us internal revenue service: p510--1997

8/14/2019 US Internal Revenue Service: p510--1997

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Note. This revision of Publication 510 isavailable only in electronic form and reflectstax changes and developments as of June1997. It is not available in printed form. If youask for a paper copy of the publication fromIRS, you will be sent a copy of the December1996 revision.

ContentsImportant Changes ............................ 2

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

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

Registration for Certain Activities .... 3

Environmental Taxes ......................... 3Ozone-Depleting Chemicals ........... 3

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

Fuel Taxes ........................................... 5Registration Requirements ............. 5Gasoline .......................................... 6Gasohol ........................................... 8Diesel Fuel ...................................... 9Aviation Fuel ................................... 12Special Motor Fuels ........................ 13

Compressed Natural Gas ............... 14Fuels Used on Inland Waterways .. 14Alcohol Sold As Fuel But Not Used

As Fuel ..................................... 15

Manufacturers Taxes ......................... 15Tax Liability ..................................... 15Sport Fishing Equipment ................ 16Bows and Arrows ............................ 16Coal ................................................. 16Tires ................................................ 17Gas Guzzler Tax ............................. 17Vaccines ......................................... 18

Tax on Heavy Trucks, Trailers, andTractors ........................................ 18

Ship Passenger Tax ........................... 20

Luxury Tax .......................................... 20

Other Excise Taxes ............................ 21Policies Issued by Foreign Insurers 21Obligations Not in Registered Form 21

Filing Form 720 .................................. 21

Paying the Taxes ................................ 22Deposit Requirements .................... 22

Penalties and Interest ........................ 23

Examination and Appeal Procedures 23

Help From the Taxpayer Advocate's

Office ............................................ 24

Rulings Program ................................ 24

Appendix AWagering Taxes .......... 25

Appendix BImported ProductsTable ............................................. 26

Appendix CModel Certificates ...... 31

Appendix DAir TransportationTaxes ............................................ 38

How To Get More Information .......... 39

Index .................................................... 40

Departmentof theTreasury

InternalRevenueService

Publication 510(Rev. June 1997)Cat. No. 15014I

Exc ise Taxes

for 1997

Get f orms and other informat ion faster and easier by:COMPUTER

World Wide Web www.irs.ustreas.gov FTP ftp.irs.ustreas.gov IRIS at FedWorld (703) 321-8020

FAX From your FAX machine, dial (703) 487-4160See How To Get More Information in this publication.


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Important ChangesTaxpayer identification number. There aregenerally three types of taxpayer identificationnumbers: social security numbers (SSN), IRSindividual taxpayer identification numbers(ITIN), and employer identification numbers(EIN). Generally, an EIN is used for excise taxpurposes. In some cases, an individual mayhave to provide his or her SSN. If an alienindividual does not have and is not eligible to

get an SSN, he or she should get an ITINfrom the IRS.

Tax deposits. The look-back safe harborrule for tax deposits does not apply if the taxwas not in effect throughout the look-backquarter.

Electronic deposit requirement. If yourtotal deposits of social security, Medicare,railroad retirement, and withheld incometaxes were more than $50,000 in 1995, youshould make electronic deposits for all de-pository tax liabilities that occur after June 30,1997. See Deposit Requirementsunder Pay-ing the Taxes.

Diesel fuel used in boats. The excise taxon diesel fuel used or sold for use in boats issuspended through December 31, 1997.

Diesel fuel dyeing requirements. If certainrequirements are met, diesel fuel removed,entered, or sold in Alaska for ultimate sale oruse in Alaska does not have to meet thedyeing requirements to be exempt from theexcise tax on diesel fuel. See Dyed DieselFuelunder Diesel Fuel, later.

Luxury tax on automobiles. For sales afterAugust 27, 1996, and before January 1, 1997,the luxury tax on automobiles was 9% of theamount the sales price exceeded $34,000.

For sales occurring in calendar year 1997,

the tax is 8% of the amount the sales priceexceeds $36,000. After 1997 the tax rate de-creases by one percentage point each yearuntil the tax ends at the end of 2002.

Ozone-depleting chemicals. Effective Au-gust 27, 1996, chemicals that are used aspropellants in metered-dose inhalers are ex-empt from the excise tax on ozone-depletingchemicals.

Effective January 1, 1997, recycled halonsimported from countries that have signed theMontreal Protocol are exempt from the tax onozone depleting chemicals. However, thisexemption does not apply to Halon1211 untilJanuary 1, 1998.

Air transportation taxes. The following

taxes were reinstated for amounts paid afterMarch 6, 1997, and before October 1, 1997:

1) The 10% tax on transportation of per-sons by air,

2) The 6.25% tax on transportation ofproperty by air, and

3) The $6 tax for use of international airtravel facilities.

See Appendix D.

Aviation gasoline. For the period startingMarch 7, 1997, and ending September 30,1997, a tax of 19.3 cents per gallon appliesto aviation gasoline when it is removed fromthe terminal at the terminal rack. On October1, 1997, the tax on aviation gasoline isscheduled to decrease to 4.3 cents per gal-lon.

Aviation fuel (other than gasoline). Gen-erally, the tax on aviation fuel (other thangasoline) is 21.8 cents per gallon for the pe-riod starting on March 7, 1997, and endingSeptember 30, 1997. On October 1, 1997, thetax is scheduled to decrease to 4.3 cents pergallon.

Floor stocks taxes. A floor stocks tax of 15cents a gallon applies to any person who heldpreviously taxed aviation gasoline on March7, 1997. A floor stocks tax of 17.5 cents agallon applies to any person who held previ-ously taxed aviation fuel (other than gasoline)on March 7, 1997. These taxes must be paidby August 1, 1997, and reported on the Form720 for the third quarter of 1997. For ex-ceptions see Aviation Gasoline under Gaso-lineand see Aviation Fuel.

IntroductionThis publication covers the excise taxes forwhich you may be liable during 1997. It cov-ers the excise taxes reported on Form 720,Quarterly Federal Excise Tax Return. It alsoprovides information for those persons en-gaged in wagering activities.

