between ports or stations inAlaska and the Aleutian Islands, as well asbetween ports or stations in Hawaii. The taxapplies even though parts of the flights maybe over international waters or over Canada,if no point on a line drawn from where theroute of transportation leaves the UnitedStates (Alaska) to where it reenters theUnited States (Alaska) is more than 225 milesfrom the United States.

Liability for tax. The person paying for tax-able transportation is liable for the tax and,ordinarily, the person engaged in the busi-ness of transporting property by air for hire

receives the payment, collects the tax, filesthe returns, and pays the tax to the govern-ment.

If tax is not paid when a payment is madeoutside the United States, the person fur-nishing the last segment of taxable transpor-tation collects the tax from the person towhom the property is delivered in the UnitedStates.

Mixed load of persons and property. If youreceive a single amount for air transportation

of a mixed load of persons and property, al-locate the payment between the amountsubject to the tax on transportation of personsand the amount subject to the tax on trans-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 do not apply to payments receivedby one member of an affiliated group of cor-porations from another member for servicesfurnished in connection with the use of anaircraft. However, the aircraft must be ownedor leased by a member of the affiliated groupand cannot be available for hire by a non-member of the affiliated group. Determinewhether an aircraft is available for hire by anonmember of an affiliated 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. The taxes do not apply totransportation furnished by an aircraft havinga maximum certificated takeoff weight of

6,000 pounds or less. However, the taxes doapply if the aircraft is operated on an estab-lished line. Operated on an established linemeans the aircraft operates with some degreeof regularity between definite points.

Consider an aircraft to be operated on anestablished line if it is operated on a charterbasis between two cities that are also servedby that carrier on a regularly scheduled basis.

Credits or RefundsIf tax is collected and paid over for air trans-portation that is not taxable air transportation,the collector may claim a credit or refund if ithas repaid the tax to the person from whomthe tax was collected or obtained the consent

of that person to the allowance of the creditor refund. Alternatively, the person who paidthe tax may claim a refund. For informationon forms used to claim a credit or refund, seeCredits and Refunds, later.

Fuel TaxesExcise taxes are imposed on all the followingfuels.

Gasoline.

Gasohol.

Diesel fuel.

Kerosene.

Aviation fuel.

Special motor fuels (including LPG).

Compressed natural gas.

Fuels used in commercial transportationon inland waterways.

Monthly reports relating to liquid fuel.Form 720TO, Terminal Operator Report,and Form 720CS, Carrier Summary Report,are new information returns. Terminal opera-tors and bulk transport carriers (barges, ves-sels, and pipelines) use these forms to reporttheir monthly receipts and disbursements ofliquid fuels. The form is due the last day of themonth following the month in which thetransaction occurs. For more information, seethe form instructions. You can also get infor-mation from the excise tax information pageon the IRS web site, www.irs.gov.

Registration RequirementsThe following discussion applies to excise taxregistration for activities relating to gasoline,diesel fuel, and kerosene. The terms usedin this discussion are explained later. SeeRegistration 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 pipeline operator (beginning April 1,2001).

A position holder.

A refiner.

A terminal operator.

A vessel operator (beginning April 1,2001).

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 ofthe following persons.

A feedstock user.

A gasohol blender.

An industrial user.

A throughputter that is not a positionholder.

An ultimate vendor.

An ultimate vendor (blocked pump).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 throughputter who receives a Letter ofRegistrationunder the excise tax registrationprovision is a taxable fuel registrant if theregistration has not been revoked or sus-pended. The term taxable fuelmeans gaso-line, diesel fuel, and kerosene. The termregistrantas used in the discussions of thesefuels means a taxable fuel registrant.

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

Measurement ofTaxable FuelGenerally, to figure the number of gallons oftaxable fuel (gasoline, diesel fuel, andkerosene), you can base your measurementon either actual volumetric gallons or gallonsadjusted to 60 degrees Fahrenheit.

Beginning July 1, 2001, you can only useone of these bases of measurement for each1-year period (July 1 June 30). This appliesto the person liable for the tax on fuel re-moved, entered, or sold in that period underthe following circumstances.

Removal all taxable fuel removed fromany particular terminal, refinery, orblending facility.

