Environmental Taxes and Form 720: A Practical Filing Guide

 

What Are Environmental Taxes on Form 720?

Environmental taxes are federal excise taxes imposed on certain petroleum products, taxable chemicals, imported chemical substances, ozone-depleting chemicals, and products manufactured using ozone-depleting chemicals.

Businesses involved in producing, importing, selling, receiving, or using these products may have an environmental excise tax obligation. The tax is generally calculated using Form 6627 and then reported on Form 720.

Because different products have different rates and IRS numbers, it is important to identify the correct tax category before preparing your return. You can review the environmental tax filing categories supported by Excise720 before starting.

Who May Need to Report Environmental Taxes?

Your business may have to report environmental taxes if it:

• Operates a petroleum refinery
• Imports petroleum products into the United States
• Manufactures, produces, or imports taxable chemicals
• Imports taxable chemical substances
• Sells or uses ozone-depleting chemicals
• Imports products manufactured using ozone-depleting chemicals
• Holds taxable ozone-depleting chemical floor stocks

Responsibility does not automatically apply to every company that handles chemicals or petroleum. Liability depends on the product, transaction, business activity, applicable exemption, and point at which the tax is imposed.

Businesses should review the current IRS instructions for Form 6627 or consult a qualified tax professional when their filing responsibility is unclear.

Which Environmental Taxes Are Reported?

The IRS uses specific numbers to identify environmental tax categories. Common categories include:

• IRS No. 53: Domestic petroleum Superfund tax
• IRS No. 16: Imported petroleum products Superfund tax
• IRS No. 54: Taxable chemicals other than ozone-depleting chemicals
• IRS No. 17: Imported chemical substances
• IRS No. 98: Ozone-depleting chemicals
• IRS No. 19: Imported products containing or manufactured with ozone-depleting chemicals
• IRS No. 20: Ozone-depleting chemical floor stocks tax

Using the wrong IRS number can place the liability in the wrong section of the return. Always match your activity with the current Form 720 instructions.

What Is Form 6627?

IRS Form 6627 is used to calculate environmental taxes before the amount is transferred to Form 720.

Depending on the tax, the calculation may require information such as:

• Barrels of petroleum
• Tons of taxable chemicals
• Type and quantity of imported chemical substances
• Pounds of ozone-depleting chemicals
• ODC weight associated with imported products
• Applicable IRS tax rates

For 2026, the IRS instructions state that the petroleum Superfund tax rate is $0.18 per barrel. Rates and rules can change, so businesses should use the form and instructions applicable to the filing period rather than relying on an older return.

How to File Environmental Taxes

1. Confirm Your Taxable Activity

Determine whether your business manufactured, imported, received, sold, or used a product subject to environmental excise tax during the quarter.

2. Collect Transaction Records

Gather purchase records, import documents, inventory reports, product descriptions, chemical quantities, petroleum volumes, and supporting exemption certificates.

3. Identify the Correct IRS Number

Choose the environmental tax category that matches the product and transaction. Similar-sounding categories can carry different reporting requirements.

4. Calculate the Tax on Form 6627

Enter the taxable quantity and applicable rate in the correct section of Form 6627. Transfer the calculated amount to the corresponding IRS-numbered line on Form 720.

5. Complete and Submit Form 720

Review the full return, attach Form 6627 when required, and submit it by the applicable deadline. Businesses can file Form 720 online through Excise720.

Common Environmental Tax Filing Mistakes

A frequent error is assuming that every chemical transaction is taxed in the same way. Domestic chemicals, imported chemical substances, and ODC-related products have separate calculation rules.

Other mistakes include:

• Using an outdated tax rate
• Reporting under the wrong IRS number
• Entering purchase quantities instead of taxable quantities
• Failing to maintain import or inventory documentation
• Omitting Form 6627
• Missing the quarterly filing deadline
• Claiming an exemption without supporting records

A careful review before submission can help prevent calculation errors, rejected filings, IRS correspondence, penalties, and interest.

Make Environmental Tax Filing More Manageable

Environmental tax reporting involves more than entering one total on Form 720. Filers must identify the correct tax, calculate liability accurately, and retain records supporting the reported quantity and rate.

Excise720 provides an online filing process for businesses reporting environmental and other federal excise taxes. Its guided system helps organize the information required for Form 720 and related forms.

Review your transactions early, use current IRS guidance, and avoid waiting until the filing deadline to determine whether Form 6627 is required.

Frequently Asked Questions

Are environmental taxes reported every quarter?
Most environmental taxes are reported quarterly. However, the ODC floor stocks tax has a special annual reporting requirement and is generally attached to the Form 720 due July 31.

Is Form 6627 filed by itself?
No. Form 6627 calculates environmental tax liability and is generally attached to Form 720.

Can environmental taxes be filed electronically?
Yes. The IRS permits optional electronic filing through an approved Form 720 e-file provider.