An excise tax is a type of tax imposed on specific goods, services, and activities. It is usually levied at the moment of manufacture for internal consumption rather than at sale. Excise taxes are considered indirect taxes, meaning that the producer or seller who pays the levy to the government is expected to try to recover their loss by raising the price paid by the eventual buyer of the goods. Excises are typically imposed in addition to an indirect tax such as a sales tax or value-added tax (VAT) .
Some key points about excise taxes include:
- Excise taxes are assessed by federal and state governments on certain goods and services.
- They are paid by the merchants that sell them.
- 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.
- Excise taxes are often included in the cost of the product, meaning the end consumer doesn’t see the excise tax on their receipt.
- Excise taxes are commonly levied on items like cigarettes, alcoholic beverages, and gasoline.
- Excise taxes can be employed as Pigouvian taxes, or sin taxes, to price in externalities.
Examples of goods and services that may be subject to excise taxes include fuel, tobacco, alcohol, indoor tanning, tires, and highway usage.
