A consistent theme in federal excise tax compliance is the need to maintain proper documentation. This past year, numerous federal excise tax cases have hinged on this issue. In some cases, lack of documentation has led to the disallowance of claims for refunds. In other cases, transactions that would otherwise have been tax-free were held to be taxable. Moreover, no remediation or selfhelp after the fact was allowed by the courts or the IRS. Accordingly, taxpayers engaging in transactions involving federal excise taxes should be mindful of the documentation requirements, including timing requirements, and confirm compliance before engaging in the transaction.
The federal government collects more than $100 billion each year in excise taxes affecting virtually all taxpayers, directly or indirectly, regardless of industry segment. This includes taxes imposed on heavy vehicles such as highway trucks, trailers, and tractors; motor fuels such as gasoline, diesel, and jet fuel; air transportation services; telecommunications services; certain alcohol and tobacco products; certain imported electronics and foam furniture; and other products such as coal, firearms, vaccines, bows and arrows, and sport fishing equipment. In addition to contributing to the general fund, a number of these taxes fund trust funds for special purposes such as for highways, airports and airways, leaking underground storage tanks, oil spill liability, sport fishing restoration and boating, black lung disability, vaccine injury compensation, and inland waterways.
Federal excise taxes tend to be transaction taxes; that is, depending on the specific rules, the taxable event may be the payment for services rendered or the sale, use, lease, or entry into the United States of a specified taxable article. The person liable for the tax may be the person paying for the taxable service or the manufacturer, importer, seller, or user of a taxable article. In some cases, the person responsible for remitting the tax to the government is a "collector" that is not the taxpayer. In other cases, the taxpayer often passes on the economic burden of the tax in its pricing or invoicing practices. For example, the end user may bear the economic burden of the tax through increased prices because the tax is passed on along the distribution chain.
To add to the complexity, transactions may be subject to certain statutory exemptions or credits or even be tax-free in a number of situations. In some cases, the exemption or credit is designed for the taxpayer, while...