Excise tax overview

This section provides information to help you better understand excise taxes, including how they differ from sales and use tax.


What is the excise tax?	Excise taxes exist for products like tobacco, alcohol, and fuel. They're designed to deter people from buying products considered unhealthy and to generate revenue for the government. Excise taxes can be levied at the local, state, and federal level. In addition, products that are subject to excise tax can be subject to sales tax as well.
What's the difference between sales tax and excise tax?	There are 3 key differences between sales tax and excise tax: What's taxed Sales tax is charged on most goods and services. Excise tax only applies to specific goods and services like tobacco, alcohol, and fuel. How it's calculated Sales tax is calculated as a percentage of the item’s retail price. Excise tax can be applied at a per-unit rate, such as per pack or gallon. It can also be applied as a percentage of the item’s wholesale price. Where you see it Sales tax shows up on the end consumer’s receipt. The business collects sales tax from the consumer and pays it to the tax jurisdiction. Instead of appearing on the end consumer’s receipt, excise tax is usually included in the cost of the product. This is because the excise tax was already paid by the manufacturer and/or distributor.
Who pays excise tax?	The manufacturer, distributor, and/or wholesaler pays excise taxes when they sell the product. By the time the product makes it to the end consumer, the cost of the product includes the excise taxes. Therefore, excise taxes usually don’t appear on the consumer’s receipt.
State and local excise taxes	In addition to federal laws, most states and many localities have enacted their own excise taxes. When selling to a customer in a new tax jurisdiction, you need to comply with that jurisdiction's excise taxes and laws in addition to the federal rules.
How are products taxed?	Not only can products be defined differently in different places, taxes can also be levied in different ways. Excise taxes can be levied as a percentage of the item's price, by volume, or per unit sold. It all depends on the product and where it’s being sold.