Is Form 720 the Same as a Sales Tax Return? Key Differences Every Business Should Know

What Is IRS Form 720?

IRS Form 720, officially known as the Quarterly Federal Excise Tax Return, is a federal tax form used to report and pay certain excise taxes to the Internal Revenue Service (IRS). Unlike income tax returns, Form 720 focuses on specific goods, services, and activities that are subject to federal excise tax. Businesses that manufacture, sell, import, or provide certain taxable products or services may be required to file this return on a quarterly basis.

Because excise taxes apply only to certain industries and transactions, many businesses never need to file Form 720. Those that do must accurately report their tax liability and submit the return by the applicable quarterly deadline. For a complete overview of the form itself, see our guide to what Form 720 is and how it works.

Purpose of Form 720

The primary purpose of Form 720 is to allow businesses to report federal excise taxes required under the Internal Revenue Code. These taxes help fund specific federal programs and apply only to qualifying products or services rather than general business sales. Instead of reporting every sale your business makes, Form 720 reports only taxable activities covered by federal excise tax laws. This makes it very different from a sales tax return, which generally reports taxable retail sales within a state.

Types of Federal Excise Taxes Reported

Form 720 includes many categories of federal excise taxes. The taxes that apply depend entirely on your business operations. Some of the most commonly reported excise taxes include:

• Fuel excise taxes
• Air transportation taxes
• Communications taxes
• Environmental taxes
• Indoor tanning services tax
• Patient-Centered Outcomes Research Institute (PCORI) fee — an annual fee reported once a year on the second-quarter return
• Certain manufacturer and importer excise taxes

Each tax category is identified by a specific IRS Number on Form 720. Browse the full list in our excise tax categories guide to see which ones may apply to your business.

Businesses That Usually File Form 720

Only businesses involved in taxable excise tax activities are generally required to file Form 720. Examples include:

• Fuel producers and distributors
• Airlines and transportation businesses
• Indoor tanning service providers
• Manufacturers of taxable goods
• Importers of certain products
• Insurers and sponsors of self-insured health plans responsible for reporting the PCORI fee

Simply owning a business does not automatically create a Form 720 filing requirement. The obligation depends on your business activities.

What Is a Sales Tax Return?

A sales tax return is completely different from IRS Form 720. Instead of reporting federal excise taxes, a sales tax return reports state or local sales taxes collected from customers on taxable retail sales. These returns are filed with the appropriate state or local tax authority, not with the IRS.

Sales tax laws vary from state to state. Each state determines its own tax rates, filing requirements, registration process, and reporting deadlines. Because there is no federal general sales tax in the United States, businesses that collect sales tax work directly with their state's Department of Revenue or similar tax agency.

How Sales Tax Works

Sales tax is generally added to the purchase price of taxable goods or services at the point of sale. Businesses collect this tax from customers and then send the collected amount to the appropriate state or local government. Unlike federal excise tax, which often applies to specific industries or products, sales tax applies to a broad range of retail transactions, depending on state law.

Who Collects Sales Tax

Businesses registered to collect sales tax act as collection agents for the state. They charge customers the required sales tax during each taxable sale and hold those funds until they are remitted to the appropriate tax authority. Consumers ultimately pay the tax, while businesses are responsible for collecting, reporting, and submitting it.

Where Sales Tax Returns Are Filed

Sales tax returns are filed with the tax agency responsible for administering sales tax in the state where the business has a filing obligation. Depending on the state, this may include:

• State Department of Revenue
• Department of Taxation
• State Tax Commission
• Other authorized tax agencies

The IRS does not process state sales tax returns.

How Often Sales Tax Returns Are Filed

Sales tax filing frequency varies by state and often depends on the amount of sales tax a business collects. A business may file:

• Monthly
• Quarterly
• Annually

The filing schedule is assigned by the state after the business registers for sales tax.

Which One Does Your Business Need?

Understanding the difference between Form 720 and a sales tax return is only the first step. The next question most business owners ask is, "Which one applies to my business?" The answer depends on the type of products you sell, the services you provide, and the taxes you're legally required to collect or pay. Some businesses only file Form 720, others only file sales tax returns, while some have obligations under both federal and state tax laws. Instead of guessing, review your business activities carefully. Knowing which return applies helps you file with the correct agency and avoid missed filing requirements.

You Need Form 720 If...

