Learning to handle the excise tax blues
By Cora M. Barnhart • Bankrate.com

Aug. 26, 1999 -- For the 800,000 small businesses that have to file them, excise tax returns are one of the biggest paperwork challenges. There are different ways to file and different deadlines, different rules for different products and exceptions to the rules.

What makes this a real pain for the owner is that the IRS doesn't automatically notify businesses when these taxes are due. While some are payable at the time that quarterly excise tax returns are filed, the IRS requires periodic deposits of excise taxes for other products.

This tax tip will get you started on understanding these complex rules on excise taxes, which are taxes imposed on a particular commodity or service.

It will address rules concerning excise taxes payable with Form 720, and go over the way that the IRS defines semimonthly periods. Knowing this definition is useful for business owners because it provides the framework for due dates of deposits on excise taxes. Get ready, as well, for discussion of the 9-Day Rule and its exception, the September Rule. Another tax tip addresses special rules for depositing taxes for ozone-depleting chemicals, fuel, communication and air travel.

Form 720
Form 720 is the quarterly federal excise tax return. Except in those instances otherwise specified, file a return for each quarter of the calendar year by the date indicated in the table below. There are special rules that apply to paying excise taxes for ozone-depleting chemicals (ODCs), communication and air transportation.

File Form 720 by the date indicated. Unless the excise tax is one that requires semimonthly payments, the business owner should include the entire amount due when filing this form. Attach a check or money order payable to the United States Treasury. The business owner should also write the firm's employer identification number (EIN), the period covered by the payment and the phrase "Form 720" on this payment. Also, make sure the return is signed.

How many times a month?
In addition to filing quarterly returns for excise taxes, the IRS also requires semimonthly deposits for several types of excise taxes. However, these deposits aren't required if the net tax liability for Part I of Form 720 is less than $2,000. Also, keep in mind that due dates differ if the business is required to make electronic deposits.

If a business owner doesn't electronically deposit tax payments, the deposit must include Form 8109, Federal Tax Deposit Coupon. Business owners who don't have a coupon book should contact a local IRS office or call 1-800-829-1040.

There is no apparent rhyme or reason to dates assigned by the IRS for deposits. The easiest place to begin coming to terms with this calendar is to realize that the IRS bases due dates for deposits on one of two semimonthly time periods. These periods consist of the first 15 days of the month, and the 16th day of the month through the end of the month. Keeping these two semimonthly periods in mind will make the rules concerning excise taxes seem less complicated.

9-Day Rule and the September Rule
Now that the two semimonthly periods are clear, it's time to understand those deposit due dates. A general rule of thumb for business owners is to make deposits for a particular semimonthly period by the ninth day after that period -- that's the 9-Day Rule. So a deposit for the first semimonthly period, the first of the month through the 15th of the month, will be due by the 24th of the month. If the tax due is from the second semimonthly period, then deposit it by the ninth day of the following month.

OK, now that you have that general rule of thumb, there's an exception to it. It's called the September Rule, and beware -- it's confusing. For 1999, the IRS requires business owners to make a special deposit on Sept. 28 for taxes due from Sept. 16 through Sept. 25. What about the taxes covering Sept. 26 through Sept. 30? You're back to the 9-Day Rule, meaning taxes for the remainder of September are due Oct. 9, 1999.

Also, don't forget that electronic deposits are subject to different deadlines. For 1999, the IRS requires electronic depositors to make a special deposit on Sept. 29 for taxes due from Sept. 16 through Sept. 26.

-- Posted Aug. 26, 1999