Useful ItemsYou may want to see:

Publication

378 Fuel Tax Credits and Refunds

Form (and Instructions) 11C Occupational Tax and Registra-

tion Return for Wagering

637 Application for Registration (ForCertain Excise Tax Activities)

720 Quarterly Federal Excise Tax Re-turn

730 Tax on Wagering

1363 Export Exemption Certificate

6197 Gas Guzzler Tax

6627 Environmental Taxes

8849 Claim for Refund of Excise Taxes

See How To Get More Information near

the end of this publication for informationabout getting publications and forms.

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

These forms and taxes are:

1) IRS Form 2290: Heavy Vehicle Use TaxReturn

2) ATF Form 5630.5: Alcohol, Tobacco

3) ATF Form 5630.7: Firearms

4) ATF Form 5300.26: Firearms

If any of these taxes appear to apply to you,see the following discussions for informationabout them.

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

write to or call the director for your area.

District Director (Regulatory Enforcement)

Bureau of Alcohol, Tobacco, and Firearms300 S. Riverside PlazaSuite 310 Attn: PIOChicago, IL 606066616(312) 3531967

District Director (Regulatory Enforcement)Bureau of Alcohol, Tobacco, and Firearms6 World Trade Center, Rm 620 Attn:PIONew York, NY 10048(212) 2642328

District Director (Regulatory Enforcement)Bureau of Alcohol, Tobacco, and Firearms2600 Century Parkway, Suite 300 Attn:PIO

Atlanta, GA 30345(404) 6795001

District Director (Regulatory Enforcement)Bureau of Alcohol, Tobacco, and Firearms1114 Commerce Street, 7th Floor (PIO)Dallas, TX 75242(214) 7672280

District Director (Regulatory Enforcement)Bureau of Alcohol, Tobacco, and Firearms221 Main Street, 11th Floor (Attn: PIO)San Francisco, CA 94105(415) 7447013

Tax Processing Center (S0T)

P.O. Box 145433Cincinnati, OH 452505433(513) 6842979

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

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

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

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

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

1) Brewers and dealers of liquor, wine, orbeer,

2) Distillers, importers, wholesale and retaildealers of distilled spirits,

3) Manufacturers who use alcohol toproduce non-beverage products, and

4) Importers and wholesalers of importedperfumes.

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

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

Registration for

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

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

If the district director approves your appli-cation, you will receive a letter of registrationshowing the activities for which you are reg-istered, the effective date of the registration,and your registration number. A copy of Form637 is not a letter of registration.

Environmental TaxesEnvironmental taxes are imposed on ozone-depleting chemicals. Figure the environ-mental tax on Form 6627. The rates are onForm 6627 or in the Instructions for 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.

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

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

You may file a claim for refund for anyamount at any time within the 3-year statutoryperiod for filing a claim. There is no limit onthe number of claims for refund of environ-

mental taxes that you may file in a year.There is no minimum dollar amount neces-sary for a claim.

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

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

For the taxable ODCs and tax rates, seethe Instructions for Form 6627.

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

The creation of a mixture is treated as use

of the ODC contained in the mixture. An ODCis contained in a mixture only if the chemicalidentity of the ODC is not changed. Generally,tax is imposed when the mixture is createdand not on its sale or use. However, you canchoose to have the tax imposed on its saleor use by checking the appropriate box onForm 6627. You can revoke this choice onlywith IRS consent.

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

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

Recycled. There is no tax on any ODCdiverted or recovered in the United States aspart of a recycling process (and not as partof the original manufacturing or productionprocess). There is no tax on any recycledhalon imported from a country that has signedthe Montreal Protocol on Substances thatDeplete the Ozone Layer. However, this ex-emption does not apply to importedHalon1211 until January 1, 1998.

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

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

For a sale to be nontaxable, you mustobtain a registration certificate that you relyon in good faith from the purchaser. Theregistration certificate must be in substantially

the form set forth in section 52.46822(d)(2)of the regulations. Keep the certificate withyour records.

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

Use of imported products. You use an im-ported product if you put it into service in atrade or business or for production of income

or use it in the making of an article, includingincorporation into the article. The loss, de-struction, packaging, repackaging, ware-housing, or repair of an imported product isnot a use of that product.

Entry as use. The importer may chooseto treat the entry of products into the UnitedStates as the use of the product. Tax is im-posed on the date of entry. The choice ap-plies to all imported taxable products that youown and have not used when you make thechoice and all later entries. Make the choiceby checking the box on Form 6627. Thechoice is effective as of the beginning of thecalendar quarter to which the Form 6627 ap-plies. 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:

1) You have consistently treated the saleof similar items as the first sale or useof similar taxable imported products, and

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

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Imported Products Table. The ImportedProducts Table appears in Appendix B at theend of this publication. Each listing in the ta-ble identifies a product by name and includesonly products that are described by thatname. Most listings identify a product by bothname and Harmonized Tariff Schedule (HTS)heading. In those cases, a product is includedin that listing only if the product is describedby that name and the rate of duty on theproduct is determined by reference to thatHTS heading. A product is included in thelisting even if it is manufactured with or con-tains a different ODC than the one specifiedin the table.

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

1) A component whose operation involvesthe use of nonmechanical amplificationor switching devices such as tubes,transistors, and integrated circuits, or

2) Contains these components and morethan 15% of the cost of the product isfrom these components.

These components do not include passive

electrical 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 I of the tableif it is a mixture containing ODCs.

2) A product is listed in Part II of the tableif the Commissioner has determined thatthe ODCs used as materials in themanufacture of the product under thepredominant method are used for pur-

poses of refrigeration or air conditioning,creating an aerosol or foam, or manu-facturing electronic components.

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

a) Is not an imported taxable product,and

b) Would otherwise be included withina listing in Part II of the table.

