Federal Oil Spill Tax: The Complete Guide

The Federal Oil Spill Tax is a tax imposed on both petroleum products and crude oil. It applies when petroleum products are imported into the United States for consumption, use, or storage in a warehouse, and when crude oil is received at a U.S. refinery.

The IRS categorizes this tax into two types:

• Domestic Petroleum Oil Spill Tax

• Imported Petroleum Products Oil Spill Tax

The Federal Oil Spill Tax is primarily collected to support the Oil Spill Liability Trust Fund (OSLTF), which currently holds approximately $1 billion. This fund is managed by the U.S. Coast Guard's National Pollution Funds Center (NPFC) under the Oil Pollution Act (OPA) of 1990.

• Oil Spill Response and Removal
  Covers costs for immediate cleanup actions, including federal/state response, monitoring, and foreign offshore discharges.

• State Support for Removal Activities
  Provides funds to states for localized response, enabling swift action and coordination with federal efforts.

• Natural Resource Damage and Restoration
  Funds assessments and restoration of ecosystems and habitats affected by spills.

• Uncompensated Claims
  Compensates individuals, businesses, and governments for removal costs, lost income, public service expenses, and property damage.

• Research and Administration
  Supports development of new spill response technologies and covers federal administrative costs.

• Fishermen and Aquaculture Assistance
  Offers financial aid to marine-dependent businesses impacted by spills to maintain economic stability.

• Legal and Regulatory Compliance

The Federal Oil Spill Tax rate is subject to periodic adjustments, often influenced by inflation or other economic factors. From January 1, 2021, through December 31, 2025, the tax rate is $0.09 per barrel.

In addition to petroleum and crude oil, several other products are also subject to the Oil Spill Tax, including:

The Federal Oil Spill Tax is paid by:

• Refiners and importers of petroleum products

• Companies handling crude oil, gasoline, and other petroleum-based goods

Businesses engaged in these activities are legally responsible for accurately calculating and paying the tax to ensure compliance with federal regulations.

There are two primary methods for paying the Federal Oil Spill Tax:

1. Traditional Paper Filing Method

• Download the latest version of Form 720 (Quarterly Federal Excise Tax Return).

• Since the Oil Spill Tax is classified under Environmental Excise Taxes, Form 6627 (Environmental Taxes) is also required.

• Fill out IRS Number 18 and IRS Number 21 on Form 720, as these sections apply to the oil spill tax.

• Complete all relevant sections on Form 6627 in detail.

• Mail the completed forms along with payment to the IRS mailing address specified in the form instructions.

2. Online Filing Method

• Use an IRS-authorized online portal such as efile720.

• This method streamlines the process by integrating the necessary sections from Forms 720 and 6627 into a single online interface.

• Fill in the required fields and submit your payment securely online.

• Filing is typically completed within a few minutes.

Yes, like many other federal taxes, the Federal Oil Spill Tax also has specific exemptions. These exemptions include:

Deposit Safe Harbor Rule: Avoid penalties by paying 90% of current-year tax or 100% of last year's; no penalty if under $1,000 owed after credits.

Ethanol Producer Exemption: No tax if natural gasoline used as denaturant was first received by a U.S. refinery.

Deductible Barrels: Barrels with paid OSPA fees may be deducted on CDTFA-501-OA returns (retain documentation for 4+ years).

Bonded Jet Fuel: Fuel for international flights is exempt from oil spill tax.

Oil Sands Exclusion: Crude oil from oil sands (e.g., tar sands, shale oil) is not subject to OSLTF tax.

Other Exemptions: Additional exemptions may apply under various federal and state tax provisions.

WRAP:

The Federal Oil Spill Tax plays a vital role in funding environmental protection and spill response efforts across the U.S. Understanding its purpose, payment process, and exemptions helps businesses stay compliant and minimize liabilities.

File your Federal Oil Spill Tax Online with eFile720 in a few minutes!