Federal Retail Excise Tax - The Ultimate Guide

In this blog, we will take an in-depth look at the Federal Retail Excise Tax, as outlined in IRS Form 720, which is applicable to the owners of certain heavy vehicles, including trucks, trailers, semi trailer chassis and bodies, and tractors. This blog will provide detailed information on several key topics, including:

• What is the Federal Excise Tax on Trucks?

• How Much is the Retail Excise Tax for Trucks?

• Who is Responsible for Paying the FET on Trucks?

• How is the Excise Tax on Trucks Paid?

• Exemptions and Special Considerations for Certain Vehicles

• Penalties for Non-Compliance and How to Avoid Them

The Federal Excise Tax on trucks is a 12% tax on the first retail sale of certain heavy vehicles. Specifically, it applies to:

• Trucks, tractors, and trailers with a Gross Vehicle Weight Rating (GVWR) exceeding 26,000 pounds.

• Chassis components if sold separately from the vehicle.

The FET was introduced to ensure that heavy vehicles, which cause more wear and tear on highways, contribute to the costs of maintaining and improving the nation’s transportation infrastructure.

The FET rate is 12% of the vehicle’s retail price as per IRS Code Section 4051, which includes:

• The base price of the truck or trailer.

• Optional equipment installed before the sale.

• Any customization or additions made by the dealer before delivery.

However, the tax excludes used trucks, non-commercial vehicles, and specific exempt categories, such as school buses and ambulances. It's important to note that the tax can significantly increase the vehicle's final cost, often adding tens of thousands of dollars to the price of large commercial trucks

The responsibility for collecting and remitting the tax falls on the seller or manufacturer, not the buyer. However, the tax is generally included in the sales price, making it effectively a cost borne by the purchaser. This setup ensures that the burden of compliance lies with businesses that are in the best position to manage tax collection and reporting processes.

In cases where vehicles are sold through intermediaries or brokers, the FET may still be applicable, with specific reporting responsibilities outlined by the IRS.

Payment of the Federal Excise Tax is facilitated through Form 720, which is filed quarterly with the IRS. Here’s how the process works:

1. Quarterly Filing Deadlines:

• April 30 (for January-March)

• July 31 (for April-June)

• October 31 (for July-September)

• January 31 (for October-December)

2. Manual Filing options: For manual filing, download the latest Form 720 from the official IRS website, complete it accurately, and mail it to the appropriate IRS address listed in the form’s instructions. Ensure you use the correct address, which may vary by location and tax type. The IRS number mentioned in Form 720 is 33 - Retail Tax - Truck, trailer, and semi trailer chassis and bodies, and tractor.

3. Electronic Filing Options: The IRS strongly recommends using online filing over traditional paper-based methods due to its significant advantages, such as reduced costs, faster processing, and increased accuracy. 

By choosing an IRS-approved e-filing platform like Simple720, businesses can streamline their filing process, minimize errors, and complete their Federal Excise Tax submissions in just a few minutes.

Not all heavy vehicles are subject to FET. Key exemptions include:

• School buses used for educational purposes.

• Public transit buses designed for mass transportation.

• Ambulances and rescue vehicles used for emergency services.

• Non-commercial agricultural vehicles used exclusively on farms.

To claim an exemption, businesses must provide appropriate documentation when filing Form 720. The IRS closely scrutinizes exemptions, so accurate recordkeeping and proper filing are crucial to avoid penalties

Failure to properly collect, report, or pay the Federal Excise Tax can result in:

• Fines and interest charges on unpaid taxes.

• Potential audits and legal actions from the IRS.

WRAP:

By the end of this blog, you should understand the 12% Federal Excise Tax on heavy trucks, its role in funding infrastructure, and how to comply through IRS Form 720. Proper filing, accurate records, and awareness of exemptions are essential to avoid penalties and support national transportation projects.