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

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

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

1) The actual weight of the ODCs used inmanufacturing the product, or

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

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

Modifying the table. A manufacturer orimporter of a product may request the IRS toadd a product and its ODC weight to the ta-ble. They also may request IRS to remove aproduct from the table, or change or specifythe ODC weight of a product. Your requestmust include for each product to be modified:

1) The name of the product,

2) The HTS heading or subheading,

3) The type of modification requested,

4) The ODC weight that should be specified(unless the product is being removed),and

5) The data supporting the request.

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

Send your request to:

Internal Revenue ServiceP.O. Box 7604Ben Franklin StationAttn: CC:CORP:R (Imported Products

Table)Room 5228Washington, DC 20044.

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

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

You are liable for the floor stocks tax if onJanuary 1 you hold:

1) At least 400 pounds of ODCs subject totax and not described in item (2) or (3),or

2) At least 50 pounds of ODCs that areHalons subject to tax, or

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

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

For the tax rates, see the Instructions forForm 6627.

Communications TaxThe 3% telephone excise tax is imposed onamounts paid for:

1) Local telephone service,

2) Toll telephone service, and

3) Teletypewriter exchange service.

The person paying for the service is liablefor the tax. The person who receives thepayment is required to collect the tax, file re-turns, and pay the tax to the government. FileForm 720 to report excise taxes on commu-nication facilities and services.

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

Local telephone service. Local telephoneservice is access to a local telephone systemand the privilege of telephonic quality com-munication with most people who are part ofthe system facilities or services provided withthis service. For example, the tax applies tolease payments for certain customer prem-ises equipment (CPE) even though the lessordoes not also provide access to a local tele-communications system.

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

communication among the subscriber'sstations.

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

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

ber of hours) within a certain area for a flatcharge. Microwave relay service used for thetransmission of television programs and notfor telephonic communication is not a tolltelephone service.

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

Computation of 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 tax

purposes, the tax is based on the sum of theindividual items within that group. The tax onthe remaining items not included in any groupis based on the charge for each item sepa-rately. Do not include state or local taxes thatare separately stated (such as a retail salesor excise tax) on the taxpayer's bill in thecharges for the services.

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

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

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

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

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 public

are not subject to tax for local telephone ser-vice. They also are not subject to tax for tolltelephone service if the charge is less than25 cents. But the tax applies if the coin-operated telephone service is furnished for aguaranteed amount. Figure the tax on theamount paid under the guarantee plus anyfixed monthly or other periodic charge.

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

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

news service similar to that of the publicpress. For the exemption to apply, the chargefor these services or facilities must be billedin writing to the person paying for the serviceand that person must certify in writing that theservices are used for one of these exemptpurposes. However, toll telephone service inconnection with celebrities or special guestson talk shows is subject to tax.

Common carriers and communicationscompanies. The tax on toll telephone ser-vice does not apply to WATS or WATS-likeservice used by common carriers, telephoneand telegraph companies, or radio broad-

casting stations or networks in their business.A common carrier is one holding itself out tothe public as engaged in the business oftransportation of persons or property forcompensation, offering its services to thepublic generally.

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

1) The name of the person who called fromthe combat zone and that the personwas a member of the U.S. Armed Forcesperforming services in the combat zone;

2) The toll charges, point of origin, andname of carrier;

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

4) The name and address of the telephonesubscriber.

This exemption also applies to members ofthe Armed Forces serving in a qualified haz-ardous duty area. A qualified hazardous dutyarea means Bosnia and Herzegovina,Croatia, or Macedonia. A qualified hazardousduty area includes a country only while thespecial pay provision is in effect for thatcountry.

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

Nonprofit hospitals. The tax does not applyto telephone services furnished to income

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

Nonprofit educational organizations. Thetax does not apply to payments received forservices and facilities furnished to a nonprofiteducational organization for its use. Anonprofit educational organization is one that:

1) Normally maintains a regular faculty andcurriculum,

2) Normally has a regularly enrolled bodyof pupils or students in attendance at theplace where its educational activities are

regularly carried on, and3) Is exempt from income tax under IRC

501(a).

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

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

vices involve the exercise of an essentialtribal government function.

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

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

1) Red Cross and other international or-ganizations,

2) Nonprofit hospitals,

3) Nonprofit educational organizations, and

4) State and local governments.

The federal government does not have tofile any exemption certificate.

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

Fuel TaxesExcise taxes are imposed on:

1) Gasoline,

2) Gasohol,

3) Diesel fuel,

4) Aviation fuel (other than gasoline),

5) Special motor fuels,

6) Compressed natural gas, and

7) Fuels used in commercial transportationon inland waterways.

Registration RequirementsThe following discussion applies to registra-

tion for purposes of the excise taxes on gas-oline and diesel fuel. The terms used in thisdiscussion are explained later under Gasolineand Diesel Fuel. See Registration for CertainActivities, earlier for more information aboutregistration.

Persons that must register. You must reg-ister if you are:

1) A blender,

2) An enterer,

3) A refiner,

4) A terminal operator, or

5) A position holder.

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

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

1) A gasohol blender,

2) An industrial user,

3) A throughputter that is not a positionholder, or

4) An ultimate vendor of diesel fuel.

Ultimate vendors do not need to register tobuy or sell diesel fuel. However, they must

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be registered for filing certain claims for theexcise tax on diesel fuel.

Taxable fuel registrant. A person (otherthan an ultimate vendor) who receives a letterof registration under this provision for gaso-line and diesel fuel is a taxable fuel registrantif the registration has not been revoked orsuspended. The term registrant as used inthe discussions under Gasoline and DieselFuelmeans a taxable fuel registrant.

Additional information. See the Form637 instructions for the information you mustsubmit when you apply for registration. Seesection 48.41011 of the excise tax regu-lations for the registration tests and terms andconditions of registration.

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

DefinitionsThe following terms are used throughout thediscussion of gasoline. Some of these termsare also used in the discussion of diesel fuel.Other terms are defined in the discussion towhich they pertain.

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

To figure the number of gallons of gaso-line on which tax is imposed, you may baseyour measurement on the actual volumetricgallons, gallons adjusted to 60 degreesFahrenheit, or any other temperature adjust-ment method approved by the IRS.

