Important Changes

Air transportation taxes.   For transportation beginning in 2002, the tax on transportation of persons by air is increased to $3.00 for each domestic segment. The percentage tax remains at 7.5%.

For amounts paid during 2002, the tax on the use of international air travel facilities is $13.20 for flights that begin or end in the United States or $6.60 for domestic segments that begin or end in Alaska or Hawaii (applies only to departures).

Luxury tax.   For 2002, the luxury tax on a passenger vehicle is reduced to 3% of the amount of the sales price that exceeds the base amount of $40,000. The base amount is increased for electric vehicles and clean-fuel vehicles.

Form 720 due date.   Beginning with the 4th quarter of 2001, you must file Form 720 by the last day of the month following the calendar quarter for which the return is made. Form 720 for that 4th quarter is due January 31, 2002. The rule that allowed you to file by the last day of the second month following the calendar quarter for certain taxes has been eliminated. See Due dates under Filing Form 720, later.

Deposit threshold.   You do not have to deposit excise taxes for a calendar quarter if the net tax liability for the quarter is not more than $2,500. Previously, the amount was $2,000.

Deposit due dates.   One deposit rule, the regular method, applies for all taxes that have to be deposited other than those deposited under the alternative method. You must make deposits under the regular method by the 14th day following the semimonthly period. The deposit date for taxes deposited under the alternative method was not changed. The previous deposit rules (9-day rule, 14-day rule, and 30-day rule) have been eliminated. See When To Make Deposits under Paying the Taxes, later.

Amount to deposit and safe harbor rule.   Your deposit of taxes for a semimonthly period generally must be at least 95% of your net tax liability incurred during that period, unless the safe harbor rule applies. Previously, your deposit had to equal the amount of your net tax liability. The current liability safe harbor rule has been eliminated. However, the look-back quarter safe harbor rule still applies. See Amount of Deposits and Safe Harbor Rule under Paying the Taxes, later.

Amended Form 720.   Form 720X is used to make adjustments to liability reported on Forms 720 filed for previous quarters. Part I of Schedule C (Form 720) has been eliminated.

Important Reminder

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843- 5678) if you recognize a child.

Introduction

This publication covers the excise taxes for which you may be liable during 2002. It covers the excise taxes reported on Form 720. It also provides information on wagering activities reported on Forms 11-C and 730.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at www.irs.gov.

You can write to us at the following address:

Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

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

Useful Items You may want to see:

Publication

• 378   Fuel Tax Credits and Refunds
• 509   Tax Calendars for 2002

Form (and Instructions)

• 11-C   Occupational Tax and Registration Return for Wagering
• 637   Application for Registration (For Certain Excise Tax Activities)
• 720   Quarterly Federal Excise Tax Return
• 720-TO   Terminal Operator Report
• 720-CS   Carrier Summary Report
• 720X   Amended Quarterly Federal Excise Tax Return
• 730   Monthly Tax on Wagering
• 1363   Export Exemption Certificate
• 2290   Heavy Highway Vehicle Use Tax Return
• 4136   Credit for Federal Tax Paid on Fuels
• 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 end of this publication for information about getting publications and forms.

Excise Taxes Not Covered

In addition to the taxes discussed in this publication, you may have to use other forms to report certain other excise taxes.

These forms are as follows.

• IRS Form 2290: Heavy Highway Vehicle Use Tax Return.
• ATF Form 5630.5: Alcohol, Tobacco.
• ATF Form 5630.7: Firearms.
• ATF Form 5300.26: Firearms.

See the following discussion for information on Form 2290. See Appendix A at the end of this publication for information on the ATF forms.

IRS Form 2290: Highway Use Tax

You report the federal excise tax on the use of certain trucks, truck tractors, and buses on public highways on Form 2290. The tax applies to highway motor vehicles with taxable gross weights of 55,000 pounds or more. Vans, pickup trucks, panel trucks, and similar trucks generally are not subject to this tax.

Note:   A Spanish version of the form and its instructions (Form 2290SP) are now available.

A public highway is any road in the United States that is not a private roadway. This includes federal, state, county, and city roads. Canadian and Mexican heavy vehicles operated on U.S. highways may be subject to this tax. For more information, get the instructions for Form 2290.

Registration of vehicles.   Generally, you must prove that you paid your federal highway use tax when registering your taxable vehicle with your state motor vehicle department or entering the United States in a Canadian or Mexican registered taxable vehicle. Generally, a copy of Schedule 1 of Form 2290, stamped after payment and returned to you by the IRS, is acceptable proof of payment.

Registration for Certain Activities

You must register for certain excise tax activities. See the instructions for Form 637 for the list of activities for which you must register. Each business unit that has, or is required to have, a separate employer identification number must register.

