By File720Online Editorial Team · July 18, 2026
Federal vs. State Excise Taxes: What Form 720 Covers and What It Doesn't
Form 720 reports specific federal excise taxes to the IRS — it does not cover state excise taxes, sales taxes, or income taxes. This guide explains exactly what belongs on the return, what stays separate, and how to identify which filings your business needs.
Quick Answer
IRS Form 720 reports specific federal excise taxes — fuel, air transportation, communications, environmental taxes, indoor tanning, the PCORI fee, and others. State excise taxes (state fuel, tobacco, alcohol, cannabis taxes) are filed separately with each state's tax agency, and federal alcohol, tobacco, and firearms excise taxes go to the TTB, not the IRS. Filing one return never satisfies the other obligation.
Many businesses know they have tax responsibilities, but they aren't always sure which taxes must be reported to the IRS and which belong to their state tax agency. This confusion often starts with excise taxes. Some business owners assume that filing IRS Form 720 covers every excise tax they owe, while others mistakenly report state excise taxes on a federal return. These misunderstandings can lead to filing errors, missed deadlines, and unnecessary penalties.
The good news is that the difference is straightforward once you understand how excise taxes work. IRS Form 720is used to report specific federal excise taxes, while state excise taxes are generally reported using forms provided by individual state tax authorities. In this guide, you'll learn what excise taxes are, how federal and state excise taxes differ, what Form 720 covers, and what it doesn't. By the end, you'll have a clear understanding of your filing responsibilities and when Form 720 applies to your business.
Understanding Excise Taxes
Before comparing federal and state excise taxes, it's helpful to understand what an excise tax actually is. Unlike income taxes, which are based on earnings, or sales taxes, which generally apply to retail purchases, excise taxes apply to specific goods, services, or business activities identified by federal or state law. Excise taxes are often built into the price of a product or service, so customers may not see them listed separately on a receipt. Depending on the type of tax, the responsibility for reporting and paying it may fall on manufacturers, importers, distributors, retailers, or service providers. Knowing how excise taxes work makes it much easier to determine whether your business needs to file IRS Form 720 or meet separate state filing requirements.
What Is an Excise Tax?
An excise tax is a tax imposed on particular products, services, or activities rather than on general income or most retail sales. Governments use excise taxes to generate revenue from industries or transactions that are specifically identified in tax law. Federal excise taxes commonly apply to areas such as:
States may also impose excise taxes on certain products or activities within their own jurisdictions. The important point is that excise taxes are selective. They apply only when a business is involved in taxable activities covered by the applicable law.
How Excise Taxes Differ From Sales Tax and Income Tax
Although all three are business-related taxes, they serve different purposes and follow different rules.
| Tax Type | What It's Based On | Who Administers It |
|---|---|---|
| Excise Tax | Specific goods, services, or activities | Federal government or state government |
| Sales Tax | Taxable retail sales | State or local government |
| Income Tax | Business or personal income | Federal government and, in many cases, state government |
Unlike income tax, excise tax is generally tied to a particular product or service instead of overall business profits. Unlike sales tax, it doesn't automatically apply to every retail transaction. Understanding these differences helps businesses identify which tax returns they may need to file.
Why Governments Impose Excise Taxes
Excise taxes are often used to fund government programs, transportation infrastructure, healthcare initiatives, environmental projects, and other public services. Because these taxes apply to specific industries or products, lawmakers can target certain business activities without placing the same tax on every business. For businesses, the reason behind the tax is less important than understanding whether it applies to their operations. Identifying taxable activities early helps businesses stay compliant and avoid filing mistakes.
Federal vs. State Excise Taxes
Although federal and state excise taxes share the same general purpose, they are administered by different government agencies and follow separate reporting requirements. Understanding these differences is essential because IRS Form 720 only reports qualifying federal excise taxes. If your state also imposes excise taxes on your business, those taxes are generally reported through a separate state filing process.
Rather than thinking of federal and state excise taxes as competing systems, it's more accurate to view them as two separate compliance responsibilities. Depending on your business activities, you may have obligations under one system, both systems, or neither.
