Excise taxes are taxes imposed on specific goods, services, and activities. They are indirect taxes, meaning they are not paid directly by the consumer but are included in the price of the item. Excise taxes can be imposed by federal, state, and local governments and are not uniform throughout the United States. Some examples of goods subject to excise taxes include fuel, tobacco, alcohol, airline tickets, heavy trucks, highway tractors, indoor tanning, tires, and insurance premiums.
Excise taxes can be a flat tax amount, known as a specific excise tax, or a percentage of the cost of the good, known as an ad valorem excise tax. They may also be employed as Pigouvian taxes, or sin taxes, to price in externalities. An externality is the side effect or consequence of an activity that is not reflected in the cost of said activity. For instance, excise taxes may be employed to reduce consumption of cigarettes or sugar-sweetened beverages, to curb pollution, or to discourage other activities that have negative effects on society.
Excise taxes are primarily taxes that must be paid by businesses, usually increasing prices for consumers indirectly. They are assessed by federal and state governments on certain goods and services and are paid by the merchants that sell them. Compared to income, property, and general sales taxes, excise taxes constitute a fairly small portion of state revenues because they lack a broad base and are instead levied on only a few specific products.
