Excise taxes are levied at all levels of government. Revenues from such taxes are relatively small, albeit significant. In , excise taxes accounted for less than 10 percent of total federal tax revenues. Meanwhile, at the state level, excise taxes accounted for approximately 20 percent of total tax revenues. A notable feature of excise tax systems is that they can "promote social policy objectives while raising substantial revenues.
Opponents argue that the aforementioned "social policy objectives" should not be taken into account in the development of tax policy because "taxation should have a neutral effect on the market.
The tables below provide excise tax rates for motor fuel, alcohol and cigarettes in the 50 states as of The table below summarizes the excise tax rates for motor fuel in all 50 states, as well as the District of Columbia. Different rates apply to different types of fuel i. In , Pennsylvania levied the highest excise and total tax on gasoline at The total federal tax on gasoline is 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.
For example, if an excise tax on soda is justified by its high sugar content, then the tax should be on sugar in general to account for 1 other products with high sugar content and 2 the variable amount of sugar—and affiliated cost to society—in different sodas.
Aiming for the broadest base possible when designing excise taxes would allow for a lower rate, lowering their burden on low-income taxpayers. In effect, a higher price can act as a proxy for information, allowing a person to make a more informed decision while paying for the impact their choice imposes on others.
By understanding excise taxes as user fees or a price on externalities, lawmakers can more effectively achieve policy goals while minimizing the impact of regressive taxes. The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you.
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We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Develop and improve products. List of Partners vendors. An excise tax is a legislated tax on specific goods or services at purchase such as fuel, tobacco, and alcohol.
Excise taxes are intranational taxes imposed within a government infrastructure rather than international taxes imposed across country borders. A federal excise tax is usually collected from motor fuel sales, airline tickets, tobacco, and other goods and services. Excise taxes are primarily for businesses. Consumers may or may not see the cost of excise taxes directly. Many excise taxes are paid by merchants who then pass the tax on to consumers through higher prices. Merchants pay excise taxes to wholesalers and consider excise taxes in product pricing which increases the retail price overall.
Federal, state, and local governments have the authority to institute excise taxes. While income tax is the primary revenue generator for federal and state governments, excise tax revenue also makes up a small portion of total revenue. Excise taxes are primarily a business tax, separate from other taxes a business must pay, like income taxes. Businesses charging and receiving excise taxes are required to file Form Federal Excise Tax Return on a quarterly basis and include quarterly payments.
Merchants may be allowed deductions or credits on their annual income tax returns related to excise tax payments. Excise taxes can fall into one of two categories: ad valorem and specific. Ad valorem excise taxes are fixed percentage rates assessed on particular goods or services. Specific taxes are fixed dollar amounts applied to certain purchases.
In some cases, governments levy excise taxes on goods that have a high social cost, such as cigarettes and alcohol, and for this reason, these taxes are sometimes called sin taxes. Overall, the largest revenue-producing excise taxes in the U.
The Internal Revenue Service provides guidance on excise taxes in Publication
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