Approved terminal or refinery. This is a

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

Blended taxable fuel. This is a mixtureproduced outside the bulk transfer/terminalsystem that consists of gasoline or diesel fuelon which excise tax has been imposed andany other liquid on which that excise tax hasnot been imposed. This does not include amixture 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 containing only gasoline subject to areduced tax rate and alcohol.

Blender. This is the person that producesblended taxable fuel.

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

Bulk transfer/terminal system. This is thefuel distribution system consisting of refin-eries, pipelines, vessels, and terminals. Fuelin the supply tank of any engine, or in anytank car, rail car, trailer, truck, or otherequipment suitable for ground transportationis not in the bulk transfer/terminal system.

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

Position holder. This is the person whoholds the inventory position in the fuel in theterminal, as reflected on the records of theterminal operator. You hold the inventory po-sition when you have a contractual agreementwith the terminal operator for the use of thestorage facilities and terminaling services forthe fuel. A terminal operator that owns the fuelin its terminal is a position holder.

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

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

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

Removal. This is any physical transfer offuel. It also means any use of fuel other than

as a material in the production of taxable orspecial fuels. However, fuel is not removedwhen it evaporates or is otherwise lost ordestroyed.

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

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

actions involve the exercise of an essentialtribal government function.

Terminal operator. This is any person thatowns, operates, or otherwise controls a ter-minal. A terminalis a storage and distributionfacility that is supplied by pipeline or vessel,and from which fuel may be removed at arack. It does not include a facility at whichgasoline blendstocks are used in the manu-facture of products other than finished gaso-line if no gasoline is removed from the facility.

Throughputter. This is any person that is aposition holder, or owns fuel within the bulktransfer/terminal system (other than in a ter-minal).

Taxable EventsThe tax on gasoline is 18.3 cents a gallon. Itis imposed on each of the following events.However, see the special rules that apply togasoline blendstocks, later. Also, see thediscussion under Gasohol, if applicable.

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

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

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

However, a terminal operator meeting thefollowing conditions at the time of the removalwill not be liable for the tax. The terminal op-erator must:

1) Be a registrant,

2) Have an unexpired notification certificate(discussed later) from the positionholder, and

3) 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 is:

1) By bulk transfer and the refiner or theowner of the gasoline immediately be-fore the removal is not a registrant, or

2) 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:

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

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

3) The removal from the refinery is by railcar, and

4) The same person operates the refineryand the facility at which the gasoline is

received.

Entry into the United States. The entry ofgasoline into the United States is taxable ifthe entry is:

1) By bulk transfer and the enterer is not aregistrant, or

2) Not by bulk transfer.

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

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

United States from Puerto Rico.

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

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Bulk transfers not received at an approvedterminal or refinery. The removal by bulktransfer of gasoline from a terminal or refin-ery, or the entering of gasoline by bulk trans-fer into the United States, is taxable, if:

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

a) The removal from the refinery,

b) The entry into the United States, or

c) The removal from a terminal by an

unregistered position holder, and2) Upon removal from the pipeline or ves-

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

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

1) Be a registrant,

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

is received, and3) Have no reason to believe that any in-

formation on the certificate is false.

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

Sales to unregistered person. The sale ofgasoline located within the bulktransfer/terminal system to a person that isnot a registrant is taxable if tax was not im-posed under any of the events discussedearlier.

The seller is liable for the tax. However,

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

1) Be a registrant,

2) Have an unexpired notification certificate(discussed later) from the buyer, and


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 if:

1) The buyer's principal place of business

is not in the United States,2) The sale occurs as the fuel is delivered

into a transport vessel with a capacityof at least 20,000 barrels of fuel,

3) The seller is a registrant and the exporterof record, and

4) 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 blended

gasoline that was not previously subject to thetax on gasoline.

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

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

1) Any officer, employee, or agent of theperson who is under a duty to ensure thepayment of the tax and who willfully fails

to perform that duty, or2) Any other person who willfully causes

that person to fail to pay the tax.

Aviation GasolineAviation gasoline is taxable under the samerules as other gasoline. However, startingMarch 7, 1997, the tax on aviation gasolineincreases from 4.3 cents a gallon to 19.3cents a gallon. The tax is scheduled to de-crease to 4.3 cents a gallon on October 1,1997.

Floor stocks tax. A floor stocks tax of 15cents a gallon applies to any person who heldpreviously taxed aviation gasoline on March7, 1997. The floor stocks tax must be paid byAugust 1, 1997, and reported on Form 720 forthe third quarter of 1997.

The floor stocks tax does not apply toaviation gasoline:

Held exclusively for use in foreign tradeor in military aircraft, or

Held by a person or related group ofpersons if the aggregate amount of fuelis not more than 2,000 gallons. (Fuel heldfor the an exempt use is not taken intoaccount.)

Gasoline BlendstocksGasoline includes gasoline blendstocks. Theprevious discussions apply to these

blendstocks. 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 separatedisomer of xylene)

Natural gasoline

Pentane

Pentane mixture

Polymer gasoline

Raffinate

Reformate

Straight-run gasoline

Straight-run naphtha

Tertiary amyl methyl ether (TAME)

Tertiary butyl alcohol (gasoline grade)(TBA)

Thermally cracked gasoline

Toluene

Transmix containing gasoline

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

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

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

Removals and entries connected tosale. Nonbulk removals and entries are not

taxable if the person otherwise liable for thetax (position holder, refiner, or enterer) is aregistrant, and at the time of the sale, thatperson:

1) Has an unexpired certificate (discussedlater) from the buyer, and

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

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

1) Has an unexpired certificate (discussed

next) from the buyer, and

2) 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 C asModel Certificate B. Your certificate mustcontain all information necessary to completethe model.

A certificate expires on the earliest of thefollowing dates:

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

2) The date that a new certificate is pro-vided to the seller.

3) The date that the seller is notified thatthe buyer's right to provide a certificatehas been withdrawn.

