Excise taxes are how the United States government will generate funds specifically to fund certain programs, and one example of such a tax is known as the Oil Spill Liability Tax, or OSLT. This tax is very important because it provides money for the Oil Spill Liability Trust Fund, money which is applied to clean up and restore oil spills and the environment. It is, therefore, important for crude oil and petroleum product suppliers to understand reporting and filing taxes so as to be in compliance with federal regulations and avoid huge penalties.
What is Oil Spill Liability Tax?
The Oil Spill Liability Tax is a type of federal excise tax on crude oil and certain petroleum products.
The tax is primarily to finance the Oil Spill Liability Trust Fund (OSLTF), which covers expenses associated with cleaning up the oil spills and rehabilitating the environment. It is applied at $0.09 per barrel of crude oil received in U.S. refineries and imported into the United States. This amount will be changed again over time and there will be future inflations, so business entities have to stay up to date on any rate of inflations the IRS has announced.
Who Has to Pay the Oil Spill Liability Tax?
Businesses that refine, import, or engage in related crude oil and petroleum products have to pay the Oil Spill Liability Tax. Report and pay the Oil Spill Liability Tax by refiners who receive crude oil; importers who bring oil into the United States; and owners of crude oil moving between refineries.
Tax generally applies to
- Crude oil received at U.S. refineries
-U.S.-imported petroleum products - Refined products derived from crude oil (gasoline, diesel, jet fuel)
Important to remember that if your business does not import or refine crude oil in-house, still, the taxes will leak through if you are a part of the supply chain, so it is of utmost importance to conduct regular checks against these items.
Reporting and Payment Requirements
The Oil Spill Liability Tax shall be reported and paid through the IRS utilizing Form 6627, which is part of a larger overall report known as Form 720 for quarterly excise tax reporting. This Form 6627 deals with environmental taxes, among which is the Oil Spill Liability Tax. Businesses are supposed to file Form 6627 properly and timely in order not to commit a non-compliance error.
Some of the major reporting and filing tips for the Oil Spill Liability Tax are as follows.
- Reporting Schedule
Oil Spill Liability Tax is reported quarterly along with other excise taxes on Form 720. Filing deadlines are:
- April 30 for the 1st quarter
- July 31 for the 2nd quarter
- October 31 for the 3rd quarter
- January 31 for the 4th quarter
File or report too late and you may have additional penalties to pay – so it pays to have a tracking system set up which not only reminds you of these dates but can then also extract them to calculate the penalty amount payable.
2. Track Accurately Your Oil and Petroleum Product Transactions
To keep your Oil Spill Liability Tax correct, you would have to maintain records of crude oil received, oil imported, and any transfer between refineries. Maintaining all relevant records ensures that the correct amount is accounted for on Form 6627. These also help in an IRS audit because an IRS employee sees a detailed, legible record that serves as a good method to substantiate the tax filings.
3.Apply Form 6627 for Environmental Taxes
Form 6627 deals only with environmental taxes, such as the Oil Spill Liability Tax. This form, while technically filled out for the main Form 720, must be completed before submitting it along with the main form. Check the instructions on how to calculate and report so that nothing is missed on your return.
4.Awareness of Exemptions
There are also some exceptions with which a company may be exempt from paying oil spill liability tax. For instance, fuel usage of oil for certain kinds of vessels. The exportation of oil or petroleum products that do not take place within the United States can also qualify as an exemption. Finding out which exemptions apply to your company will save you much in liability.
- Make the Most of E-Filing for Accuracy and Convenience
The IRS encourages businesses to file Form 720 and Form 6627 using electronic media from its e-file system. E-filing opens the gate to a faster processing time and minimizes the factors of human errors. It also gives you an immediate acknowledgment that the IRS has received your forms, so you don’t have to worry about anything.
Common Filing Errors to Avoid
While seeming the process quite straightforward, many common errors can occur while doing the Oil Spill Liability Tax that may likely leave it incorrect, penalize you, or delay processing. Here are just a few of the errors:
- Miss a deadline on return: You miss a quarterly deadline. Penalties can be pretty hefty, interest on unpaid tax, or both. Mark down the deadlines on your calendar and create reminders for all the due dates so that you get it filed on time.
- Wrong Calculation: Ensure that you have applied the right tax rate for the Oil Spill Liability Tax. This tax rate is $0.09 per barrel. Any wrong calculation, based either on the tax rate used or the report submitted concerning the barrels, will, of course, raise the attention of the IRS.
- Failure to Consider Exemptions: There may be several exemptions that, when applied, can cut down the tax liability of a business. The very first step is to analyze all exemptions available and apply them wherever necessary.
- Poor Record Keeping: In the absence of proper records of oil transactions, it is practically impossible to compute and calculate the tax correctly. What is required is maintaining consistent record keeping for accurate filings so that there is a minimum possibility of undergoing audits.
The Oil Spill Liability Tax most probably does not ring a bell for many businesses, but it is an extremely important tax obligation for those businesses engaged in oil refining, importing or handling petroleum products.
Reporting and filing requirements of the OSLT must be understood to avoid becoming non-compliant and incurring penalties. Staying on top of deadlines, keeping accurate records, and having the proper forms can help businesses handle their oil spill liability excise tax obligations efficiently. The exemptions which apply to your business operation can also help in reducing tax liabilities-that is, reporting will be more effortless and less expensive.