Ship Passenger Tax

A tax of $3 per passenger is imposed on certain ship voyages, as explained later under Taxable situations. The tax is imposed only once for each passenger, either at the time of first embarkation or disembarkation in the United States.

The person providing the voyage (the operator of the vessel) is liable for the tax.

Voyage.   A voyage is the vessel's journey that includes the outward and homeward trips or passages. The voyage starts when the vessel begins to load passengers and continues until the vessel has completed at least one outward and one homeward passage. The tax may be imposed even if a passenger does not make both an outward and a homeward passage as long as the voyage begins or ends in the United States.

Passenger.   A passenger is an individual carried on the vessel other than the Master or a crew member or other individual engaged in the business of the vessel or its owners.

Example 1.   John Smith works as a guest lecturer. The cruise line hired him for the benefit of the passengers. Therefore, he is engaged in the business of the vessel and is not a passenger.

Example 2.   Marian Green is a travel agent. She is taking the cruise as a promotional trip to determine if she wants to offer it to her clients. She is a passenger.

Taxable situations.   There are two taxable situations. The first situation involves voyages on commercial passenger vessels extending over one or more nights. A voyage extends over one or more nights if it extends for more than 24 hours. A passenger vessel is any vessel with stateroom or berth accommodations for more than 16 passengers.

The second situation involves voyages on a commercial vessel transporting passengers engaged in gambling on the vessel beyond the territorial waters of the United States. Territorial waters of the United States are those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3.45 statute miles) from low tide on the coastline. If passengers participate as players in any policy game or other lottery, or any other game of chance for money or other thing of value that the owner or operator of the vessel (or their employee, agent, or franchisee) conducts, sponsors, or operates, the voyage is subject to the ship passenger tax. The tax applies regardless of the duration of the voyage. A casual, friendly game of chance with other passengers that is not conducted, sponsored, or operated by the owner or operator is not gambling for determining if the voyage is subject to the ship passenger tax.

Exemptions.   The tax does not apply when a vessel is on a voyage of less than 12 hours between 2 points in the United States or if a vessel is owned or operated by a state or local government.

Luxury Tax

The luxury tax is imposed on the first retail sale of a passenger vehicle with a price exceeding the base amount. The seller of the vehicle is liable for the luxury tax.

For 2002, the tax is 3% of the amount the sales price exceeds the base amount of $40,000. However, the base amount is increased for the following vehicles.

• For an electric vehicle, the base amount is increased by 50%.
• For a clean-fuel vehicle, the base amount is increased by the amount the price of the vehicle increases due to the installation of retrofit parts and components that permit the vehicle to be propelled by a clean-burning fuel.

The luxury tax is scheduled to expire after 2002.

Passenger vehicles.   Generally, the tax applies if the passenger vehicle has an unloaded weight of 6,000 pounds or less. However, the tax applies to a truck or van only if it has a maximum loaded weight of 6,000 pounds or less. The tax applies to limousines regardless of their weight.

Leases.   Generally, a lease is considered a sale of the vehicle. The sales price is the lowest price for which the vehicle is sold by retailers in the ordinary course of business. For rules on paying the tax on a lease, see section 4217(e)(2) of the Internal Revenue Code.

Use treated as sale.   If any person uses a passenger vehicle before its first retail sale, the person is taxed on such use as if that person sold the vehicle at retail.

Exceptions.   The luxury tax does not apply to the following uses of a vehicle.

• Use of the vehicle as material in the manufacture or production of, or as a component part of, another taxable vehicle manufactured or produced by the user.
• Use of the vehicle as a demonstrator.
• Use of a vehicle after importation if the user or importer establishes that the first use of the vehicle occurred before January 1, 1991.

Parts and accessories.   Certain parts or accessories installed within six months of the date on which a passenger vehicle is placed in service may be subject to the tax. The same rate of tax applies to parts and accessories that applies to vehicles.

The owner, lessee, or operator of the vehicle is liable for the tax. If the part is installed by someone else, the installer is secondarily liable for the tax.

The tax does not apply to any of the following items.

• Replacement parts or accessories.
• Parts or accessories installed to help a person with a disability operate, enter, or exit the vehicle.
• Parts or accessories that permit the vehicle to be propelled with a clean-burning fuel.
• Parts and accessories if the total cost (including installation) of all parts and accessories does not exceed $1,000.

Exemptions.   The luxury tax does not apply to the sale of a passenger vehicle for the following purposes.

• For use exclusively in public safety, law enforcement, or public works activities by the federal, state, or local government. Treat an Indian tribal government as a state only if the use is an essential tribal government function.
• For use exclusively in providing emergency medical services by any person.
• For use by the purchaser exclusively in the business of transporting persons or property for hire or compensation.
• For export. The requirements for making a sale of an article for export exempt from the manufacturers tax also applies to these sales.