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

The right to provide a certificate can be

withdrawn by the IRS if that buyer uses thegasoline blendstocks in the production of fin-ished gasoline or resells the blendstockswithout getting a certificate from its buyer.

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

1) Is a registrant,

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

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

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

RefundsIf the tax is paid on more than one taxableevent, the person paying the second tax

may claim a refund of that tax if certain con-ditions and reporting requirements are met.No credit against any tax is allowed for thistax. These procedures apply to the tax ongasoline and the tax on diesel fuel (discussedlater).

Conditions for allowance of refund. Aclaim for refund of the tax is allowed only if:

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

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

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

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

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

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

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

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

If the first taxpayer's report relates to fuel

sold 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. You must have filedForm 720 and paid the second tax before youfile for a refund of that tax. At the top of Form8849 put Section 4081(e) Claim. Do not in-clude this claim with a claim under another taxprovision. You must include the following in-formation:

1) Volume and type of fuel.

2) Date that you incurred the tax liability forwhich you are filing this claim.

3) Amount of second tax that you paid tothe government on this fuel and a state-ment that you have not included this taxin the sales price of the fuel and havenot collected it from the buyer.

4) Name, address, and employer identifi-cation number of the person that paid thefirst tax to the government.

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

6) A copy of the statement of subsequentseller if the fuel was bought from otherthan the first taxpayer.

Credits and Refunds

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

1) Exported,

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

3) Sold to a state for its exclusive use,

4) Sold to a nonprofit educational organ-ization for its exclusive use,

5) Sold to the United Nations for its exclu-sive use, or

6) Used or sold in the production of specialfuels.

Claims by wholesale distributors. A creditor refund is allowable to a gasoline wholesaledistributor who buys gasoline tax paid andthen sells it to the ultimate purchaser (includ-ing an exporter) for an exempt purpose.

A wholesale distributor must submit withits claim a statement that it:

1) Sold the gasoline at a price that did notinclude the tax, and did not otherwise

collect the tax from its buyer, and

2) Has obtained a certificate of ultimatepurchaser or proof of export.

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

1) The distributor bought the gasoline at aprice that did not include the tax, or

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

The person must submit with its claim:

1) Proof of exportation, or

2) A certificate of ultimate purchaser, or

3) A certificate of ultimate vendor, and

4) A statement that it:

a) Has neither included the tax in theprice of the gasoline nor collectedthe amount of the tax from thebuyer,

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

5) Has gotten the written consent of theultimate vendor to the allowance of thecredit or refund.

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

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

However, the removal of gasohol from arefinery is taxable if the removal from an ap-proved refinery is by bulk transfer and the

registered refiner chooses to be treated asnot registered. This is in addition to the taxa-ble events discussed earlier under Removalfrom refinery.

Gasohol. Gasohol is a blend of gasoline andalcohol that satisfies the alcohol requirement.Eligible blends include those made withethanol and methanol. The term alcoholdoes not include alcohol produced from pe-troleum, natural gas, coal, or peat, or alcoholthat is less than 190 proof. Methanolproduced from methane gas formed in wastedisposal sites is not alcohol produced fromnatural gas. Alcohol used to produce ethyl

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tertiary butyl ether (ETBE) generally qualifiesas alcohol for this purpose.

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

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

7.7% gasohol. This is a mixture thatcontains at least 7.55%, but less than

9.8%, alcohol. 5.7% gasohol. This is a mixture that

contains at least 5.59%, but less than7.55%, alcohol.

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

If the mixture is produced outside the bulktransfer/terminal system, determine whetherthe mixture is gasohol immediately after 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 the metered gallons to a tankalready containing more than 0.5% of its ca-pacity in a liquid, include the amount of alco-hol and non-alcohol fuel contained in that liq-uid in figuring the volume of alcohol in thatbatch.

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

ture is considered to be 7.7% gasohol. Tofigure that part, multiply the number of gallonsof alcohol in the mixture by 12.987. The otherpart of the mixture is excess liquid that issubject to the rules on failure to blend, dis-cussed later.

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

Gasohol blender. A gasohol blender is anyperson that regularly buys gasoline and alco-hol and produces gasohol for use in its tradeor business or for resale. A registeredgasohol blender is one that has been regis-tered by the IRS. See Registration Require-ments, 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 depends

on whether you are liable for the tax on theremoval or entry of gasoline used to makegasohol, or on the removal or entry ofgasohol. You may be liable for additional taxif you later separate the gasohol or fail toblend 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 orrefinery, or on the nonbulk entry into theUnited States (as discussed under Gasoline,earlier). The rates for gasoline used toproduce gasohol containing ethanol areshown on Form 720. The rates for gasoline

used to produce gasohol containing methanolare shown in the instructions for Form 720.Requirements. The reduced rates apply

if the person liable for the tax (position holder,refiner, or enterer) is a registrant and:

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

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

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 as partof any business records normally used for asale. A copy of the registrant's letter of regis-tration cannot be used as a gasohol blender'scertificate. A model certificate is shown inAppendix C as Model Certificate E. Yourcertificate must contain all information nec-essary to complete the model.

A certificate expires on the earliest of thefollowing dates:

1) The date 1 year after the effective date(which may be no earlier than the date

signed) of the certificate.2) The date that a new certificate is pro-

vided to the seller.

3) The date that the seller is notified thatthe gasohol blender's registration hasbeen revoked 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 ofgasohol. The rates for gasohol containingethanol are shown on Form 720. The rates forgasohol containing methanol are shown in theinstructions for Form 720.

Later separation. If a person separatesgasoline from gasohol on which a reduced taxrate was imposed, that person is treated asthe refiner of the gasoline. Tax is imposed onthe removal of the gasoline. This tax rate isthe difference between the regular tax rate forgasoline and the tax rate imposed on the priorremoval or entry of the gasohol.