Side-by-Side Comparison
| Feature | Federal Excise Tax | State Excise Tax |
|---|---|---|
| Administered By | Internal Revenue Service (IRS) | State tax agency or Department of Revenue |
| Tax Authority | Federal law | Individual state law |
| Filing Form | IRS Form 720 (when applicable) | State-specific excise tax forms |
| Geographic Scope | Applies across the United States | Applies only within the applicable state |
| Tax Rates | Established by federal law | Determined by each state |
| Examples | Fuel taxes, air transportation taxes, communications taxes, PCORI fee | State fuel taxes, tobacco taxes, alcohol taxes, cannabis excise taxes, other state-specific excise taxes |
| Filing Frequency | Generally quarterly | Depends on state requirements |
The most important difference is the filing authority. Federal excise taxes are generally reported to the IRS using Form 720 when applicable, while state excise taxes are reported directly to the state agency responsible for administering that tax. Many businesses only have one filing obligation. Others — particularly businesses operating in regulated industries or across multiple states — may need to comply with both federal and state excise tax requirements.
What IRS Form 720 Covers
Once you understand the difference between federal and state excise taxes, the next question becomes much easier: what exactly does Form 720 report? IRS Form 720 is used to report specific federal excise taxes identified under federal tax law. Businesses file the return only if one or more of these excise taxes apply to their operations. Form 720 is not intended for every business and does not report all types of federal or state taxes. The taxes reported depend entirely on your business activities, products, and services.
Federal Excise Taxes Reported on Form 720
Form 720 includes numerous excise tax categories covering different industries and business activities. Each category has its own reporting requirements and IRS Number. Some businesses report only one excise tax category, while others may report several on the same quarterly return. The IRS updates Form 720 and its instructions as tax laws change, so businesses should always review the current filing requirements before preparing a return.
Businesses Commonly Required to File
Businesses that frequently file Form 720 include those involved in taxable products or services identified by federal law. Examples include:
- Fuel producers and distributors
- Airlines and transportation companies
- Communications service providers
- Manufacturers of taxable products
- Importers of certain goods
- Businesses responsible for reporting the PCORI fee
- Indoor tanning service providers
Simply owning a business does not automatically create a Form 720 filing requirement. The obligation depends on the activities your business performs.
Common Form 720 Tax Categories
Although Form 720 contains many excise tax categories, several are more commonly reported than others. These include:
Businesses should report only the categories that apply to their operations. Filing unnecessary tax categories can create confusion and may require future corrections.
What Form 720 Does Not Cover
Understanding what Form 720 does not cover is just as important as knowing what it does report. Many filing mistakes happen because businesses assume every excise tax belongs on the same federal return. In reality, Form 720 has a specific purpose — it reports qualifying IRS-administered federal excise taxes only. It does not replace other federal tax returns, TTB filings, or any state tax filings. Knowing these limits helps businesses avoid reporting taxes on the wrong form and reduces the chance of delays or IRS correspondence.
State Excise Taxes
State excise taxes are not reported on IRS Form 720. Each state administers its own excise tax laws and requires businesses to file through its designated tax agency, often the Department of Revenue or a similar authority. Examples include state tobacco excise taxes, state alcohol excise taxes, cannabis excise taxes (where applicable), state motor fuel taxes, and other state-specific excise taxes. If your business operates in multiple states, your filing requirements may vary from one state to another.
Federal Alcohol, Tobacco, and Firearms Excise Taxes (TTB)
Not every federal excise tax belongs on Form 720. Federal excise taxes on alcohol, tobacco products, and firearms and ammunition are administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB), a separate Treasury agency — not the IRS. Producers, importers, and manufacturers in these industries file TTB excise tax returns, not Form 720. A brewery or distillery, for example, pays its federal alcohol excise tax to the TTB and may also owe separate state alcohol excise taxes to its state agency.
State Sales Taxes
Sales tax is different from excise tax and is never reported on Form 720. Businesses that collect sales tax from customers must generally register with the appropriate state tax authority and file sales tax returns according to that state’s filing schedule. Even if your business files Form 720 every quarter, you may still have separate sales tax filing obligations.
Federal Income Taxes
Form 720 is not used to report federal income tax. Business income is generally reported on the federal income tax return that applies to your business structure, such as a corporate return, partnership return, or individual return for sole proprietors. These filings are completely separate from federal excise tax reporting.
Payroll Taxes
Payroll taxes, including federal income tax withholding, Social Security tax, and Medicare tax, are reported on different IRS forms. Employers should continue filing all required payroll tax returns independently of Form 720.
