How to Calculate Excise Tax: Ad Valorem, Specific, and Form 720

To calculate federal excise tax, you use one of two methods depending on the product or activity: multiply a percentage rate by the sale price (an ad valorem tax), or multiply a fixed dollar amount by the quantity of units produced, imported, or sold (a specific, per-unit tax). Which method applies is not a choice — it is set by statute for each category, and each category has its own rate and its own line on the return.

The Ad Valorem Method: Rate Times Price

Ad valorem excise taxes are a percentage of what the buyer actually paid. Multiply the rate by the transaction price and you have the tax. A product carrying a 6.25% excise tax and selling for $10,000 generates $625 in tax.

The main federal excise taxes that work this way:¹

Air transportation of property: 6.25% of the amount paid for the shipment.
Retail tax on heavy trucks, trailers, and tractors: 12% of the sale price on the first retail sale.
Local telephone and teletypewriter service: 3% of amounts paid.
Air transportation of passengers: 7.5% of the ticket price, plus a per-segment charge.

The base is the price the buyer actually paid, not the list price. If you discount a product, the discounted price is what the tax applies to. Invoices need to show that number clearly, because it is what the IRS will use to verify your return during an audit.

The Specific Method: Rate Times Quantity

Specific excise taxes ignore price. You multiply a fixed dollar amount by units — gallons, proof gallons, tons, thousands of cigarettes. The pump price of gasoline could double tomorrow and the federal excise tax per gallon would not move.

The main federal per-unit rates:

Gasoline: 18.3 cents per gallon, plus a 0.1 cent Leaking Underground Storage Tank (LUST) surcharge, for 18.4 cents per gallon total.²
Diesel fuel and kerosene: 24.3 cents per gallon, plus the 0.1 cent LUST surcharge.²
Cigarettes: $50.33 per 1,000 small cigarettes, roughly $1.01 per pack of 20.³
Distilled spirits: $13.50 per proof gallon at the general rate. Small distillers pay $2.70 per proof gallon on the first 100,000 proof gallons removed each calendar year.⁴

A worked example: a fuel distributor who moves 50,000 gallons of gasoline in a quarter owes $9,200 in federal excise tax on that fuel (50,000 × $0.184). The pump price is irrelevant to the number on the return. Because quantity is the only variable, accurate volume records — gallons delivered, proof gallons produced, units manufactured — are the entire foundation of the calculation.

Gas Guzzler Tax

The gas guzzler tax is a specific excise tax manufacturers pay on new passenger cars with low fuel economy. It applies at the manufacturer’s point of sale and scales with how far below 22.5 mpg the vehicle falls:⁵

21.5 to 22.5 mpg: $1,000
18.5 to 19.5 mpg: $2,100
15.5 to 16.5 mpg: $3,700
13.5 to 14.5 mpg: $5,400
Below 12.5 mpg: $7,700

Vehicles rated 22.5 mpg or above owe nothing. The tax hits passenger cars only. Trucks, SUVs, and minivans are exempt.

Superfund Chemical Excise Taxes

Congress reinstated the Superfund chemical excise taxes in 2022 at double the pre-1996 rates. Two categories apply: taxable chemicals (benzene, toluene, xylene, and others) and taxable substances (imported products made from those chemicals). Rates vary by chemical and are assessed per ton.⁶

The IRS continues adding substances to the taxable list as of 2026. Recent additions include polyphenylene sulfide at $14.50 per ton, nylon 6 and caprolactam at $14.77 per ton, and cellulose acetate at $1.65 per ton.⁶ Importers can use the IRS-prescribed rate for a taxable substance or calculate their own, which matters when the composition of the imported product does not match the IRS assumption. The math itself is tonnage times rate. The harder work is identifying which substances qualify and at what rate. Superfund figures are reported on Form 6627, which attaches to Form 720.⁷

State Excise Taxes and How They Interact

Most products subject to federal excise tax face state and sometimes local excise taxes too. State gasoline taxes range roughly from 9 cents to over 70 cents per gallon on top of the federal 18.4 cents. State excise taxes on distilled spirits range from nothing to nearly $37 per gallon on top of the federal $13.50 per proof gallon.

Each level of government usually calculates its tax independently against the same base — gallons sold, proof gallons removed, units manufactured. A distributor selling 10,000 gallons of gasoline calculates federal tax at $1,840 and state tax separately at whatever rate that state uses, then adds them. Neither reduces the other’s base.

One exception is worth checking in your state. When a state imposes a percentage-based excise tax on a product whose price already includes a per-unit federal excise tax, the state’s percentage effectively applies to a base that contains the federal tax, producing a tax-on-tax effect. Whether that happens depends on how the state statute defines its base. On the federal side, keep the calculations on their own forms.

Where the Number Goes: Form 720 and Related Returns

Most federal excise taxes are reported on Form 720, the Quarterly Federal Excise Tax Return. It covers fuel, air transportation, communications, environmental (via Form 6627), retail taxes on heavy vehicles, ship passenger taxes, and more. Each tax type has an assigned IRS number, and you enter your calculated liability on the corresponding line. If you owe any tax reported on Form 720, you file every quarter, including quarters when the liability is zero.¹

The 2026 quarterly deadlines:

Quarter 1 (January–March): April 30, 2026
Quarter 2 (April–June): July 31, 2026
Quarter 3 (July–September): October 31, 2026
Quarter 4 (October–December): January 31, 2027

A deadline falling on a weekend or federal holiday shifts to the next business day.¹

Two other returns sit outside Form 720. Operators of highway vehicles with a taxable gross weight of 55,000 pounds or more file Form 2290 for the Heavy Highway Vehicle Use Tax. The annual tax period runs July 1 through June 30. For vehicles in use at the start of the period, the return is due by August 31. For vehicles first placed in service mid-year, the return is due by the last day of the month following the month of first use. Form 2290 requires an Employer Identification Number; a Social Security number will not work.⁸

Form 8849 goes the other direction. It is how you claim a refund of federal excise tax paid on fuel that was ultimately put to a nontaxable use — farming, off-highway business use, export, commercial fishing, and use by government entities or nonprofit schools among them. The refund per gallon mirrors the tax rate: $0.183 for gasoline used off-road, $0.243 for undyed diesel used off-road. Dyed diesel does not qualify because no federal excise tax was collected on it at the pump. The form has separate schedules for different claim types, and you will need fuel purchase and usage records tied to specific equipment.⁹¹⁰

Once the calculation lands on the correct line of the correct form, the arithmetic side is done. What remains is documenting the inputs: transaction prices for ad valorem taxes, and volume or quantity logs — bills of lading, shipping manifests, weight certificates, proof-gallon records — for specific taxes. Those inputs are what an auditor will ask to see, and they are what determines whether the number you calculated will stand.

1
Internal Revenue Service. Instructions for Form 720 – Quarterly Federal Excise Tax Return
2
Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax
3
Office of the Law Revision Counsel. 26 USC 5701 – Rate of Tax
4
Office of the Law Revision Counsel. 26 USC 5001 – Imposition, Rate, and Attachment of Tax
5
Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax
6
Internal Revenue Service. Superfund Chemical Excise Taxes
7
Internal Revenue Service. About Form 720, Quarterly Federal Excise Tax Return
8
Internal Revenue Service. E-file Form 2290
9
Internal Revenue Service. About Form 8849, Claim for Refund of Excise Taxes
10
Internal Revenue Service. Form 8849, Claim for Refund of Excise Taxes