Form 720 is required if your business is responsible for reporting one or more federal excise taxes. These taxes apply to specific products, services, or activities identified by the IRS. Your business may need to file Form 720 if you:

• Manufacture or import taxable goods
• Produce, sell, or distribute taxable fuel
• Operate in the air transportation industry
• Provide indoor tanning services
• Are responsible for reporting the annual PCORI fee
• Have another federal excise tax obligation listed in the IRS Form 720 instructions

The filing requirement is based on the type of taxable activity, not on the size of your business.

You Need a Sales Tax Return If...

A sales tax return is generally required when your business collects state or local sales tax from customers. After collecting sales tax, you must report and remit those funds to the appropriate state tax authority according to its filing schedule. Businesses commonly file sales tax returns if they:

• Sell taxable retail products
• Sell taxable goods online in states where they have a sales tax obligation
• Operate a physical retail store
• Provide taxable services in states where those services are subject to sales tax
• Have registered for a sales tax permit with a state tax agency

Because sales tax laws differ from state to state, businesses operating in multiple states may have separate filing obligations in each jurisdiction.

You May Need Both If...

Some businesses have both federal excise tax and state sales tax responsibilities. Filing one return does not satisfy the other requirement because they report different taxes to different government agencies. For example, a business that sells taxable fuel may:

• File Form 720 to report federal fuel excise taxes
• File one or more state sales tax returns if it collects sales tax on taxable retail transactions

Likewise, manufacturers or distributors of certain taxable products may also have sales tax collection responsibilities depending on where they operate. If your business falls into more than one tax category, you'll need to keep separate records and file each required return on time.

You May Need Neither If...

Many businesses never have to file Form 720 or collect sales tax. For example, some service-based businesses operate in industries where federal excise taxes do not apply and where their services are exempt from state sales tax. Whether you need either return depends on factors such as:

• Your business activities
• The products or services you provide
• The states where you conduct business
• Federal tax rules related to your industry

If you're unsure about your filing requirements, reviewing the applicable IRS guidance and your state's tax regulations can help determine which obligations apply.

How to Stay Compliant With Both Federal and State Tax Requirements

Managing tax compliance becomes much easier when you establish a consistent process throughout the year. Rather than waiting until filing deadlines approach, keeping accurate records and understanding your obligations in advance can help reduce errors and save time.

Know Which Taxes Apply to Your Business

Every business has different tax responsibilities. Before filing, identify whether your activities create obligations for:

• Federal excise tax
• State sales tax
• Both federal and state taxes

Reviewing your business operations regularly can help you identify changes that affect your filing requirements.

Register with the Correct Tax Authority

If your business must collect sales tax, you'll generally need to register with the appropriate state tax agency before collecting tax from customers. Similarly, businesses subject to federal excise taxes should ensure they understand the IRS filing requirements that apply to their industry. Completing the proper registrations early helps prevent future compliance issues.

Track Filing Deadlines

Federal and state tax deadlines often differ. Missing a filing date can result in penalties, interest, or additional correspondence from tax authorities. A filing calendar can help you keep track of:

• Quarterly Form 720 deadlines
• Monthly, quarterly, or annual sales tax filing dates
• Payment due dates
• Annual reporting requirements such as the PCORI fee, where applicable

Maintain Accurate Records

Good recordkeeping makes tax reporting much easier. Businesses should maintain organized records of:

• Taxable transactions
• Sales records
• Excise tax calculations
• Sales tax collected
• Supporting invoices
• Previous tax returns
• Payment confirmations

Keeping complete records also makes it easier to respond if questions arise after filing. For a detailed breakdown of what to keep and for how long, see our guide to Form 720 recordkeeping requirements.

Final Thought

Although Form 720 and sales tax returns both involve business taxes, they serve completely different purposes. Form 720 reports federal excise taxes to the IRS, while sales tax returns report state or local sales taxes collected from customers. Understanding this difference is essential because filing the wrong return, or missing a required filing, can lead to unnecessary penalties and additional administrative work.

The simplest way to determine your filing responsibility is to look at your business activities. If your products or services are subject to federal excise tax, Form 720 may be required. If you collect sales tax from customers, you'll generally have separate state filing obligations. Some businesses need only one of these returns, while others must file both.

If your business is required to submit IRS Form 720, filing online can make the process quicker and easier. File720Online offers a secure electronic filing solution that helps businesses prepare, review, and submit Form 720 with confidence while receiving IRS acknowledgment after successful transmission. By using the right filing method and staying on top of your reporting responsibilities, you can keep your business compliant and spend more time focusing on your operations.