Resale or substantial non-exempt use.   The tax applies to vehicles that were originally exempt from the luxury tax if the purchaser resells the vehicle or makes a substantial non-exempt use of the vehicle within 2 years after the date of purchase.

Credit or refund.   A credit or refund (without interest) may be allowable if the price of the vehicle is readjusted by reason of return or repossession of the vehicle or a bona fide discount, rebate, or allowance applied against the price of the vehicle. For information on conditions to allowance that apply to credits and refunds, see Manufacturers Taxes, earlier.

Luxury Tax Computation

1.	Enter the retail price of the vehicle
2.	Enter additions to the retail price
3.	Add lines 1 and 2
4.	Enter subtractions from the retail price
5.	Adjusted sales price. Subtract line 4 from line 3
6.	Base amount for 2002	$40,000*
7.	Taxable adjusted sales price. Subtract line 6 from line 5. If line 6 is greater than line 5, stop here - the luxury tax does not apply to the vehicle
8.	Tax rate for 2002	.03(3%)
9.	Luxury tax. Multiply line 7 by the tax rate on line 8
Line 1. The retail price is the total consideration paid in cash, cash equivalents, goods, services, and the wholesale fair market value of any trade-in minus any payoff made by the seller and any cash given back to the customer. For leases, enter the lowest price for which the vehicle is sold by retailers in the ordinary course of business.
Line 2. Additions include the following items if stated separately on the invoice and not included in the retail price. Preparation charges. Delivery charges. Packaging. Parts or accessories sold on or in connection with the vehicle. Taxes (except the luxury tax and state sales tax). Commissions. Mandatory warranties. Any other charges not listed above.
Line 4. Subtractions include the following if they are separately stated on the invoice and are included in line 3. State and local sales taxes. Title and registration charges. Optional warranty charges. Rebates and price adjustments paid. The value of used components supplied by the purchaser.
* The base amount for an electric vehicle is $60,000. The base amount for a clean-fuel vehicle is $40,000 plus the amount the price of the vehicle increases due to the installation of retrofit parts and components that permit the vehicle to be propelled by a clean-burning fuel.

Foreign Insurance Taxes

Tax is imposed on insurance policies issued by foreign insurers. The following tax rates apply to each dollar (or fraction thereof) of the premium paid.

1. Casualty insurance and indemnity, fidelity, and surety bonds: 4 cents (for example, on a premium payment of $10.10, the tax is 44 cents)
2. Life, sickness, and accident insurance, and annuity contracts: 1 cent (for example, on a premium payment of $10.10, the tax is 11 cents).
3. Reinsurance policies covering any of the taxable contracts described in items (1) and (2): 1 cent.

However, the tax does not apply to casualty insurance premiums paid to foreign insurers for coverage of export goods in transit to foreign destinations.

Premium.   Premium means the agreed price or consideration for assuming and carrying the risk or obligation. It includes any additional charge or assessment payable under the contract, whether in one sum or installments. If premiums are refunded, claim the tax paid on those premiums as an overpayment against tax due on other premiums paid or file a claim for refund.

When liability attaches.   The liability for this tax attaches when the premium payment is transferred to the foreign insurer or reinsurer (including transfers to any bank, trust fund, or similar recipient designated by the foreign insurer or reinsurer) or to any nonresident agent, solicitor, or broker. A person can pay the tax before the liability attaches if the person keeps records consistent with that practice.

Person liable for the tax.   The person who makes the payment of the premium to the foreign insurer or to any nonresident agent, solicitor, or broker is liable for the tax. This is the resident person who actually transfers the money or its equivalent to the insurer or agent.

The person liable for this tax must keep accurate records that identify each policy or instrument subject to tax. These records must clearly establish the type of policy or instrument, the gross premium paid, the identity of the insured and insurer, and the total premium charged. If the premium is to be paid in installments, the records must also establish the amount and anniversary date of each installment.

The records must be kept at the place of business or other convenient location for at least 3 years after the later of the date any part of the tax became due, or the date any part of the tax was paid. During this period, the records must be readily accessible to the IRS.

The person having control or possession of a policy or instrument subject to this tax must keep the policy for at least 3 years after the date any part of the tax on it was paid.

Treaty-based positions under IRC 6114.   You may have to file an annual report disclosing the amount of premiums exempt from United States excise tax as a result of the application of a treaty with the United States that overrides (or otherwise modifies) any provision of the Internal Revenue Code.

Attach any disclosure statement to the first quarter Form 720. You may be able to use Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), as a disclosure statement. See the Form 720 instructions for how and where to file.

See Revenue Procedure 92-14 in Cumulative Bulletin 1992-1 for procedures you can use to claim a refund of this tax under certain U.S. treaties.