Corporate and Self-Employment Taxes
Corporations that owe federal corporate income tax do not report those taxes on Form 720 — corporate income tax filings follow their own reporting requirements and deadlines. Likewise, self-employed individuals and sole proprietors report self-employment tax as part of their individual federal income tax return, not on Form 720. The same business may have several tax obligations, but each type of tax has its own reporting process.
Which Excise Tax Return Does Your Business Need?
Every business has different tax responsibilities. Some businesses only report federal excise taxes, others only file state excise tax returns, and some may have both obligations. The filing requirements depend on your products, services, and where you operate — not simply on the size of your business. The following examples can help you identify which filing situation may apply to your business.
Businesses That File Only Form 720
Some businesses are subject only to federal excise taxes and do not have separate state excise tax reporting requirements for the same activities. Examples may include businesses involved in certain federal transportation taxes, specific communications taxes, federal environmental taxes, or other federally imposed excise tax categories. These businesses file Form 720 while continuing to meet any other unrelated federal or state tax obligations.
Businesses That File Only State Excise Returns
Some businesses have no Form 720 filing requirement but must report state excise taxes. Examples vary by state and may include businesses involved with alcohol distribution, tobacco products, cannabis products, state-regulated fuel programs, or other state-specific taxable products. These businesses generally file directly with their state's tax authority rather than the IRS — though alcohol and tobacco producers may also have separate federal TTB obligations.
Businesses That File Both
Some businesses have responsibilities at both the federal and state levels. For example, a business involved in taxable fuel activities may have federal excise tax reporting requirements on Form 720 and separate state fuel tax reporting obligations. In these situations, filing Form 720 does not replace any required state filings. Each return must be submitted to the appropriate tax authority.
Businesses That Don't File Excise Tax Returns
Many businesses never need to file Form 720 or a state excise tax return because their products and services are not subject to excise tax laws. For example, businesses that provide professional services, consulting, marketing, software development, or many other common business activities often have no federal excise tax reporting requirement under Form 720.
Decision Guide
| Business Situation | File Form 720 | State Excise Return |
|---|---|---|
| Business reports qualifying federal excise taxes | Yes | Depends on state law |
| Business owes only state excise taxes | No | Yes |
| Business has both federal and state excise tax obligations | Yes | Yes |
| Business has no excise tax obligation | No | No |
If you're unsure which filing requirement applies to your business, reviewing your taxable activities and applicable federal and state tax rules before each reporting period can help you determine the correct filing obligations.
Common Mistakes That Lead to Excise Tax Filing Problems
Excise tax reporting is generally straightforward once you know which taxes apply to your business. However, many filing issues occur because businesses misunderstand the difference between federal and state requirements. Avoiding a few common mistakes can save time and reduce the likelihood of corrections or penalties.
Staying Compliant With Federal and State Excise Tax Requirements
Meeting your excise tax obligations isn't just about filing the correct forms. It also involves maintaining accurate records, understanding which taxes apply to your business, and filing each return with the appropriate tax authority. Businesses that develop consistent recordkeeping and filing practices are generally better prepared for quarterly reporting and can respond more easily if additional information is requested. Whether your business files only IRS Form 720 or both federal and state excise tax returns, staying organized throughout the year makes compliance much easier.
Track Taxable Business Activities
The first step in accurate excise tax reporting is identifying which business activities are subject to federal or state excise taxes. Since filing requirements are based on the products you sell or the services you provide, maintaining detailed records throughout the reporting period helps ensure your return reflects the correct information. Depending on your business, records may include sales of taxable products, fuel transactions, transportation-related activities, communications services, environmental tax activities, and other taxable transactions covered under federal or state law. Updating these records regularly reduces the amount of work required when it's time to prepare your return.
Maintain Supporting Records
Supporting documentation is an important part of tax compliance. If questions arise about your filing, having organized records can make it easier to verify the information reported on your return. Businesses should consider keeping copies of filed Form 720 returns, state excise tax returns, payment confirmations, invoices and receipts, transaction reports, supporting schedules, and IRS acknowledgments for electronically filed returns. The IRS generally recommends keeping Form 720-related records for at least four years.
Monitor Federal and State Deadlines
Federal and state excise tax returns often have different filing schedules. Missing either deadline can result in penalties, interest, or additional administrative work. Creating a filing calendar helps businesses stay aware of quarterly federal filing deadlines, state filing deadlines, payment due dates, and record review dates before filing. Reviewing these dates in advance gives you time to gather information and resolve any questions before the filing deadline arrives.
