An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and make up a relatively small and volatile portion of state and local tax collections. Excise taxes are imposed on manufacture, sale, or consumption of commodities, and upon licenses to pursue certain occupations.
Federal dependence on excise taxes is down significantly since , when almost 20 percent of federal tax collections were from excise taxes. Today, excise taxes only make up about 3 percent of federal collections as individual and corporate income tax revenues have grown dramatically. The first excise tax levied in the U. The tax was unpopular and only survived until In the early years of the Republic, excise taxes served as a revenue tool related to wars and economic downturns.
Today, there are federal excise taxes on motor fuel, tobacco, and alcohol, among other goods, services, and activities, in addition to a wide range of state excise taxes. Excise taxes can be employed as Pigouvian taxes, or sin taxes, to price in externalities.
An externality, in economics terms, 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 reduce traffic congestion.
Excise taxes can also be employed as user fees. Because of the wide breadth of excise taxes, not all excise tax enforcement is conducted by the Internal Revenue Service. Rather, the Bureau of Alcohol, Tobacco, Firearms, and Explosives is responsible for the enforcement of all excise taxes on products within its jurisdiction, such as cigarettes. Accordingly, it frequently prosecutes black-market efforts to avoid excise taxes through under-the-counter trade of goods such as alcohol.
Other excise taxes, such as taxes on transportation-related activities, are enforced and collected by the Internal Revenue Service. Last reviewed October Tax Law Contents. Creation of Excise Taxes Excise taxes are generally passed either through congressional effort, or by state and local efforts to pass new tax laws.
This is apparent in many of the goods that are subject to excise taxes, which include: Cigarettes Whiskey Firearms Gasoline Indoor Tanning Relief from excise taxes can also be used to encourage the promotion of desirable behavior. Tax Law. Alternative Minimum Tax. Back Taxes and Tax Debts. The table below summarizes the excise tax rates for alcohol in all 50 states, as well as the District of Columbia. Different rates apply to different types of alcohol i. Federal excise tax rates on alcohol vary according to the alcohol type, proof and packaging unit.
For complete details, see here. The table below summarizes the excise tax rates for cigarettes in all 50 states, as well as the District of Columbia. National rankings range from one, indicating the highest tax, to 51, indicating the lowest. In , Pennsylvania levied the highest excise tax on gasoline at Meanwhile, California levied the highest total tax on gasoline at For more information, see here.
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