Entry all taxable fuel entered into theUnited States at any particular point ofentry.

Sale all taxable fuel sold to any partic-ular buyer.

These taxable events are discussed later un-der Gasolineand Diesel Fuel and Kerosene.

Refunds of Second TaxIf the tax is paid on more than one taxableevent for a taxable fuel (gasoline, diesel fuel,and kerosene), the person paying the secondtax may claim a refund of that tax if certainconditions and reporting requirements aremet. No credit against any tax is allowed forthis tax.

Conditions to allowance of refund. A claimfor refund of the tax is allowed only if all thefollowing 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 fileda timely claim for refund containing theinformation 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 a FirstTaxpayer's Report with its Form 720 for thequarter for which the report relates. A modelfirst taxpayer's report is shown in AppendixC as Model Certificate A. Your report mustcontain all information needed to completethe 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 459990555

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

Optional reporting. A first taxpayer's re-port is not required for the tax imposed on aremoval at 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 to the person thatowned the fuel immediately before the first taxwas imposed, if the first taxpayer is not theowner at that time. If an optional report isfiled, a copy should (but is not required to)be given to the buyer or owner.

A person that receives a copy of the firsttaxpayer's report and later sells the fuel withinthe bulk transfer/terminal system must givethe copy and a Statement of SubsequentSeller to the buyer. If the later sale is outsidethe bulk transfer/terminal system and thatperson expects that another tax will be im-posed, that person should (but is not requiredto) give the copy and the statement to thebuyer. A model statement of subsequentseller is shown in Appendix Cas Model Cer-tificate B. Your statement must contain allinformation 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.

Refund claim. You must make your claim forrefund on Form 8849. Complete Schedule 5(Form 8849) and attach it to your Form 8849.You must have filed Form 720 and paid thesecond tax before you file for a refund of thattax. Do not include this claim with a claimunder another tax provision. You must nothave included the second tax in the price ofthe fuel and must not have collected it fromthe purchaser. You must attach the followinginformation 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 some-one other than the first taxpayer.

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 amotor fuel. The product must have an octanerating of 75 or more. Gasoline blendstocksare discussed later.

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 and coveredby ASTM specification D 910 or 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 excise tax hasnot been imposed. This does not include a

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 any

tank 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.

Entry. Fuel is entered into the United Statesif it is brought into the United States and ap-plicable customs law requires that it be en-tered for consumption, use, or warehousing.This does not apply to fuel brought into PuertoRico (which is part of the U.S. customs terri-

tory), but does apply to fuel brought into theUnited States from Puerto Rico.

Pipeline operator. This is the person thatoperates a pipeline within the bulktransfer/terminal system.

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 capable of de-livering fuel into a means of transport otherthan a pipeline or vessel.

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

Refinery. This is a facility used to producefuel from crude oil, unfinished oils, natural gasliquids, or other hydrocarbons and from whichfuel may be removed by pipeline or vesselor at a rack. However, this term does not in-clude a facility where only blended fuel orgasohol, and no other type of fuel, isproduced. For this purpose, blended fuel isany mixture that would be blended taxable

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fuel if produced outside the bulktransfer/terminal system.

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

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. This is a storage and distributionfacility supplied by pipeline or vessel, and

from which fuel may be removed at a rack. Itdoes not include a facility at which gasolineblendstocks are used in the manufacture ofproducts other than finished gasoline if nogasoline is removed from the facility. A ter-minal does not include any facility where fin-ished gasoline, undyed diesel fuel, or undyedkerosene is stored if the facility is operatedby a registrant and all such fuel stored at thefacility has been previously taxed upon re-moval from a refinery or terminal.

Terminal operator. This is any person thatowns, operates, or otherwise controls a ter-minal.

Throughputter. This is any person that is a

position holder or that owns fuel within thebulk transfer/terminal system (other than in aterminal).

Vessel operator. This is the person thatoperates a vessel within the bulktransfer/terminal system. However, vesseldoes not include a deep draft ocean-goingvessel.

Taxable EventsThe tax on gasoline is 18.4 cents a gallon. Itis imposed on the removal, entry, or sale ofgasoline. Each of these events is discussed,later. However, see the special rules that ap-ply to gasoline blendstocks, later. Also, seethe discussion 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 of Second Tax, earlier.