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

Example. John uses an empty 8,000gallon tank to blend gasoline and alcohol. Thedelivery tickets show that he blended 7,205metered gallons of gasoline and 795 meteredgallons of alcohol. He bought the gasoline ata reduced tax rate of 14.333 cents per gallon.The batch contains 9.9375% alcohol (795

8,000). John determines that 7,950 gallons(10 795) of the mixture qualifies as 10%gasohol. See Batches containing at least9.8% alcohol, earlier. The other 50 gallons isexcess liquid that he failed to blend intogasohol. He is liable for a tax of 3.967 centsper gallon (18.30 (full rate) 14.333 (reducedrate)) on this excess liquid.

Diesel FuelGenerally, diesel fuel is taxed in the samemanner as gasoline (discussed earlier). Thefollowing discussion provides informationabout the excise tax on diesel fuel.

Definitions

The following terms are used in this dis-cussion of the tax on diesel fuel. Other termsused in this discussion are defined underGasoline.

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

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

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

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Diesel-powered boat. This is anywaterborne vessel of any size or configurationthat is propelled, in whole or in part, by adiesel-powered engine.

CAUTION

!The excise tax on diesel fuel used orsold for use in boats is suspendedthrough December 31, 1997.

Taxable EventsThe tax on diesel fuel is 24.3 cents a gallon.It is imposed on each of the following events.The tax does not apply to dyed diesel fuel,discussed later.

If the tax is imposed on the diesel fuel inmore than one event, a refund may be al-lowed for the second tax paid on the dieselfuel. See Refunds, earlier under Gasoline.

Removal from terminal. All removals ofundyed diesel fuel at a terminal rack are tax-able. The position holder for that fuel is liablefor 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 is dyed diesel fuel (discussedlater).

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:

1) Is a registrant,

2) Has an unexpired notification certificate(discussed under Gasoline) from theposition holder, and

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

Removal from refinery. The removal of un-

dyed diesel fuel from a refinery is taxable ifthe removal is:

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

2) At the refinery rack.

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

undyed diesel fuel at the refinery rack if:

1) The undyed diesel fuel is removed froman approved refinery that is not servedby pipeline (other than for receivingcrude oil) or vessel,

2) The undyed diesel fuel is received at afacility that is operated by a registrantand is within the bulk transfer/terminalsystem, and

3) The removal from the refinery is by:

a) Rail car and the same person op-erates the refinery and the facilityat which the undyed diesel fuel isreceived, or

b) A trailer or semi-trailer used exclu-sively to transport undyed dieselfuel from a refinery (described in(1)) to a facility (described in (2))that is less than 20 miles from therefinery.

Entry into the United States. The entry ofundyed diesel fuel into the United States istaxable if the entry is:

1) By bulk transfer and the enterer is not aregistrant, or

2) Not by bulk transfer.

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

United States, see Entry into the UnitedStatesunder Gasoline.

Removal from a terminal by an unregis-tered position holder. The removal by bulktransfer of undyed diesel fuel from a terminalis taxable if the position holder for that fuel isnot a registrant. The position holder is liablefor the tax. The terminal operator is jointly andseverally liable for the tax if the positionholder is a person other than the terminaloperator. However, see Terminal operator'sliabilityunder Removal from terminal, earlier,for an exception.

Bulk transfers not received at an approvedterminal or refinery. The removal by bulktransfer of undyed diesel fuel from a terminalor refinery or the entering of undyed dieselfuel by bulk transfer into the United States is

taxable if:

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

a) The removal from the refinery,

b) The entry into the United States, or

c) The removal from a terminal by anunregistered position holder, and

2) Upon removal from the pipeline or ves-sel, the undyed diesel fuel is not re-ceived at an approved terminal or refin-ery (or at another pipeline or vessel).

The owner of the undyed diesel fuel whenit is removed from the pipeline or vessel isliable for the tax. However, an owner meeting

the following conditions at the time of the re-moval from the pipeline or vessel will not beliable for the tax. The owner must:

1) Be a registrant,

2) Have an unexpired notification certificate(discussed under Gasoline) from theoperator of the terminal or refinery wherethe undyed diesel fuel is received, and


The operator of the facility where the undyeddiesel fuel is received is liable for the tax if theowner meets these conditions. The operatoris jointly and severally liable if the owner doesnot meet these conditions.

Sales to unregistered person. The sale ofundyed diesel fuel located within the bulktransfer/terminal system to a person that isnot a registrant is taxable if tax was not im-posed under any of the events discussedearlier.

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

1) Be a registrant,

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


The buyer of the undyed diesel fuel is liablefor the tax if the seller meets these conditions.The buyer is jointly and severally liable if theseller does not meet these conditions.

The tax on these sales does not apply if:

1) The buyer's principal place of businessis not in the United States,

2) The sale occurs as the fuel is deliveredinto a transport vessel with a capacityof at least 20,000 barrels of fuel,

3) The seller is a registrant and the exporterof record, and

4) The fuel was exported.

Removal or sale of blended diesel fuel.The removal or sale of blended diesel fuel bythe blender is taxable. See Blended taxablefuelin Definitionsunder Gasoline, earlier.

The blender is liable for the tax. The taxis figured on the number of gallons of blendeddiesel fuel that were not previously subject tothe tax.



1) 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

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

Dyed Diesel FuelThe excise tax is not imposed on the removal,entry, or sale of diesel fuel if:

1) The person otherwise liable for tax (forexample, the position holder) is a regis-trant,

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

3) The diesel fuel satisfies the dyeing re-quirements (described later).

Alaska. Diesel fuel removed, entered, or soldin Alaska for ultimate sale or use in Alaskadoes not have to meet the dyeing require-ments, discussed next, to be exempt from theexcise tax on diesel fuel. The removal or entryof any diesel fuel in Alaska is not taxable if:

1) The person that would be liable for the

tax as discussed under Taxable Events,earlier:

a) Is a registrant,

b) Can show satisfactory evidence ofthe nontaxable nature of the trans-action, and

c) Has no reason to believe the evi-dence is false,

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

3) The owner of the fuel immediately afterthe removal or entry holds the fuel for its

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own use in a nontaxable use or is aqualified dealer.