Review Filing Requirements Regularly
Business operations can change over time. A new product, expanded service, or additional business location may create new tax responsibilities that didn't exist in previous quarters. Reviewing current IRS guidance and applicable state requirements before each filing period helps ensure you're reporting the correct taxes and using the appropriate forms.
File Each Return With the Correct Tax Authority
One of the simplest ways to avoid filing problems is to submit each return to the agency responsible for administering that tax. As a general rule: federal excise taxes covered by Form 720 are reported to the Internal Revenue Service, federal alcohol, tobacco, and firearms excise taxes are reported to the TTB, and state excise taxes are reported to the appropriate state tax authority using that state's required forms. Keeping these responsibilities separate helps businesses avoid reporting errors and remain compliant with federal and state tax requirements.
File Federal Excise Taxes Online With Confidence
Once you've determined that your business is required to file IRS Form 720, choosing the right filing method becomes the next decision. Many businesses now prefer electronic filing because it simplifies the submission process, improves recordkeeping, and provides confirmation that the return has been received. For businesses that file quarterly, an online filing solution can make recurring compliance much more manageable.
Why Businesses Choose to E-File
Electronic filing offers practical advantages over preparing and mailing paper returns: faster submission to the IRS, reduced reliance on paper documents, convenient access to filing records, easier management of quarterly filings, and improved organization of tax documents. These benefits are especially valuable for businesses with ongoing federal excise tax obligations.
Built-In Accuracy Checks
Preparing a return carefully before submission is one of the best ways to avoid delays. Electronic filing platforms help users review required information before completing the filing process, making it easier to identify missing details or incomplete sections. Every business remains responsible for the accuracy of its return, but reviewing information before submission helps reduce avoidable errors.
Secure Electronic Submission
Submitting Form 720 electronically provides a convenient way to send your return to the IRS while maintaining digital copies of important filing information. Electronic filing also reduces concerns about mailing delays and gives businesses a more streamlined filing experience.
IRS Acknowledgment After Filing
One of the advantages of electronic filing is receiving an IRS acknowledgment after your return has been accepted for processing. This confirmation provides reassurance that the IRS has successfully received your submission. Keep a copy of the acknowledgment with your tax records for future reference.
If your business needs to report federal excise taxes, File720Online offers a secure and convenient way to prepare and electronically file IRS Form 720. The platform guides users through the required information, supports secure electronic submission, and provides IRS acknowledgment after a successful filing. Because businesses often file Form 720 every quarter, having organized digital records and an efficient filing process can save time and make future reporting much easier.
Final Thought
Understanding the difference between federal and state excise taxes is essential for accurate tax reporting. While both types of taxes may apply to certain business activities, they are administered by different government agencies and follow separate filing requirements. IRS Form 720 is used only for qualifying IRS-administered federal excise taxes, federal alcohol, tobacco, and firearms excise taxes are filed with the TTB, and state excise taxes must generally be reported using the forms required by the appropriate state tax authority. Before each filing period, review your business activities carefully, determine which excise taxes apply, and file the correct return with the appropriate agency. Maintaining accurate records, tracking filing deadlines, and staying informed about current tax requirements can help reduce errors and keep your business compliant throughout the year.
If your business is required to file IRS Form 720, File720Online provides a secure, convenient, and efficient way to prepare and electronically submit your Quarterly Federal Excise Tax Return. With guided filing, secure e-filing, IRS acknowledgment, and organized digital records, the platform helps businesses manage their federal excise tax obligations with greater confidence every quarter.
Frequently Asked Questions
Does Form 720 cover state excise taxes?
Are federal alcohol, tobacco, and firearms excise taxes reported on Form 720?
Can a business owe both federal and state excise taxes?
How do I know if my business needs to file Form 720?
How often is Form 720 filed compared to state excise tax returns?
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File Now — Free to StartDisclaimer: The information provided in this article is for general informational purposes only and should not be relied upon as legal, tax, or professional advice. Tax laws and regulations are subject to change, and their application can vary based on individual circumstances. Consult a qualified tax professional or attorney for advice specific to your situation. File720Online is an IRS-authorized e-file provider and does not provide legal or tax advice.