Obligations Not in Registered Form

Tax is imposed on any person who issues a registration-required obligation not in registered form. The tax is:

• 1% of the principal of the obligation, multiplied by
• The number of calendar years (or portions of calendar years) during the period starting on the date the obligation was issued and ending on the date it matures.

A registration-required obligation is any obligation other than one that meets any of the following conditions.

1. It is issued by a natural person.
2. It is not of a type offered to the public.
3. It has a maturity (at issue) of not more than one year.
4. It can only be issued to a foreign person.

For item (4), if the obligation is not in registered form, the interest on the obligation must be payable only outside the United States and its possessions. Also, the obligation must state on its face that any U.S. person who holds it shall be subject to limits under the U.S. income tax laws.

Filing Form 720

Use Form 720 to report and pay the excise taxes discussed earlier. File Form 720 for each calendar quarter until you file a final Form 720. If you are not reporting a tax that you normally report, enter zero on the line for that tax.

Be sure to sign the return. An unsigned return is not considered filed.

You may be required to file your returns on a monthly or semimonthly basis instead of quarterly if you do not make deposits as required (see Deposit Requirements, later) or are liable for the excise tax on gasoline, diesel fuel, or kerosene and meet certain conditions.

Form 720.   The form has various sections.

• Part I consists of excise taxes generally required to be deposited (See Deposit Requirements, later).
• Part II consists of excise taxes that are not required to be deposited.
• Part III consists of the lines for your total tax, showing any claims and overpayments from previous quarters, indicating the amount of your deposits, and determining the balance due or any overpayment.
• Schedule A, Excise Tax Liability, is used to record your net tax liability for each semimonthly period in a quarter. Complete it if you have an entry in Part I.
• Schedule C, Claims, is used to make claims only if you are reporting a liability in Part I or Part II.

Attachments to Form 720.   You may have to attach the following forms.

• Form 6197 for the gas guzzler tax.
• Form 6627 for environmental taxes.

Form 720X.   This new form is used to make adjustments to liability reported on Forms 720 filed in previous quarters. Previously these adjustments were made in Part I of Schedule C (Form 720).

You can file Form 720X by itself or, if it shows a decrease in tax, you can attach it to Form 720. See the form and its instructions for more information.

Conditions to allowance.   For tax decreases, the claimant must check the appropriate box on Form 720X stating that:

1. For adjustments of communications or air transportation taxes, the claimant has:
   1. Repaid the tax to the person from whom it was collected, or
   2. Obtained the consent of that person to allowance of the adjustment.
2. For other adjustments, the claimant has:
   1. Not included the tax in the price of the article and not collected the tax from the purchaser,
   2. Repaid the tax to the ultimate purchaser, or
   3. Attached the written consent of the ultimate purchaser to the allowance of the adjustment.

However, the conditions listed under (2) do not apply to environmental taxes, the ship passenger tax, obligations not in registered form, foreign insurance taxes, fuels used on inland waterways, alcohol sold as fuel but not used as fuel, and taxes based on the use of certain fuels (dyed diesel fuel in trains or buses and LPG, CNG, and other special motor fuels).

Employer identification number.   If you file Form 720, you need an employer identification number (EIN), unless you are a one-time filer (discussed next). If you do not have an EIN, you need to file Form SS-4, Application for Employer Identification Number. You can get a Form SS-4 from the IRS or from the Social Security Administration. If you do not receive an EIN by the time a return is due, file your return anyway and write Applied for and the date you applied in the space for the EIN. See the Form SS-4 instructions for how to file.

Third party designee.   You can check the Yes box in the third party designee area to authorize the IRS to discuss your Form 720 with an employee of your business or another person. This allows the IRS to call the designee to answer any questions that arise during the processing of your return. It also allows your designee to perform certain actions. See the form instructions for more information.

One-time filing.   If you import a vehicle, you may be eligible to make a one-time filing of Form 720 for the gas guzzler tax or the luxury tax if you meet the following three conditions.

• You do not use the vehicle in the course of your trade or business.
• You do not import gas guzzling cars or luxury vehicles in the course of your trade or business.
• You are not required to file Form 720 to report any other excise taxes.

File Form 720 for the quarter in which you incur the tax liability. Attach Form 6197 if you report the gas guzzler tax. Pay the full tax with the return. No deposits are required. Check the one-time filing box on page 1, Form 720.

Final return.   File a final return if either of the following apply to you.

• You go out of business.
• You will not owe excise taxes that are reportable on Form 720 in future quarters.

Due dates.   Form 720 must be filed by the following due dates.

Quarter Covered	Due Dates
January, February, March	April 30
April, May, June	July 31
July, August, September	October 31
October, November, December	January 31

If any due date falls on a Saturday, Sunday, or legal holiday, you can file the return on the next business day.

You must report the floor stocks tax imposed on ODCs held on January 1, as discussed earlier, on the return due by July 31 of the year that the tax is imposed.

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