This exemption applies to diesel fuel thatis subsequently sold by a qualified dealer onlyif

The fuel is sold in Alaska,

The buyer buys the fuel for its own usein a nontaxable use or is a qualifieddealer, and

The seller can show satisfactory evidence

of the nontaxable nature of the trans-action and has no reason to believe thatevidence is false.

A qualified dealer is any person thatholds a qualified dealer license from the stateof Alaska. Satisfactory evidence may in-clude copies of qualified dealer licenses orexemption certificates obtained for state taxpurposes.

Dyeing requirements. Diesel fuel satisfiesthe dyeing requirements only if it:

1) Contains the dye Solvent Red 164 (andno other dye) at a concentrationspectrally equivalent to at least 3.9pounds of the solid dye standard Solvent

Red 26 per thousand barrels of dieselfuel, or

2) Contains any dye of a type and in aconcentration that has been approvedby the Commissioner.

Notice required. A legible and conspicuousnotice stating: DYED DIESEL FUEL, NON-TAXABLE USE ONLY, PENALTY FORTAXABLE USEmust be:

1) Provided by the terminal operator to anyperson that receives dyed diesel fuel ata terminal rack of that operator, and

2) Posted by a seller on any retail pump orother delivery facility where it sells dyeddiesel fuel for use by its buyer.

The notice under item (1) must be pro-vided by the time of the removal and mustappear on shipping papers, bills of lading, andsimilar documents accompanying the removalof the fuel.

Any seller that fails to post the requirednotice is presumed to know that the fuel willbe used for a taxable use. That seller is sub-

ject to the penalty described next.

Penalty. A penalty is imposed on personswho:

1) Know or have reason to know that theysold or held for sale dyed diesel fuel fora taxable use,

2) Know or have reason to know that theyused or held for use dyed diesel fuel fora taxable use, or

3) Alter or attempt to alter the strength orcomposition of the dye in any dyed die-sel fuel.

The penalty is the greater of $1,000 or $10per gallon of the dyed diesel fuel involved.After the first violation, the $1,000 portion ofthe penalty increases depending on thenumber of violations.

This penalty is in addition to any tax im-posed on the fuel.

If the penalty is imposed, each officer,employee, or agent of a business entity whowillfully participated in any act giving rise tothe penalty is jointly and severally liable withthat entity for the penalty.

Exception to penalty. The penalty underitem (3) will not apply in the following situ-ations:

1) Diesel fuel meeting the dyeing require-ments is blended with any undyed liquidand the resulting product meets thedyeing requirements.

2) Diesel fuel meeting the dyeing require-ments is blended with any other liquid(other than diesel fuel) that contains thetype and amount of dye required to meetthe dyeing requirements.

3) Diesel fuel meeting the dyeing require-ments that is dyed one color is blendedwith diesel fuel meeting the dyeing re-quirements that is dyed another color.

4) Diesel fuel meeting the dyeing require-ments is blended with diesel fuel notmeeting the dyeing requirements and theblending occurs as part of a nontaxableuse (other than export), discussed later.

Back-up TaxThe excise tax is imposed on dyed diesel fuelthat is delivered into the fuel supply tank of adiesel-powered vehicle (other than certainbuses), diesel-powered train, or diesel-powered boat, and used for other than anontaxable purpose.

This back-up tax also applies if the de-livery consists of:

1) Any diesel fuel on which a credit or re-fund (for fuel not used for a taxable pur-pose) has been allowed, or

2) Any liquid other than gasoline or dieselfuel.

CAUTION!

The excise tax on diesel fuel used or

sold for use in boats is suspendedthrough December 31, 1997.Generally, the back-up tax is imposed at

a rate of 24.3 cents a gallon. The rate fordelivery of the fuel into a train is 5.55 centsa gallon. The rate for delivery into certainintercity buses is 7.3 cents a gallon.

If you are liable for the back-up tax, youmay be liable for the penalty discussed underDyed Diesel Fuel. However, the penalty ap-plies only to dyed diesel fuel, while theback-up tax can apply to other fuels. Thepenalty may apply if the fuel is held for saleor use for a taxable use while the back-up taxdoes not apply until the fuel is delivered intothe fuel supply tank.

Liability for tax. The operator of the vehicle,

boat, or train into which the fuel is deliveredis liable for the tax. In addition, the seller ofthe diesel fuel is jointly and severally liable forthe tax if the seller knows or has reason toknow that the fuel will be used for a taxableuse. Generally, a seller of diesel fuel is notliable for tax on fuel delivered into the fuelsupply tank of a bus or train. However, theperson that delivers the fuel into the supplytank of a train is liable for the tax if, at the timeof delivery, the deliverer and the train opera-tor are both registered as train operators anda written agreement between them requiresthe deliverer to pay the tax.

Exemptions from the back-up tax. Theback-up tax does not apply to a delivery ofdiesel fuel for uses (1) through (10) listedunder Nontaxable Uses, next.

In addition, since the back-up tax is im-posed only on the delivery into the fuel supplytank of a diesel-powered vehicle, train, orboat, the tax does not apply to diesel fuelused as heating oil or in stationary engines.

Nontaxable UsesDiesel fuel intended for a nontaxable use

generally is not subject to the excise tax if thefuel meets the dyeing requirements, dis-cussed earlier under Dyed Diesel Fuel.

The following are nontaxable uses of die-sel fuel:

1) Use on a farm for farming purposes(discussed later),

2) Exclusive use of a state (discussed ear-lier under Gasoline),

3) Use in a vehicle owned by an aircraftmuseum (as discussed later under Avi-ation Fuel),

4) Use in a boat employed in:

a) The business of commercial fishingor transporting persons or propertyfor compensation or hire, or

b) Any other trade or business, unlessthe boat is used predominantly forentertainment, amusement, or re-creation,

Caution:For 1997 use in any boatfor any purpose qualifies as a nontaxa-ble use.

5) Use in a school bus (discussed later),

6) Use in a qualified local bus (discussedlater),

7) Use in a highway vehicle that:

a) Is not registered (and is not re-quired to be registered) for highway

use under the laws of any state orforeign country, and

b) Is used in the operator's trade orbusiness or for the production ofincome.