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 other

than the terminal operator and is not a regis-trant.

However, a terminal operator meeting allthe following conditions at the time of the re-moval will not be liable for the tax.

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 not served by pipeline

(other than for receiving crude oil) orvessel.

The gasoline is received at a facility op-erated by a registrant and located 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.

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 approvedterminal or refinery. The removal by bulktransfer of gasoline from a terminal or refin-ery, or the entry of gasoline by bulk transferinto the United States, is taxable if the fol-lowing conditions apply.

1) No tax was previously imposed (as dis-cussed earlier) on any of the followingevents.

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 all thefollowing conditions at the time of the removalwill not be liable for the tax.

Be a registrant.

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


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 bulktransfer/terminal system to a person that isnot a registrant is taxable if tax was not pre-viously imposed under any of the events dis-cussed earlier.

The seller is liable for the tax. However,a seller meeting all the following conditionsat the time of the sale will not be liable for thetax.

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 not previously subject to the tax ongasoline.

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 C. 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 the

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date the registrant provides a new certificate,or the date the recipient of the certificate isnotified that the registrant's registration hasbeen 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 product that cannot be used withoutfurther processing in the production of fin-ished gasoline.

Not used to produce finished gasoline.Gasoline blendstocks not used to producefinished gasoline are not taxable if the fol-lowing 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 any informationin 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 anybusiness records normally used for a sale. Amodel certificate is shown in Appendix CasModel Certificate D. 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 a new certificate is provided to

the seller. The date the seller is notified that the

buyer's right to provide a certificate hasbeen withdrawn.

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

The IRS may withdraw the buyer's right toprovide a certificate 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 approved terminal or refinery.The nonbulk removal or entry of gasolineblendstocks received at an approved terminalor refinery is not taxable if the person other-

wise liable for the tax (position holder, refiner,or enterer) meets all the following require-ments.

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 that

is 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.

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 Revenue Code(generally, this is gasoline used in a boatengaged in commercial fishing, in militaryaircraft, and in foreign trade),

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 specialmotor fuels (defined later).

Claims by wholesale distributors. A creditor refund is allowable to a gasoline wholesale

distributor 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 is anyperson who makes retail sales of gasoline at10 or more retail motor fuel outlets or sellsgasoline to producers, retailers, or users whopurchase in bulk quantities and accept deliv-ery into bulk storage tanks. A wholesale dis-tributor is not a producer or importer.

The wholesale distributor must have soldthe gasoline at a tax-excluded price and ob-tained a certificate of ultimate purchaser orproof of exportation.

The wholesale distributor must completeSchedule 4 (Form 8849) and attach it to Form8849 to make a claim for refund for gasoline

sold to an ultimate purchaser for a purposelisted earlier.

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 for a purpose listed in the previ-ous list. A credit or refund also is allowableto that person if the gasoline was sold to theuser by a wholesale distributor and either ofthe following is true.

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

The sale to the user was charged on an

oil company credit card.

The person that paid the tax must submit thefollowing with its claim.

1) One of the three items below.

a) Proof of exportation.

b) A certificate of ultimate purchaser.

c) A certificate of ultimate vendor.

2) A statement that the person has met anyof the following conditions to allowance.

a) Has neither included the tax in theprice of the gasoline nor collectedthe tax from the buyer.

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b) Has repaid, or agreed to repay, thetax to the ultimate vendor of thegasoline.

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 taxed gasoline used for a nontaxa-ble use. See Publication 378 for more infor-mation 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 is from anapproved refinery by bulk transfer and theregistered refiner treats itself as not regis-tered. This is in addition to the taxable eventsdiscussed earlier under Removal fromrefinery.

Gasohol. Gasohol is a mixture of gasolineand alcohol that satisfies the alcohol-content

requirements immediately after the mixture isproduced. Alcohol includes ethanol andmethanol. Generally, this includes ethanolused to produce ethyl tertiary butyl ether(ETBE) and methanol produced frommethane gas formed in waste disposal sites.However, alcohol produced from petroleum,natural gas, coal (including peat), or any de-rivative or product of these items, and alcoholthat is less than 190 proof do not qualify asalcohol for these rules.

