Tire Excise Tax: The Complete Guide

Federal Tire Excise Tax is a manufacturer's excise tax imposed under Internal Revenue Code (IRC) Section 4071 on certain highway tires sold by manufacturers, producers, or importers. The tax is calculated based on the tire's maximum rated load capacity exceeding 3,500 pounds, rather than its selling price.

Key Details of Federal Tire Excise Tax 

Federal Tire Excise Tax Rates

The IRS classifies taxable tires into three categories under Form 720. The applicable rate depends on the tire's construction and intended use.

The rates apply only to the portion of the maximum rated load capacity that exceeds 3,500 pounds per tire.

Refer to IRS Form 720 instructions to know the current tax rates.

The obligation to pay Federal Tire Excise Taxes is imposed on manufacturers, producers, or importers of tires under IRC Section 4071.

Tire Manufacturers: It is the duty of the manufacturer to report and pay the excise tax.

Tire Producers: Taxable tires’ manufacturers will be subject to tax for their sales unless an exemption applies to them.

Tire Importers: Those who import taxable tires to the United States will be liable for the tax except in rare circumstances. Importers of goods which include taxable tires are also liable to pay taxes according to the rules laid out in IRC Section 4071(c).

Do Retailers Pay Federal Tire Excise Tax?

In general, tire dealers are not expected to pay any federal tire excise tax if they sell tires that have already been taxed by the respective manufacturer or importer.

There are, however, some exceptions to this rule. These include:

- Manufacturers or importers of tires: Dealers who manufacture or import taxable tires must pay the federal tire excise tax.

- Manufacturers running retail outlets: As per IRC 4071(b), taxable tires transferred by manufacturers to their retail outlets must be taxed at the time of delivery to the store, and not at the time of sale.

Excise tax for the federal tire is determined using the load carrying capacity of each tire that falls under this excise tax category and the IRS tax rate. As per IRC Section 4071, the tax is imposed only on the load capacity of the tire above 3,500 pounds.

The process requires two calculations – the first one being calculating the excise tax for one tire and then multiplying this with the total number of tires.

Step 1: Calculate the Excise Tax Per Tire

The IRS establishes different tax rates for taxable tires under IRS Nos. 108, 109, and 113. Since these rates apply to every 10 pounds of maximum rated load capacity exceeding 3,500 pounds, businesses must first determine the tax applicable to an individual tire.

Formula 1: Tax Per Tire

Tax per tire = (Rated load capacity - 3500 / 10) x Tax rate

Rated Load Capacity: The maximum rated load capacity of the tire in pounds.

3,500 pounds: The load-capacity threshold excluded from taxation.

10 pounds: The unit used to calculate the applicable tax.

Tax Rate: The IRS-prescribed rate based on the tire category.

Only complete 10-pound increments of excess load capacity are taxable. Any remaining fraction of a 10-pound increment is disregarded. 

Step 2: Calculate the Total Tire Excise Tax

Once the tax per tire is determined, businesses can calculate their total excise tax liability by multiplying the applicable tax amount by the number of taxable tires sold.

Formula 2: Total Tire Excise Tax

Total Tax = Number of tires x Tax per tire

This formula applies when all tires being calculated have the same taxable category and maximum rated load capacity. If they differ, the tax must be calculated separately for each tire or group of identical tires and then added together. 

Example calculation for IRS No. 108 - Taxable tires other than bias ply or super single tires

Step 1 – Calculate the tax per tire 

(5500 - 3500/10) x $0.0945 = $18.90

Step 2 – Calculate the total tax for 100 tires 

100 x $18.90 = $1890

Therefore, the manufacturer's total federal tire excise tax liability for these 100 tires is $1,890.00, which must be reported under IRS No. 108 in Part I of Form 720 for the applicable quarter. 

Not all tires are subject to fFederal Tire Excise Tax. IRC Section 4073 and various IRS regulations provide an exemption for specific tires and transactions that meet certain criteria.

1. Retreaded or Recapped Tires

Tires which have been retreaded or recapped inside the country do not need to be charged with the tax if the tires were imported in the past and then classified as taxable tires.

2. Tire Carcasses Unsuitable for Commercial Use

Tire carcasses that are unsuitable for commercial use are exempt from federal tire excise tax.

3. Tires Used on Qualifying Buses

Tires used on qualifying intercity, local, or school buses are exempt, subject to IRS registration requirements.

Tires sold directly for the exclusive use of the U.S. Department of Defense or Coast Guard are exempt, subject to applicable IRS registration requirements.

5. Tires Used Exclusively on Mobile Machinery

Tires designed exclusively for use on mobile machinery are exempt. However, otherwise taxable highway tires do not become exempt simply because they are installed on mobile machinery.

6. Other Qualifying Tax-Exempt Sales and Credits

Certain qualifying transactions may receive tax-free treatment or qualify for a credit or refund of previously paid tire excise tax, including:

• Tires exported outside the United States.

• Tires sold for the exclusive use of state or local governments.

• Tires sold for the exclusive use of nonprofit educational organizations.

• Tires sold to qualified blood collector organizations for qualifying vehicles.

• Tires used or sold as supplies for vessels.

• Tires sold in connection with qualifying intercity, local, or school buses.

Important: Tax-free sales may require IRS registration and supporting documentation under IRC Sections 4221 and  IRC Sections 4222. Where tax has already been paid, eligible claimants may request a credit or refund through Form 720, Schedule C (Lines 14f–14h) or Form 8849 - Schedule 6, subject to IRS requirements.

How to Pay Tire Excise Tax?

Businesses report their Federal Tire Excise Tax obligations using Form 720 – Quarterly Federal Excise Tax Return. The IRS provides two filing methods: paper filing and electronic filing.

1. Online Filing (E-Filing Form 720)

Form 720 can be filed electronically through any IRS-authorized e-filer for filing Form 720 without printing and mailing the tax form.

Electronic filing is normally easier because it minimizes paper work, as well as providing businesses with electronic confirmation of their submission.

2. Manual Filing (Paper Form 720)

It is possible for companies to prepare Form 720 by hand and send it to the IRS through mail after including the information about the tax liability based on the number of tires liable to taxation. The IRS requires every business to file the excise taxes online.

Why Choose 720 Online Filing?

When it comes to the tax responsibilities of firms which need to make quarterly federal excise tax filings, there is a better way to file form 720 through e-filing.

This process will help save on paperwork, eliminate any delay caused by the postal service, and provide electronic submission of the form. However, the IRS also cites faster processing, fewer errors, and reliability as the advantages of e-filing.

Read our blog on 7 things to consider when you file your FET on tires