8) Exclusive use of a nonprofit educationalorganization,

9) Use in a vehicle owned by the UnitedStates that is not used on a highway,

10) Use in any boat operated by the UnitedStates for its exclusive use or any vesselof war of any foreign nation,

11) Diesel fuel that is exported,

12) Use other than as a fuel in a propulsion

engine of a diesel-powered highway ve-hicle or diesel-powered boat (such ashome heating oil),

13) Use as a fuel in a propulsion engine ofa diesel-powered train (subject toback-up tax, discussed earlier),

14) Use in an intercity bus meeting certainqualifications (discussed later).

For information about filing a claim for re-fund or credit for the tax paid on undyed die-sel fuel used for a nontaxable purpose, seePublication 378.

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Used on a farm for farming purposes.Diesel fuel is used on a farm for farming pur-poses if it is bought by the owner, tenant, oroperator of the farm and used:

1) To cultivate the soil, or to raise or harvestany agricultural or horticultural commod-ity.

2) To raise, shear, feed, care for, train ormanage livestock, bees, poultry, fur-bearing animals, or wildlife.

3) To operate, manage, conserve, improve,

or maintain your farm, tools, or equip-ment.

4) To handle, dry, pack, grade, or store anyraw agricultural or horticultural commod-ity (as provided below).

5) To plant, cultivate, care for, or cut treesor to prepare (other than sawing intolumber, chipping, or other milling) treesfor market, but only if the planting, etc.,is incidental to your farming operations(as provided below).

Diesel fuel is used on a farm for farmingpurposes if it is bought by a person other thanthe owner, tenant, or operator and used on afarm for any of the purposes in item (1) or (2).

Item (4) applies only if more than one-halfof the commodity that was so treated duringthe tax year was produced on the farm.Commodity refers to a single raw product. Forexample, apples would be one commodityand peaches another. The more than one-halftest applies separately to each commodity.

Item (5) applies if the operations are minorin nature when compared to the total farmingoperations.

If undyed diesel fuel is used on a farm forfarming purposes, the fuel cannot be consid-ered as being used for any other nontaxablepurpose.

A farm includes livestock, dairy, fish,poultry, fruit, fur-bearing animals, and truckfarms, orchards, plantations, ranches, nurs-eries, ranges, and feedyards for fattening

cattle. It also includes structures such asgreenhouses used primarily for raising agri-cultural or horticultural commodities. A fishfarm is an area where fish are grown orraisednot merely caught or harvested. Thefarm must be operated for profit and locatedin any of the 50 States or the District ofColumbia.

Diesel fuel is not used for farming pur-poses if:

1) Used off the farm, such as on the high-way, even if the diesel fuel is used intransporting livestock, feed, crops, orequipment;

2) Used for personal use, such as mowingthe lawn;

3) Used in processing, packaging, freezing,or canning operations; or

4) Used to process crude gum into gumspirits of turpentine or gum resin or toprocess maple sap into maple syrup ormaple sugar.

Buses. Generally, diesel fuel used in a busis used for a nontaxable use. However, fuelused in certain buses is subject to a reducedrate of excise tax.

School bus. No tax is imposed on dyeddiesel fuel used in a bus while the bus is en-gaged in the transportation of students andschool employees.

Qualified local bus. No tax is imposedon dyed diesel fuel used in a bus while thebus is engaged in furnishing intracity pas-senger land transportation for compensation,if the bus is:

1) Available to the general public,

2) Operates along scheduled, regularroutes,

3) Has a seating capacity of at least 20adults (excluding the driver), and

4) Is under contract with or receiving morethan a nominal subsidy from any stateor local government to furnish thattransportation.

Intercity bus. A reduced rate of tax (7.3cents a gallon) is imposed on dyed diesel fueldelivered into the tank of an intercity bus.(See Back-up Tax, earlier.) This is a bus usedto furnish (for compensation) passenger land

transportation that is available to the generalpublic and:

1) The transportation is scheduled andalong regular routes, or

2) The seating capacity of the bus is atleast 20 adults (not including the driver).

A bus is available to the general public if thebus is available for hire to more than a limitednumber of persons, groups, or organizations.

Other buses. The full amount of tax (24.3cents a gallon) is imposed on dyed diesel fueldelivered into the tank of a bus not previouslydescribed.

Credit or refund. If undyed diesel fuel isbought and used in a bus for a nontaxable

use, a credit or refund of the tax can beclaimed by the bus operator. See Publication378 for more information.

Aviation FuelTax is imposed on the sale of aviation fuel(other than gasoline) by its producer orimporter. The tax increases on March 7,1997, from 4.3 cents a gallon to 21.8 cents agallon. The tax rate is scheduled to decreaseto 4.3 cents a gallon on October 1, 1997.

The person making the taxable sale is li-able for the tax. The use of aviation fuel (otherthan gasoline) by a producer is considered asale of that fuel. This applies if there was notaxable sale of the fuel and the use was nota nontaxable use.



1) 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

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

Aviation fuel. This is any liquid (other thangasoline or diesel fuel) that is suitable for useas fuel in an aircraft.

Producers. Producers include refiners,blenders, and wholesale distributors of avi-ation fuel and dealers selling aviation fuelexclusively to producers of aviation fuel ifthese persons have been registered by theIRS. The term also includes the actual pro-ducer of aviation fuel. See Registration forCertain Activities, earlier.

Any person buying aviation fuel at a re-duced rate is the producer of that fuel.

Wholesale distributors. To qualify as awholesale distributor, you must hold yourselfout to the public as being engaged in thetrade or business of:

1) Selling aviation fuel to producers orretailers or to users who purchase in bulkquantities (25 gallons or more) and ac-cept delivery into bulk storage tanks, and

a) At least 30% of your sales of avi-ation fuel in a year are to thesebuyers, or

b) At least 50% of the volume of avi-ation fuel is sold to these buyersandat least 500 of y

us internal revenue service: p510--1997

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