Alcohol-content requirements. To qualifyas gasohol, a mixture must contain a specificamount of alcohol by volume, without round-ing. Figure the alcohol content on a batch-by-batch basis. There are three types of

gasohol.

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.

Any mixture that contains less than 5.59%alcohol is not gasohol.

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 themixture 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 metered gallons of gasolineand alcohol to a tank already containing morethan 0.5% of its capacity in a liquid, includethe alcohol and non-alcohol fuel contained inthat liquid in figuring the volume of alcohol inthat batch.

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 gasolineand 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 mixtureis considered to be 7.7% gasohol. To figurethat part, multiply the number of gallons ofalcohol in the mixture by 12.987. The other

part 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 mixtureis considered to be 5.7% gasohol. To figurethat part, multiply the number of gallons ofalcohol 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 produces gasohol out-side of the bulk transfer/terminal system forsale or use in its trade or business. A regis-

tered gasohol blender is a person that hasbeen registered by the IRS as a gasoholblender. 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 gasoline from the gasoholor fail to blend gasoline 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 rackor from the refinery, or on the nonbulk entryinto the United States (as discussed underGasoline, earlier). The rates for gasolineused to produce gasohol containing ethanolare shown on Form 720. The rates for gaso-line used to produce gasohol containingmethanol are shown in the instructions forForm 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 thatproduces gasohol with the gasolinewithin 24 hours after removing or enter-ing the gasoline, or

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

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 Cas 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 a new certificate is provided tothe seller.

The date 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 or sale of the gasoline. This taxrate is the difference between the regular taxrate for gasoline and the tax rate imposed onthe prior removal or entry of the gasohol. Theperson that owns the gasohol when the gas-oline is separated is liable for the tax.

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 liable

for 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 he blended 7,205 me-tered gallons of gasoline and 795 meteredgallons of alcohol. He bought the gasolineat a reduced tax rate of 14.555 cents pergallon. The batch contains 9.9375% alcohol(795 8,000). John determines that 7,950gallons (10 795) of the mixture qualifies as

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10% 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 3.845 cents pergallon (18.40 (full rate) 14.555 (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 discussionare defined under Gasoline.

Diesel fuel. The term diesel fuelmeans anyliquid that, without further processing orblending, is suitable for use as a fuel in adiesel-powered highway vehicle or train. Die-sel fuel does not include gasoline, kerosene,excluded liquid, No. 5 and No. 6 fuel oilscovered by ASTM specification D 396, or

F-76 (Fuel Naval Distillate) covered by mili-tary specification MIL-F-16884.An excluded liquid is either of the fol-

lowing.

1) A liquid that contains less than 4%normal paraffins.

2) A liquid with all the following properties.

a) Distillation range of 125 degreesFahrenheit or less.

b) Sulfur content of 10 ppm or less.

c) Minimum color of +27 Saybolt.

Kerosene. This means any of the followingliquids.

One of the two grades of kerosene (No.1-K and No. 2-K) covered by ASTMspecification D 3699.

Aviation-grade kerosene.

However, kerosene does not include ex-cluded liquid, discussed earlier.

Kerosene also includes any liquid thatwould be described above but for the pres-ence of a dye of the type used to dyekerosene for a nontaxable use.

Aviation-grade kerosene. This iskerosene-type jet fuel covered by ASTMspecification D 1655 or military specification

MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8).

Diesel-powered highway vehicle. This isany self-propelled vehicle designed to carrya load over public highways (whether or notalso designed to perform other functions) andpropelled by a diesel-powered engine. Gen-erally, do not consider as diesel-poweredhighway vehicles specially designed mobilemachinery for nontransportation functions andvehicles specially designed for off-highwaytransportation. For more information aboutthese vehicles and 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 the removal,entry, or sale of diesel fuel and kerosene.Each of these events is discussed later. Thetax does not apply to dyed diesel fuel or dyed

kerosene, discussed later.If the tax is paid on the diesel fuel or

kerosene in more than one event, a refundmay be allowed for the second tax paid.See Refunds of Second Tax, earlier.

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 thissituation 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 meets eitherof the following conditions.

It is made by bulk transfer and the refineror owner of the fuel immediately beforethe 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

undyed die

us internal revenue service: p510--2001

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