To apply for registration, complete Form 637 and provide the information requested in its instructions. If your application is approved, you will receive a Letter of Registration showing the activities for which you are registered, the effective date of the registration, and your registration number. A copy of Form 637 is not a Letter of Registration.

Environmental Taxes

Environmental taxes are imposed on the sale or use of ozone-depleting chemicals (ODCs) and imported products containing or manufactured with these chemicals. In addition, a floor stocks tax is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacture.

Figure the environmental tax on Form 6627. Enter the tax on the appropriate lines of Form 720. Attach Form 6627 to Form 720 as a supporting schedule. For environmental tax purposes, United States includes the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, the Trust Territory of the Pacific Islands, the continental shelf areas (applying the principles of section 638 of the Internal Revenue Code), and foreign trade zones. No one is exempt from the environmental taxes, including the federal government, state and local governments, Indian tribal governments, and nonprofit educational organizations.

ODCs

For the taxable ODCs and tax rates, see the Form 6627 instructions.

Taxable Event

Tax is imposed on an ODC when it is first used or sold by its manufacturer or importer. The manufacturer or importer is liable for the tax.

Use of ODCs.   You use an ODC if you put it into service in a trade or business or for the production of income. An ODC also is used if you use it in the making of an article, including incorporation into the article, chemical transformation, or release into the air. The loss, destruction, packaging, repackaging, or warehousing of ODCs is not a use of the ODC.

The creation of a mixture containing an ODC is treated as the use of that ODC. An ODC is contained in a mixture only if the chemical identity of the ODC is not changed. Generally, tax is imposed when the mixture is created and not on its sale or use. However, you can choose to have the tax imposed on its sale or use by checking the appropriate box in Part I of Form 6627. You can revoke this choice only with IRS consent.

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

Exceptions.   The following may be exempt from the tax on ODCs.

• Metered-dose inhalers.
• Recycled ODCs.
• Exported ODCs.
• ODCs used as feedstock.

Metered-dose inhalers.   There is no tax on ODCs used or sold for use as propellants in metered-dose inhalers. For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. The certificate must be in substantially the form set forth in section 52.4682-2(d)(5) of the regulations. Keep the certificate with your records.

Recycled ODCs.   There is no tax on any ODC diverted or recovered in the United States as part of a recycling process (and not as part of the original manufacturing or production process). There is no tax on recycled Halon-1301 or recycled Halon-2402 imported from a country that has signed the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol).

The Montreal Protocol is administered by the United Nations (U.N.). To determine if a country has signed the Montreal Protocol, contact the U.N. The Internet address is http://untreaty.un.org/.

Exported ODCs.   Generally, there is no tax on ODCs sold for export if certain requirements are met. For a sale to be nontaxable, you and the purchaser must be registered. You must obtain from the purchaser an exemption certificate that you rely on in good faith. Keep the certificate with your records. The certificate must be in substantially the form set forth in section 52.4682-5(d)(3) of the regulations. The tax benefit of this exemption is limited. For more information, see section 52.4682-5 of the regulations.

ODCs used as feedstock.   There is no tax on ODCs sold for use or used as a feedstock. An ODC is used as a feedstock only if the ODC is entirely consumed in the manufacture of another chemical. The transformation of an ODC into one or more new compounds qualifies, but use of an ODC in a mixture does not qualify.

For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. The certificate must be in substantially the form set forth in section 52.4682-2(d)(2) of the regulations. Keep the certificate with your records.

Credits or Refunds

A credit or refund (without interest) of tax paid on ODCs may be claimed in the following situations.

• If a taxed ODC is used as a propellant in a metered-dose inhaler, then the person who used the ODC as a propellant may file a claim.
• If a taxed ODC is exported, then the manufacturer may file a claim.
• If a taxed ODC is used as a feedstock, then the person who used the ODC may file a claim.

For general information about credits and refunds, see Credits and Refunds, later.

Conditions to allowance for ODCs exported.   To claim a credit or refund for ODCs that are exported, you must have repaid or agreed to repay the tax to the exporter, or obtained the exporter's written consent to allowance of the credit or refund. You must also have the evidence required by the Environmental Protection Agency as proof that the ODCs were exported.

Imported Taxable Products

An imported product containing or manufactured with ODCs is subject to tax if it is entered into the United States for consumption, use, or warehousing and is listed in the Imported Products Table, discussed later.

The tax is based on the weight of the ODCs used in the manufacture of the product. Use the following methods to figure the ODC weight.

• The actual (exact) weight of each ODC used as a material in manufacturing the product.
• If the actual weight cannot be determined, the ODC weight listed for the product in the Imported Products Table, discussed later.

However, if you cannot determine the actual weight and the table does not list an ODC weight for the product, the rate of tax is 1% of the entry value of the product.

Taxable Event

Tax is imposed on an imported taxable product when the product is first sold or used by its importer. The importer is liable for the tax.

