An excise duty, or excise tax, is a tax imposed on specific goods or services at the time they are manufactured, rather than at the point of sale. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction. Excise taxes are primarily taxes that must be paid by businesses, usually increasing prices for consumers indirectly.
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. For instance, excise taxes may be employed to reduce consumption of cigarettes or sugar-sweetened beverages, to curb pollution, or to reduce greenhouse gas emissions.
Excise taxes are assessed by federal and state governments on certain goods and services, and taxpayers include importers, manufacturers, retailers, and consumers. Examples of goods subject to excise taxes include fuel, tobacco, and alcohol. The revenue from these excise duties goes towards funding government programs and services.