Use of imported products.   You use an imported product if you put it into service in a trade or business or for the production of income or use it in the making of an article, including incorporation into the article. The loss, destruction, packaging, repackaging, warehousing, or repair of an imported product is not a use of that product.

Entry as use.   The importer may choose to treat the entry of a product into the United States as the use of the product. Tax is imposed on the date of entry instead of when the product is sold or used. The choice applies to all imported taxable products that you own and have not used when you make the choice and all later entries. Make the choice by checking the box in Part II of Form 6627. The choice is effective as of the beginning of the calendar quarter to which the Form 6627 applies. You can revoke this choice only with IRS consent.

Sale of article incorporating imported product.   The importer may treat the sale of an article manufactured or assembled in the United States as the first sale or use of an imported taxable product incorporated in that article if both the following apply.

• The importer has consistently treated the sale of similar items as the first sale or use of similar taxable imported products.
• The importer has not chosen to treat entry into the United States as use of the product.

Imported Products Table

The Imported Products Table appears in Appendix B at the end of this publication. The table lists all the products that are subject to the tax on imported taxable products and specifies the ODC weight of each product (discussed later).

Each listing in the table identifies a product by name and includes only products that are described by that name. Most listings identify a product by both name and Harmonized Tariff Schedule (HTS) heading. In those cases, a product is included in that listing only if the product is described by that name and the rate of duty on the product is determined by reference to that HTS heading. A product is included in the listing even if it is manufactured with or contains a different ODC than the one specified in the table.

Part II of the table lists electronic items that are not included within any other list in the table. An imported product is included in this list only if the product meets one of the following tests.

1. It is an electronic component whose operation involves the use of nonmechanical amplification or switching devices such as tubes, transistors, and integrated circuits.
2. It contains components described in (1), which account for more than 15% of the cost of the product.

These components do not include passive electrical devices, such as resistors and capacitors. Items such as screws, nuts, bolts, plastic parts, and similar specially fabricated parts that may be used to construct an electronic item are not themselves included in the listing for electronic items.

Rules for listing products.   Products are listed in the table according to the following rules.

1. A product is listed in Part I of the table if it is a mixture containing ODCs.
2. A product is listed in Part II of the table if the Commissioner has determined that the ODCs used as materials in the manufacture of the product under the predominant method are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components.
3. A product is listed in Part III of the table if the Commissioner has determined that the product meets both the following tests.
   1. It is not an imported taxable product.
   2. It would otherwise be included within a list in Part II of the table.

For example, floppy disk drive units are listed in Part III because they are not imported taxable products and would have been included in the Part II list for electronic items not specifically identified, but for their listing in Part III.

ODC weight.   The Table ODC weight of a product is the weight, determined by the Commissioner, of the ODCs used as materials in the manufacture of the product under the predominant method of manufacturing. The ODC weight is listed in Part II in pounds per single unit of product unless otherwise specified.

Modifying the table.   A manufacturer or importer of a product may request the IRS add a product and its ODC weight to the table. They also may request the IRS remove a product from the table, or change or specify the ODC weight of a product.

Include your name, address, taxpayer identification number, and principal place of business in your request. The request must include the following information for each product 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 following address.

Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Attn: CC:ITA:RU
(Imported Products Table)
Room 5226
Washington, DC 20044

Floor Stocks Tax

Tax is imposed on any ODC held (other than by the manufacturer or importer of the ODC) on January 1 for sale or use in further manufacturing. The person holding title (as determined under local law) to the ODC is liable for the tax, whether or not delivery has been made.

These chemicals are taxable without regard to the type or size of storage container in which the ODCs are held. The tax may apply to an ODC whether it is in a 14-ounce can or a 30-pound tank.

You are liable for the floor stocks tax if you hold any of the following on January 1.

1. At least 400 pounds of ODCs subject to tax and not described in item (2) or (3).
2. At least 50 pounds of ODCs that are halons subject to tax.
3. At least 1,000 pounds of ODCs that are methyl chloroform subject to tax.

If you are liable for the tax, prepare an inventory on January 1 of the taxable ODCs held on that date for sale or for use in further manufacturing. You must pay this floor stocks tax by June 30 of each year. Report the tax on Form 6627 and Form 720 for the second calendar quarter.

For the tax rates, see the Form 6627 instructions.

ODCs not subject to floor stocks tax.   The floor stocks tax is not imposed on any of the following ODCs.

1. ODCs mixed with other ingredients that contribute to achieving the purpose for which the mixture will be used, unless the mixture contains only ODCs and one or more stabilizers.
2. ODCs contained in a manufactured article in which the ODC will be used for its intended purpose without being released from the article.
3. ODCs that have been reclaimed or recycled.
4. ODCs sold in a qualifying sale for:
   1. Use as a feedstock,
   2. Export, or
   3. Use as a propellant in a metered-dose inhaler.

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